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1/14 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.213/2015
BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE.
THE INCOME-TAX OFFICER, WARD -12(2), RASHTROTHANA BHAVAN, NRUPATHUNGA ROAD, BANGALORE-560001.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND: M/s. AT&T GLOBAL BUSINESS SERVICES INDIA P. LTD., (Formerly USI INTERNETWORKING SOLUTIONS P. LTD.,) BLOCK-A, GROUND FLOOR, SALARPURIA SOFTZONE, SY 80/1, 81/1 & 81/2. BELANDUR VILLAGE, VARTHUR HOBLI, BANGALORE-560 103. PAN: AACCA 9362N.
…RESPONDENT 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
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE IN IT(TP)A No.1417/Bang/2010 DATED 12/12/2014 ANNEXURE- D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-12(2), BANGALORE.
THIS I.T.A. COMING ON FOR ORDERS, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT Mr. K.V. Aravind, Adv. for Appellants-Revenue
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, ‘B’ Bench, Bangalore (for short ‘Tribunal’) dated 12.12.2014 passed in I.T(TP)A No.1417/Bang/2010 for the A.Y.2006-2007.
This appeal has been ADMITTED on 06.01.2016 to consider the following substantial questions of law framed by the learned counsel for the Appellants-Revenue.
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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“Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding Accel Transmatics Ltd., KALS Information Systems Ltd., Tata Elxsi Ltd., (seg) and Lucid Software Ltd., from the list of comparables holding that they are functionally different without appreciating that the comparables satisfy all the qualitative and quantitative filters applied by the TPO and that selection of comparables in a case depends on assessee specific FAR analysis?
Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding Accel Transmatics Ltd., KALS Information Systems Ltd., Tata Elxsi Ltd., (seg) and Lucid Software Ltd., relying on it’s own decision in assessee’s own case for assessment year 2007-08 wherein interalia, reliance was placed on the case of M/s.Trilogy E-Business Software India Pvt. Ltd., and not deciding the selection of the comparables on the basis of specific facts brought on record by the TPO?
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding M/s.Lucid Software Ltd., from the list of comparables relying on the decision of the Bangalore Tribunal in the case of M/s.Logica Pvt.Ltd., and not deciding the selection of the comparables on the basis of specific facts brought on record by the TPO?
Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding M/s.Tata Elxsi Ltd., (seg) from the list of comparables relying on the decision of the Bangalore Tribunal in the case of M/s. Aptean Software India Pvt. Ltd., wherein interalia, reliance was placed on the case of M/s. Telecordia Technologies India Pvt. Ltd., and not deciding the selection of the comparables on the basis of specific facts brought on record by the TPO?”
Whether on the facts and circumstances of the case, the Tribunal was correct in relying upon the decisions in the case of other assessees to reject the comparables without appreciating that selection of comparables in
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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a case depends on assessee specific FAR analysis and that the Tribunal ought to have decided the comparability of the companies on the basis of the specific facts brought on record by the TPO in the case of the assessee?
Whether, the Tribunal, on the facts and in the circumstances of the case was right in considering the comparables as engaged in software products business, merely because it has developed software products by following software development process, development services for its development, without have legal ownership on software products?
Whether, the Hon’ble Tribunal is justified in direction the assessing officer to recomputed the deduction under section 10A after reducing traveling expenditure of Rs.6,57,92,778/- incurred in foreign currency and telecommunication expenses of Rs.1,09,96,488/- from the total turnover also, without appreciating that there is no provision in section 10A that such expenses should be
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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reduced from the total turnover, as clause (iv) of the Explanation to section 10A provides that such expenses are to be reduced only from the export turnover and even when the decision of this Hon’ble Court has not reached finality and a SLP has been filed against such order on this issue in the case of Tata Elxi Ltd 349 ITR 98?”
The substantial question of law No.7 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:- “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
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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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.
XXXXXX
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.
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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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 Respondent-Assessee, has returned the findings as under: Regarding substantial question of law Nos.1 to 6:
“15. We have considered the submission of the learned counsel for the Assessee and we find that identical comparables chosen by the TPO in AY 07-08 in the case of the Assessee came up for consideration before the Hon’ble ITAT and the Tribunal held that the aforesaid comparable company chosen by the TPO is functionally different. The following were the
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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relevant observations of the Tribunal (Para 14 of the order).
KALS Information Systems Ltd.
xxxx
Accel Transmatic Ltd.
xxxx
xxxx
Respectfully following the aforesaid decision of the Tribunal in Assessee’s own case, we hold that the aforesaid 2 companies (listed at S.No.16 & of the list of comparable companies set out in the chart given in Annexure-1 of this order) should be excluded from the list of comparable companies. The AO is directed to compute the Arithmetic mean by excluding the aforesaid companies from the list of comparable.
The learned counsel for the Assessee brought to our notice that the comparable company chosen by the TPO at sl.No.11 of the list of comparable chosen by the TPO given as annexure-1 to this order viz., Lucid Software Limited has to be excluded as functionally not comparable with that of the assessee in view of the decision of the ITAT in Assessee’s own case for AY 07-08 in IT (TP) A.No.1273/Bang/2011
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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wherein the ITAT following the decision of the Mumbai Bench of the Tribunal in the case of Telcordia Technologies India Private Ltd. in ITA No.7821/MUM/2011, which was followed by the ITAT Bangalore Bench in the case of Logica Private Ltd. ITA No.1129/Bang/2011 for AY 07- 08, wherein it was held as under:-
Lucid Software Limited
xxxx
xxxx
xxxx
The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Logica Private Ltd., (supra). Respectfully following the decision of the Tribunal referred to above, we direct that the company listed at Sl.No.11 of the list of comparable companies chosen by the TPO and listed in para-9 of this order to be excluded from the list of 26 comparable arrived at by the TPO.
As far as comparable company at Sl.No.10 of the chart of comparable companies chosen by the TPO given as Annexure-1 to this order viz., M/S. Tata Elxsi Ltd. (Seg.) is concerned, it is not
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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in dispute before us that this company was regarded as not comparable with a software developer service provider like the Assessee in the case of M/S. Aptean Software India Pvt.Ltd. Vs. ITO ITA No.1285/Bang/2010 (AY 06-07) order dated 31.10.2014. The following were the relevant observations of the Tribunal.
xxxx
xxxx
Flextronics Software Systems Ltd.
xxxx
Tata Elxsi Limited.
xxxx
Respectfully following the aforesaid decision of the Tribunal, we hold that TATA Elxsi should be excluded from the list of comparables chosen by the TPO.”
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
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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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: “ 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
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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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 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
Date of Judgment 17-07-2018 I.T.A.No.213/2015 The Commissioner of Income-tax & Anr. Vs. M/s. AT & T Global Business Services India P. Ltd.,
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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.” 6. In the circumstances, having heard the learned Counsel appearing for the appellants-Revenue, 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.
Copy of this order be sent to the Respondent- assessee forthwith.
Sd/- JUDGE
Sd/-
JUDGE