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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 18TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.391/2015
BETWEEN:
PR. COMMISSIONER OF INCOME TAX C R BUILDINGS, QUEENS ROAD, BANGALORE 560001
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12(2), BANGALORE
...APPELLANTS
(BY SRI. E I SANMATHI, ADV.)
AND
M/S. NET APP INDIA PRIVATE LIMITED (FORMERLY NETWORK APPLIANCE SYSTEMS (INDIA) PRIVATE LIMITED) 3RD FLOOR, FAIR WINDS, BLOCK, EGL SOFTWARE, PARK, OFF INTERMEDIATE RING, ROAD, BANGALORE 560071 PAN: AABCN 4063A
... RESPONDENT
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:05/03/2015 PASSED IN IT(TP)A NO. 1480/BANG/2010, FOR THE
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ASSESSMENT YEAR 2006-2007 ANNEXURE -A. PRAYING TO: DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED:05/03/2015 PASSED BY THE ITAT, 'B' BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO. I.T(TP)A NO.1480/BANG/2010 FOR ASSESSMENT YEAR 2006-07 ANNEXURE - A, AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr.E.I.Sanmathi, Adv. for Appellants – Revenue.
This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, ‘B’ Bench, Bangalore, in IT [TP] A No.1480/Bang/2010 dated 05.03.2015 relating to the Assessment Year 2006-07.
This Appeal has been admitted on 12.02.2016 to consider the following substantial questions of law as framed by the Revenue in the Memorandum of Appeal:
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“ 1) Whether, the Tribunal is justified in law in directing the Assessing Officer to exclude leased line charges and traveling expenses incurred in foreign currency both from the Export turn over and total turnover for the purpose of computation of deduction under section 10A of the Income-tax Act without appreciating the fact that the statute allows exclusion of such expenditure only form the ETO by way of specific definition of export turnover defined in the Act and there is no specific provisions in section 10A warranting exclusion of the above expenses from the total turnover?
2) Whether on the facts and in the circumstances of the case the Tribunal is right in law rejecting comparables namely, Kals Information Systems Ltd, Tata Elxsi Ltd, Megasoft Ltd, Infosys Ltd, by following its earlier order and without appreciating that the reasoning’s of TPO/AO for adopting the said comparables which have been brought out in the TPO’s order?
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3) Whether on the facts and in the circumstances of the case the Tribunal is right in law rejecting the comparables such as Vishal Information Technologies Ltd, Glodstone Infratech Ltd, Datamatic Financial Services Ltd, Maple e-solutions Ltd and Nucleus Networth & GIS (India) Ltd (Asit C Mehta) without appreciating that TPO has chosen the same after application of mind and materials on record?”
Regarding Substantial Question No. 1: 3. The issue 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
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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.
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,
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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”.
The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue and Respondent-Assessee, has returned a finding as under: Regarding Substantial Question of Law No.2:
“10. As far as comparable Tata Elxsi Ltd., is concerned, the comparability of this company with that of the software service provider was considered by the Mumbai Bench of this Tribunal in the case of Logica Pvt. Ltd. IT (TP) 1128/Bang/2011 (AY 07-08)
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wherein on the aforesaid company, the Tribunal held as follows:- xxxxxxx
In view of the aforesaid decision, we hold that Tata Elxsi has to be excluded from the list of comparable chosen by the TPO.
As far as comparable company chosen by the TPO viz., Megasoft is concerned, only software services segment margin is to be taken as held by this Tribunal in the case of Trilogy E-business Software India Pvt. Ltd. (supra).
The relevant observations of the Tribunal are at paragraphs 24 to 38 of the order of the Tribunal in that case which reads as under:- xxxxxxxxx
Respectfully following the decision of the tribunal referred to above, we hold that the segmental margin for “Blueally Division” should alone be considered for comparability.”
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Regarding Substantial Question of Law No.3: 22. We have considered the rival submissions. As far as comparable companies chosen by the TPO viz., Maple e Solutions, Vishal Information Technologies Ltd., Goldstone Infratech Ltd. (Seg) and Datamatics Financial Services Ltd. (Seg.) being comparable companies chosen by the TPO, we find that the Hyderabad Bench of the ITAT in the case of HSBC Electronic Data Processing India Ltd. Vs. ACIT, ITA No.1624/Hyd/2010 by order dated 28.6.2013 considered comparability of these companies in the case of a company engaged in rendering IT enabled services to its AE similar to that of the Assessee in the present case. The tribunal held that the aforesaid companies are not comparable. The following were the relevant observations of the Tribunal.
xxxxxxxxxxxx
The facts and circumstances and the Assessment year for which the aforesaid
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companies were not considered as comparable are identical to the case decided by the Hyderabad Bench of ITAT and that of the case of the Assessee. Respectfully following the decision of the Hyderabad Bench of ITAT, we direct the TPO to exclude the aforesaid companies from the list of comparable while arriving at the arithmetic mean of comparable. The relevant grounds of appeal of the Assessee are allowed.”
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. The relevant portion of the Judgment is quoted below for ready reference: “Conclusion:
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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.
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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.”
In the circumstances, having heard the learned Counsel 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