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1/12 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.114/2015
BETWEEN : 1. THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD BANGALORE
THE INCOME-TAX OFFICER WARD-11(1) RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE-560001
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s ACTIANCE INDIA PVT. LTD., (FORMERLY KNOWN AS FACE TIME COMMUNICATIONS INDIA PVT. LTD.) LE PARC RICHMONDE 51, RICHMOND ROAD BANGALORE-560025 PAN:AABCV2926N
…RESPONDENT
(RESPONDENT SERVED.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 17/10/2014 PASSED IN IT(TP)A NO.1295/BANG/2010, FOR THE ASSESSMENT YEAR 2006-2007 ANNEXURE-D.
Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd.
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PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN IT(TP)A NO.1295/BANG/2010 DATED 17/10/2014 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE INCOME TAX, WARD-11(2), 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.
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.1295/Bang/2010 dated 17.10.2014, relating to the Assessment Year 2006-07.
The appeal has been admitted on 18.08.2015 to consider the substantial questions of law No.1 to 3 as indicated in the memorandum of appeal. However, learned counsel for the Revenue seeks to consider all the substantial questions of law framed in the memorandum of appeal, which reads as under:
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“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding the functions of the assessee are not comparable to the functions of KALS Information Systems Ltd. and M/s Accel Transmission Limited by super imposing decisions of other benches of Tribunal without doing any FAR analysis in the instant case even when this comparables satisfies all the qualitative and quantitative filters applied by the TPO and the Tribunal ought to have decided comparability of these companies on the basis of specific facts brought on record by the TPO in the case of assessee?
Whether on the facts and in the circumstances of the case, the Tribunal is right in holding that foreign exchange loss/gain is operating in nature without ascertaining the nexus of forex gain/loss with the business activity of the taxpayer and without appreciating that such loss/gain attributable to the operating activity is not derived from the operating activity and though they may be incidental to the operating activity, they cannot be deemed as operating in nature since they are not critical to
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operational activities of the business conducted by the taxpayer?
Whether on the facts and in the circumstances of the case right in considering the comparables as engaged in software products business, merely because it has developed software products by following software development services for its development, without have legal ownership on software products?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the exclusion of telecommunication and travel expenses only from export turnover by placing reliance on the decision of this Hon’ble Court in case of CIT vs. Tata Elxsi even when the said decision has not reached finality and no such type of computation is prescribed under the I.T.Act as held in the said case?”
Regarding Substantial Question of law No.4: 3. The issue is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of
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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 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.
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 the findings as under:
Regarding Substantial Question of law No.1: “18. The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Trilogy E- Business Software India Pvt. Ltd., [supra]:-
“xxxxx”
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 Trilogy E- Business Software India Pvt. Ltd., [supra]. Respectfully following the decision of the Tribunal referred to above, we direct that the following companies be excluded from the list of 26 comparables arrived at by the TPO:-
a] KALS Information Systems Limited b] Accel Transmission Limited.”
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Regarding Substantial Question of law Nos.2 and 3: “20. As far as the comparable chosen by the TPO viz., TATA Elxsi is concerned, this Tribunal in the case of Yodlee Infotech Pvt. Ltd., Vs. ITO in ITA No.1538/Bang/2012 by its order dated 30.08.2013 held that this company is not functionally comparable with a software development service provider. The following were the relevant observations of the Tribunal in this regard.
“xxxxx”
In view of the above, the aforesaid company should also be excluded for the purpose of comparison while determining the ALP of the international transaction in question.
As far as the comparable chosen by the TPO viz., Megasoft Ltd., in the list of final comparables chosen by the TPO is concerned, this Tribunal in the case of Trilogy E-Business Software India Pvt. Ltd., [supra] had held that only segmental data of the said company should be taken for the purpose of comparison. Following are the relevant observations of the Tribunal:-
“xxxxx”
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In view of the aforesaid decision of the Tribunal, segmental margins in so far as it relates to providing software services by Megasoft alone should be taken for the purpose of comparison.”
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 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
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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. 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
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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 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.”
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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.
A copy of this order shall be sent to the Respondent-Assessee.
Sd/- JUDGE
Sd/- JUDGE
NC.