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1/13 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 17TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.80/2015
BETWEEN:
THE COMMISSIONER OF INCOME-TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE.
THE INCOME-TAX OFFICER, WARD -11(1), RASHTROTHANA BHAVAN, NRUPATHUNGA ROAD, BANGALORE-560001.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/s. AGILE SOFTWARE ENTERPRISE PVT. LTD., C/o. ORACLE INDIA PVT. LTD., DLF BUILDING, NO.8, TOWER C, GROUND & SECOND FLOOR, DLF CYBER CITY, DLF PHASE-11, GURGAON, HARYANA – 122 002. PAN:AACCP 4972D.
…RESPONDENT
(By Mr. PARTHA MANDAL, Mr. RAMESH. T ADVs.)
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE IN IT(TP)A No.1172/Bang/2010 DATED 26/09/2014 ANNEXURE- D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-11(1), BANGALORE & ETC.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants-Revenue Mr. Partha Mandal, and Mr. Ramesh T, Advs. for Respondent-Assessee
The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short ‘Act’) raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore (for short ‘Tribunal’) dated 26.09.2014 passed in I.T(TP)A No.1172/Bang/2010 for the A.Y.2006-2007.
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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The proposed substantial questions of law framed in the memorandum of appeal by the appellants- Revenue is quoted below for ready reference: “1. Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding the functions of the assessee are not comparable to the functions of Kals Information Systems Ltd, Accel Transmatics Limited, Lucid Software Limited, Tata Elxsi Ltd, by super imposing decisions of other benches of Tribunal without doing any FAR analysis in the instant case even when this comparables satisfies all the qualitative and quantitative filters applied by the TPO and the Tribunal ought to have decided comparability of these companies on the basis of specific facts brought on record by the TPO in the case of assessee?
Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that foreign exchange loss/gain is operating in nature without ascertaining the nexus of forex gain/loss with the business activity of the taxpayer and without appreciating that such loss/gain attributable to the operating activity is not derived from the operating activity and though they may
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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be incidental to the operating activity, they cannot be deemed as operating in nature since they are not critical to operational activities of the business conducted by the taxpayer?.
Whether on the facts and in the circumstances of the case, the Tribunal is right in deleting M/s. Megasoft Ltd, M/s. Geometric Software Ltd and M/s. Aztech Software Ltd as comparable by fixing the RPT filter at 15% of total revenue and by superimposing the decisions of Tribunal in other cases without going into specific facts in the case of the taxpayer and without adducing the basis for arriving at the 15% cut off for RPT filter, in the case of taxpayer?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the exclusion of telecommunication expenses of Rs.3,56,002/- only from export turnover by placing reliance on the decision of this Hon’ble Court in case of CIT V/s. Tata Elsxi even when the said decision has not reached finality and no such type of computation is prescribed under the I.T. Act as held in the said case?”
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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This appeal has been ADMITTED on 18.08.2015 to consider the substantial question of law Nos.1, 2 and 3 framed by the learned counsel for the Appellants-Revenue.
Mr.K.V.Aravind, learned counsel for the appellants-Revenue does not press the substantial question of law No.2. His submission is taken on record.
The substantial question of law No.4 is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-tax, Central – III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC). The relevant portion of the judgment of the Hon’ble Supreme Court in the case of HCL Technologies Ltd. (supra), is quoted below for ready reference:-
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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“17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from ‘export turnover’ must also be excluded from ‘total turnover’, since one of the components of ‘total turnover’ is export turnover. Any other interpretation would run counter to the legislative intent and would be impermissible.
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Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also.
Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well”.
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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Respondent-Assessee, has returned the findings as under: Regarding substantial question of law No.1:
“8.7 KALS Information Systems Ltd: The ld. AR submitted that this company was a software product company and could not be compared with that of the assessee. The assessee was a software services company and not a software product company. Reliance was placed on the decision of Trilogy e-business Software (I) Pvt. Ltd. (supra). As per the ld. AR, same view was taken in EMC Data (supra) also”.
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“8.7.2 We have perused the orders and heard the rival contentions. We find that KALS Information Systems Ltd. was considered as a software product company in both Trilogy e- business(supra) as well as EMC Data (supra). In these decisions, a host of companies, inter alia, including KALS Information Systems Ltd. were deliberated upon and held as under:-
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Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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8.9.2 We have heard the rival contentions. Whether Tata Elxsi Ltd. could be considered as a software development company was one of the issues which came up for consideration before this Tribunal in the case of EMC Data (supra), wherein it was held as under:-
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8.9.3 The assessee before us is not developing any niche product. As held by the coordinate Bench of the Tribunal (supra), Tata Elxsi Ltd. could not be considered as a software development company simplicitor. That Tata Elxsi Ltd. was functionally different, has been held by the coordinate Bench of the Tribunal in the case of Yodlee Infotech Pvt. Ltd. (ITA No.1397/Bang/2010 dated 15.2.2013) as well. We therefore direct that Tata Elxsi Ltd. be excluded from the comparables.”
Regarding substantial question of law No.3:
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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“9. Based on the above, we direct the AO to recomputed the Profit Level Indicator and work out the arithmetic mean margin of the comparables. Thereafter, the AO has to decide whether the PLI of the assessee is within +/- 5% range of the arithmetic mean of the comparables as set out u/s. 92C(2) of the Act and decide on the adjustment, if any, required on the ALP.”
Similarly, the Tribunal has considered and excluded the other comparables also.
The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A.Nos.536/2015 c/w 537/2015 dated 25.06.2018 [Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt. Ltd.,] wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference:
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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“ Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it 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
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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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 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.” 8. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of
Date of Judgment 17-07-2018 I.T.A.No.80/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Agile software Enterprise Pvt. Ltd.,
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the considered opinion that no substantial question of law arises for consideration in the present case.
Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/-
JUDGE