THE PR COMMISSIONER OF INCOME TAX vs. M/S E4E BUSINESS SOLUTIONS INDIA PVT LTD.,

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DATED THIS THE 28TH DAY OF JUNE 2018

PRESENT

THE HON'BLE Dr.JUSTICE VINEET KOTHARI

AND

THE HON’BLE Mrs.JUSTICE S.SUJATHA

I.T.A.No.469/2017

BETWEEN:

…APPELLANTS (BY Mr. K.V.ARAVIND, ADV.)

AND:

M/S. E4E BUSINESS SOLUTIONS INDIA PVT. LTD. 5TH FLOOR, VAKIL SQUARE, BANNERGHATTA ROAD BENGALURU-560 029 PAN:AAACI 6324A

…RESPONDENT (BY SRI A. SHANKAR, ADV.)

THIS I.T.A IS FILED U/S.260-A OF INCOME TAX ACT, 1961 PRAYING TO I) FORMULATE THE SUBSTANTITAL QUESTIONS OF LAW II) ALLOW THE APPEAL AND SET ASIDE

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THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO.1397/BANG/2016 DATED 13.01.2017 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE- 3(1)(2), BENGALURU ETC.

THIS I.T.A. COMING ON FOR FURTHER ORDERS, THIS DAY Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-

JUDGMENT

Mr. Aravind K.V. Adv. for Appellants-Revenue Mr. A.shankar, 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, ‘A’ Bench, Bengaluru, dated 13.01.2017 passed in IT(TP)A No.1397/Bang/2016 (M/s.e4e Business Solutions India P. Ltd. vs.Deputy Commissioner of Income Tax) for A.Y.2011-12.

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Appellants-Revenue are quoted below for ready reference:-

“(1) Whether, the Tribunal was right in fact and in law in excluding Accentia Technologies Ltd. Accropal Technologies Ltd., Infosys BPO Ltd., ICRA Online Ltd., Jeevan Scientific Technologies Ltd. and other comparable by following its earlier decision which has not reached finality and even when the transfer pricing officer has rightly chosen the said comparable in accordance with provisions of the Act?

(2) Whether on facts and in the circumstances of the case, the Tribunal erred in allowing holding that the telecommunication charges excluded from export turnover should also be excluded from total turnover by relying on the decision in the case of Tata Elxsi Ltd.?”

The controversy is no longer res integra and is covered by the decision of the Division Bench of this

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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 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 Division Bench in the case of M/s.Tata Elxsi (supra), is quoted below for ready reference:- “20. From the aforesaid provisions, it is clear that if a assessee wants to claim the benefit of Section 10A, firstly he must export articles or things or computer software. Secondly, the said export may be done directly by him or through other exporter after fulfilling the conditions mentioned therein. Thirdly, such an export should yield foreign exchange which should be brought into the country. If all these three conditions are fulfilled, then the object of enacting Section 10A is fulfilled and the assessee would be entitled to the benefit of exemption from

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payment of Income Tax Act on the profits and gains derived by the Undertaking from the export. 21. Clause 6.11 of Exim Policy dealing with entitlement for supplies from the DTA states that supplies from the DTA to EOU/EHTP/STP/BTP units will be regarded as ‘deemed export’, besides being eligible for relevant entitlements under paragraph 6.12 of the Policy. They will also be eligible for the additional entitlements mentioned therein. What is of importance is when a supply is made from DTA to STP, it does not satisfy the requirements of export as defined under the Customs Act. However, for the purpose of Exim Policy, it is treated as ‘deemed export’. Therefore, when Section 10A of the Act was introduced to give effect to the Exim Policy, the supplies made from one STP to another STP has to be treated as ‘deemed export’ because Clause 6.19 specifically provides for export through Status Holder. It provides that an EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through other exporter or Status holder recognized under this policy or any other EOU/EHTP/STP/BTP unit. What follows from this provision is that to be eligible for exemption from payment of

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income tax, export should earn foreign exchange. It does not mean that the undertaking should personally export goods manufactured / software developed by it outside the country. It may export out of India by itself or export out of India through any other STP Unit.

Once the goods manufactured by the assessee is shown to have been exported out of India either by the assessee or by another STP Unit and foreign exchange is directly attributable to such export, then Section 10A of the Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such export from payment of income tax. Therefore, the finding of the authorities that the assessee has not directly exported the computer software outside country and because it supplied the software to another STP unit, which though exported and foreign exchange received was not treated as an export and was held to be not entitled to the benefit is unsustainable in law. The substantial question of law is answered in favour of the assessee and against the revenue. The appeal is allowed. The impugned orders are set aside. The assessee is held to be entitled to deduction of such profits

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and gains derived from the export of the computer software. No costs”.

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 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

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interpretation would run counter to the legislative intent and would be impermissible.

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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 from the order of Tribunal rejecting the Application seeking a review before Tribunal as hereunder:- “Thus, the assessee has made out a case in its favour from the above decisions. Following them, the TPO is directed to exclude Accentia Technologies Ltd , Acropetal Technologies Ltd & Infosys BPO Ltd from the list comparables and the assessee’s corresponding appeal grounds are allowed.

From the above, it is clear that those whose functions are of High end services among the BPO, which require high skill can not be compared with the ITES/BPO functions performed by the assessee which are routine low end ITES functions. However, we find that the profile of ICRA Online Ltd (Seg) is not available although the assessee objected this case being included by the TPO on functional difference. In the facts and

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circumstances, this issue is set aside to the TPO who would readjudicate it in the light of the above decisions after affording due opportunity to the assessee. The corresponding appeal ground is treated as allowed for statistical purposes.

We have considered the rival submissions and gone through relevant material. Although, the assessee objected this case before the TPO, the TPO inter alia rejected stating that the assessee accepted this comparable in the earlier year. In the facts and circumstances, this issue is set aside to the TPO who would re-adjudicate it after affording due opportunity to the assessee. The corresponding appeal ground is treated as allowed for statistical purposes.

D. High Turnover of Rs.1,184.55 crores. We have considered the rival submissions and gone through relevant material. Although, the assessee objected this case before the TPO, the TPO inter alia , rejected it stating that iGate Global Solutions Ltd considers all services under ITES. In the facts and circumstances, this issue is set aside to the TPO who would re-adjudicate it after affording due opportunity to the assessee. The corresponding appeal ground is treated as allowed for statistical purposes.”

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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

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(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 filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.

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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.” 7. 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 liable to be dismissed and it is dismissed accordingly. No costs.

Sd/- JUDGE

Sd/- TL

JUDGE