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1/10 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.194/2013
BETWEEN : 1. THE COMMISSIONER OF INCOME-TAX, CIT[A] C.R. BUILDING, QUEENS ROAD BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12[3] RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE.
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s. INTEGRAL INDIA SOFTWARE DEVELOPMENT CENTRE PVT. LTD., No.16/1, GROUND FLOOR CAMBRIDGE ROAD, HALASURU BANGALORE.
…RESPONDENT
(BY SRI S.SHARATH, ADV. FOR SRI K.K.CHYTHANYA, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 23.11.2012, PASSED IN ITA No.1196/BANG/2011, FOR THE ASSESSMENT YEAR 2007-08, ANNEXURE-D, PRAYING TO: i]. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW
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STATED THEREIN, ii]. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA No.1196/BANG/2011 DATED 23.11.2012, ANNEXURE-D, AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12[3], BANGALORE.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, Adv. for Appellants – Revenue. Mr. S.Sharath, Adv. for Mr. K.K.Chythanya, Adv. for Respondent – Assessee.
This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, Bangalore Bench ‘A’, Bangalore, in ITA No.1196/Bang/2011 dated 23.11.2012, relating to the Assessment Year 2007-08.
The appeal has been admitted on 02.09.2013 to consider the substantial questions of law raised in the memorandum of appeal in paragraph V.
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The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether the Tribunal was correct in holding that the telecommunication charges and expenses attributable to delivery of software outside India are required to be reduced from the export turnover as well as total turnover also, in the absence of any specific provisions to this effect when computing the deduction u/s. 10A of the Act?
Whether the Tribunal was correct in holding that 5% standard deduction should be extended to the assessee after quantification of the Arm’s Length Price when the proviso to Sub section 2 to Section 92C of the Act did not provide for such a deduction?”
Regarding first substantial question of law:- 4. The controversy is no longer res integra and is covered by the decision of the Division Bench of this Court in the case of M/s.Tata Elxsi Ltd., vs. Asst. Commissioner of Income Tax, decided on 20.10.2015 since reported in (2015) 127 DTR 0327 (Kar), which
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has been affirmed by 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:- “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
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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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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”.
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The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under: Regarding second substantial question of law:- “3.2 We have also heard the learned DR who has reiterated the contents of the DRP’s order. We have also considered the facts and materials on record including the decision of this Tribunal in the assessee’s own case for assessment year 2006-07. We find that for the assessment year 2006-07 in the case of the same assessee, the Tribunal had occasion to deal with the issue on identical facts and circumstances. On such facts and circumstances, the Tribunal, in its order dated 14.09.2011 cited supra [in which one of us was a party], restored the matter back to the file of the assessing authority with a direction to the AO and the DRP to follow the directions given in the case of M/s. Genisys Integrating Systems [India] Pvt. Ltd., cited [supra]. Following the same, we give a similar direction for this assessment year also. In other words, following directions are given to the AO/DRP:
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a] The operating revenue and the operating cost of the transactions relating to associated enterprises only shall be considered;
b] The comparables having the turnover of more than 1.00 crore but less than 200.00 crores only shall be taken into consideration.
c] All the information relating to comparable which are sought to be used against the assessee shall be furnished to the assessee.
d] To consider the objections of the assessee that relate to additional comparables sought to be adopted by the TPO and pass a detailed order, and
e] As regards the claim of plus or minus, the amended provisions of the Finance Act, 2012 may be kept in mind.”
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
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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: “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
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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 filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed. 57. 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
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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.”
In the circumstances, having heard the learned Counsel appearing for both the sides, we are of 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
NC.