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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 10TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.141/2013
BETWEEN:
The Commissioner of Income- Tax, C.R. Building, Queens Road, Bangalore.
The Dy.Commissioner of Income- Tax, Circle-11(2), Rashtrothana Bhavan, Nrupathunga Road, Bangalore.
…APPELLANTS (By Mr. Aravind K.V. Advocate)
AND:
M/s. 24/7 Customer.Com Pvt. Ltd., Embassy Golf Link, Business Park, Challaghatta Village, Intermediate Ring Road, Varthur Hobali, Bangalore South Taluk, Bangalore – 560 005.
…RESPONDENT (By Mr. Sandeep Huilgol for Mr. T. Suryanarayana, Advocate)
Date of Judgment 10-07-2018 I.T.A.No141/2013
The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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This I.T.A is filed u/s.260A of Income Tax Act 1961, praying to (a) Formulate the substantial questions of law stated therein, (b) allow the appeal and set aside the orders passed by the ITAT, Bangalore in ITA No. 227/Bang/2010 dated 09-11-2012 Annexure D; and confirm the order of the Appellate Commissioner confirming the order passed by the Deputy Commissioner of Income Tax, Circle -11(2), Bangalore.
This I.T.A. coming on for Admission this day, S. SUJATHA J. delivered the following:-
JUDGMENT
Mr. K.V. Aravind. Adv. for Appellants - Revenue Mr. Sandeep Huilgol for Mr.T.Suryanarayana, Adv. for Respondent-Assessee
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, Bengaluru Bench ‘A’, Bengaluru, dated passed in ITA No.227/Bang/2010 (24/7 Customer Com Pvt. Ltd.,, vs. Dy.Commissioner of Income Tax ) for A.Y.2004-05.
Date of Judgment 10-07-2018 I.T.A.No141/2013
The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:- “ (1) Whether the Tribunal was correct in directing to exclude the comparables from the list of related party transactions or controlled transactions in excess of 15% of the total revenues for financial year 2003-04, ignoring the Transfer Pricing Officer’s finding that the basis for determining the threshold limit for eliminating companies having related party transactions more than 25% was through the determination of Indian companies with foreign share holding greater than 26% and having a basis in the Act and AS18 and recorded a perverse finding?
(2) Whether the Tribunal was correct in excluding M/s. Tricom India Limited and M/s. Fortune Infotech Limited from the list of comparables holding that brand of the company is a deciding factor for treating a company as a comparable, ignoring the fact that brands gives business and not compulsorily generate profits and further ignoring the tax payer itself has adopted companies having brand values in its
Date of Judgment 10-07-2018 I.T.A.No141/2013
The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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comparability analysis and recorded a perverse finding?
(3) Whether the Tribunal was correct in excluding M/s. Vishal Information Technologies from the list of comparables on the ground that the said company has outsourced its work without taking into consideration that, the Transfer Pricing Officer nor the assessee considered the financial lines within the IT enabled services for the purpose of comparability analysis and recorded a perverse finding”?
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to ‘Transfer Pricing’ and ‘Transfer Pricing Adjustments’ made by the concerned authorities below. We consider it appropriate to quote the relevant portions hereunder:- “ 13.0 RELATED PARTY TRANSACTIONS
In respect of the ground raised at S.No.1 regarding acceptance of comparable companies
Date of Judgment 10-07-2018 I.T.A.No141/2013
The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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having related party transactions as proposed by the TPO, the learned counsel for the assessee argued that the transfer pricing regulations do not stipulate any minimum limit of related party transactions which form the threshold for exclusion as a comparable. In this regard, the learned counsel for the assessee objected to the TPO’s setting a limit of 25% on related party transactions. He objected to the inclusion of comparables being related party transactions in excess of 15% of sales/revenue. In support of this proposition, the learned counsel for the assessee placed reliance on the decision of the Hon’ble Bench of the ITAT, Delhi in the case of Sony India (P) Ltd. reported in 2008-TIOL-439-ITAT-Delhi dt.23.12.2008. The learned counsel for the assessee drew our attention to para 115.3 of the order wherein the Tribunal has held that -
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Respectfully following the decision of the Tribunal in the case of Sony India (P) Ltd (supra,) the Assessing Officer/TPO are directed to exclude after due verification those comparables from the list with related party transactions or controlled transactions in excess of 15% of total revenue for the financial year 2003-04.
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The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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15.3.3 In respect of M/s. Tricom India Ltd., the learned counsel for the assessee contended that it has registered an abnormal growth of 33% increase in PAT in the relevant period due to the fact that it has developed its unique software to provide BPO services to its customers. The learned counsel for the assessee referred to the Annual Report of this comparable, wherein it is mentioned that it does specialized services such as Title Plant maintenance and Electronic Data discovery which gives it an edge over other Indian Company competition thereby enabling it to generate higher revenues and margins. It was also submitted by the learned counsel for the assessee that it has a process of continuous in house R & D process for up gradation of software and training its professionals to develop its own software to cater to the needs of its clients.
On appraisal of the submissions and the material on record, it would certainly stand to reason that a company having unique software developed in house which also renders specialized services in its area of specialization gets that sort of competitive edge that gives it an advantage. Applying the principle that companies which are on similar standards only should be
Date of Judgment 10-07-2018 I.T.A.No141/2013
The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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taken as comparables, we hold that this company which has unique intangibles cannot be taken as a comparable for the assessee and accordingly direct the Assessing Officer/TPO to exclude it from the list of comparables in this case.
15.3.4 M/s. Fortune Infotech Ltd.
The learned counsel for the assessee contended that this company was using web based software, unique technology and technical know how imported from its business partner for providing BPO services and submitted letter dt. 11.9.2012, enclosing web site extracts detailing the intangibles developed by this company.
On perusal of the details furnished and submission made, it is seen that tshis company has developed its own software called “Finetran”and “image index” for performing specialized services in medical transcription and patient record management. On appraisal of the same, we are of the opinion that this comparable company has developed unique software from which it would derive substantial benefits/advantages when compared with the assessee which is undertaking pure call centre services. Applying the principle that companies
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The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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which are on similar standards only should be taken as comparables, we hold that this company which has unique intangibles cannot be taken as a comparable for the assessee and accordingly direct the Assessing Officer/TPO to exclude it from the list of comparables in this case.
17.3 Vishal Information Technologies Ltd. (VIT) – In the case of this comparable, we find that the Mumbai Tribunal in the case of Mearsk Global Services (I) Pvt Ltd in ITA No.3774/Mum/2011 by order dt.9.11.2011 has held that since Vishal Information Technologies Ltd is outsourcing most of its work it has to be excluded from the list whereas the assessee in the cited case was carrying out the work by itself. In the instant case of the assessee also the assessee was carrying out its work by itself whereas in the case of VITL, it is outsourcing most of its work. We are therefore of the considered opinion that the decision of the ITAT, Mumbai in the cited case on the issue of excluding VITL as a comparable squarely applies. This decision was followed by the decision of the co-ordinate bench of this Tribunal in the case of Netlinx India (P) Ltd in ITA No.454/Bang/2011 dt.19.10.2012 wherein it was held that Vishal Information Technologies Ltd cannot be
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The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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considered as a comparable. We, therefore, respectfully following the decision of the Mumbai Tribunal in the case of Mearsk Global Services (I) Pvt Ltd, direct the Assessing Officer/TPO to exclude Vishal Information Technologies Ltd. from the list of comparables”.
This Court in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable. The relevant portion of the said judgment is quoted below for ready reference: “ Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it
Date of Judgment 10-07-2018 I.T.A.No141/2013
The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals
Date of Judgment 10-07-2018 I.T.A.No141/2013
The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an ‘Arm’s Length Price’ in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Having heard the learned counsels for the parties, we are therefore of the opinion that no substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is
Date of Judgment 10-07-2018 I.T.A.No141/2013
The Commissioner of Income-Tax, & Anr.
Vs. M/s. 24/7 Customer.Com Pvt. Ltd.,
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liable to be dismissed and it is dismissed accordingly. No costs.
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