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1/14 IN THE HIGH COURT OF KARNATAKA, BENGALURU
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. 349/2017
BETWEEN:
THE PR. COMMISSIONER OF INCOME TAX CIT(A), 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU – 560 095.
THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(4), PRESENT ADDRESS, CIRCLE - 3(1)(2), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU – 560 095.
...APPELLANTS
(BY SRI.ARAVIND K.V., ADV.)
AND:
M/S HEWLETT PACKARD GLOBAL SOFT PVT. LTD., TH CONSULTING (INDIA) PVT. LTD., 39/40, ELECTRONICS CITY, PHASE - II, HOSUR ROAD, BENGALURU - 560100. PAN : AAACD 4078L.
... RESPONDENT
Date of Judgment 28-06-2018, ITA No.349/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Hewlett Packard Global Soft Pvt. Ltd.
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(BY SMT : TANMAYEE RAJKUMAR, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:26/08/2016 PASSED IN IT(TP)A NO.471/BANG/2013, FOR THE ASSESSMENT YEAR 2008-2009. PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BENGALURU IN IT(TP)A NO.471/BANG/2013 DATED:26/08/2016 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(2), BENGALURU.
THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. ARAVIND.K.V., Adv. for Appellants – Revenue. Ms. TANMAYEE RAJKUMAR, 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, Bangalore Bench ‘B’, Bangalore, dated 26.08.2016 passed in IT(TP)A No.471/Bang/2013 (Dy. Commissioner of Income Tax – v- M/s.Hewlett Packard Global Soft Pvt. Ltd. vs.) for A.Y.2008-09.
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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 in the facts and circumstances of the case, the Tribunal is right in law in directing the assessing officer to re-calculate the deduction allowable to the assessee under section 10A of the Act by reducing the total turnover also by the same amount by which export turnover was reduced by the assessing officer in respect of foreign currency expenses incurred towards technical services rendered outside India, without appreciating the fact that there is no provision in Section 10A that such expenses should be reduced from the total turnover also, as clause (iv) of the Explanation 2 to Section 10A provides that such expenses are to be reduced only from the export turnover ?
Whether on the facts and in the circumstances, the Tribunal in case of TH Consulting (India) Pvt. Ltd is right in law in
Date of Judgment 28-06-2018, ITA No.349/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Hewlett Packard Global Soft Pvt. Ltd.
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holding that Aptico Ltd, Chowksi Laboratories Ltd and Wapcos Ltd are to be excluded from the list of comparables chosen by TPO on the ground of functional dissimilarity without doing any FAR analysis of the assessee with those other cases and without appreciating that comparability of these companies on the basis of specific facts brought on record by the TPO in the case of the assessee ?
Whether on the facts and in the circumstances, the in the case of Tribunal in the case of Relq Software Pvt. Ltd, is right in law in excludig comparables namely, Avani Cincom Technologies Ltd, Celestial Biolabs Ltd, Tata Elxsi Ltd, Wipro Ltd, LGS Global Ltd, E-Zest Solutions Ltd and Kals information Systems Ltd on the ground of functional dissimilarity by following its earlier order in case of assessee itself even when said order has not reached finality and without doing any FAR analysis of the assessee with those other cases and without appreciating that comparability of these companies on the basis of specific facts brought
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on record by the TPO in the case of the assessee ?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding comparables namely, Flextronics Software Systems Ltd and Gate Global Solutions Ltd on the ground of having turnover of more than 10 times of the assessee by following its earlier order even when said order has not reached finality ?” .
Regarding substantial question of law No.1:-
Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the 1st substantial question of law, as the issue regarding deduction of expenditure incurred for ‘Export Turn Over’ is also required to be deducted from ‘Total Turn Over’ for the purpose of computing the deduction u/s.10A of the Act, the controversy is no longer
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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 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
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would be entitled to the benefit of exemption from 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
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be eligible for exemption from payment of 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
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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. 20. 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”.
Regarding substantial questions of Law Nos. 2 to 4 :-
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Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the substantial questions of law Nos. 2 to 4. Learned counsel further submits that inadvertently name of the comparable case was wrongly mentioned. Hence, he has filed a memo to consider the case of M/s RITES Limited. His submission is recorded.
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- 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.
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The relevant portion of the aforesaid 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 picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or
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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 at all a sufficient reason to invoke Section 260-A of the Act before this Court.
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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 liable to be dismissed and it is dismissed accordingly. No costs.
Sd/- JUDGE
Sd/- JUDGE
ln.