1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 16th DAY OF AUGUST 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON'BLE Mrs.JUSTICE S.SUJATHA [CASE NUMBER] BETWEEN: 1. PR. COMMISSIONER OF INCOME-TAX-6 BMTC COMPLEX KORAMANGALA, BANGALORE. 2. ASSISTANT COMMISSIONER OF INCOME-TAX CIRCLE-12(3), BENGALURU. APPELLANTS (By Mr. E.I. SANMATHI, ADV.) AND: M/S. SYNOPSYS INDIA P.LTD, RMZ INFINITY TOWER, A, 4TH AND 5TH FLOOR, NO.3, OLD MADRAS ROAD, BENNIGANAHALLI, BENGALURU-560016. PAN: AABCS8847D. RESPONDENT THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT & SET ASIDE THE APPELLATE ORDER DATED 07-07-2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT- Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY]., 2/12 ASSESSE'S CASE, IN APPEAL PROCEEDINGS IN IT (TP)A NO. 1169/BANG/2010 FOR A.Y.2006-07 (VIDE ANNEXURE-A) & GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE AND EQUITY & ETC. THIS I.T.A. COMING ON FOR ADMISSION THIS DAY, S. SUJATHA J. DELIVERED THE FOLLOWING:- JUDGMENT
Mr. [ENTITY], Adv. for Appellants- Revenue
1. The Appellants-Revenue have filed this appeal u/[SECTION] of the [ACT], raising purportedly certain substantial questions of law arising from the order of the ITAT, 'B' Bench, Bangalore, dated 07.07.2017 passed in [CASE NUMBER]/Bang/2010 (M/s.[PRECEDENT] for A.Y.2006-07.
2. The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:-
"1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in excluding items from the total turnover which Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY]., are excluded from the Export Turnover while computing the deduction under [SECTION] in view of the fact that the Term "Total Turnover" is not defined in [SECTION] of the Act and the said interpretation was relying on definition of total turnover as envisaged under [SECTION] of the Act?
2. Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in excluding M/s. Tata Elxsi Ltd (seg) and M/s.Infosys Technologies Ltd., as comparables on functional dissimilarity without appreciating in fact that transfer pricing is not an exact science and no two entities can be exact replies?"
3. Learned counsel for the Appellants-Revenue Mr.[ENTITY] submits that in so far as the first substantial question of law is concerned, the same is covered by the decision of the Hon'ble Apex Court in the case of [PRECEDENT].
Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY]., 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 [PRECEDENT] [PRECEDENT]. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under [SECTION] of the [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.
Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY].,
18. XXXXXX
19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under [SECTION] of the [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".
4. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:-
Regarding substantial question of law No.2:-
Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY]., " Infosys Ltd.
15. This company was chosen by the TPO and the assessee company contested before the TPO its inclusion on the functional difference.
However, the TPO rejected the contention as this company possesses all the filters applied by it. The ld. DRP also confirmed the findings of the TPO.
(i) Before us, learned AR of the assessee vehemently contested its inclusion on the ground that it is functionally dissimilar as it is engaged in both software service and products and no segmental information was available. It was further contended that it enjoys high brand value.
Therefore, this company cannot be compared with that of pure software Development Company. Reliance in this regard was placed on the decisions of the coordinate bench in the case of [PRECEDENT]; assessee's own case for assessment year 2005-06 in [CASE NUMBER]/Bang/2011; [PRECEDENT].
Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY].,
(ii) On the other hand, learned Departmental Representative placed reliance on the orders of the lower authorities.
(iii) We heard rival submissions and perused the material on record. The issue of comparability of this company with that of pure software development company has come up for consideration in the case of Cypress Semiconductor Technology India P. Ltd. (supra). The relevant paragraphs are extracted hereunder:
xxxxxxxxxxxxxxxxx Ld.CIT (DR) has not brought any material controverting the finding of the co-ordinate bench. Therefore, respectfully following the decision of the co-ordinate bench, we hold that this company cannot be compared with that of pure software Development Company. Therefore, we direct the TPO/AO to exclude this company from the list of comparables.
TATA ELXSI
16. Before us, learned AR of the assessee vehemently contested its inclusion on the ground that it is functionally dissimilar as it is engaged in both software services and products Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY]., and no segmental information was available. It was further contended that it enjoys high brand value and IP rights. Therefore, this company cannot be compared with that of pure software Development Company. Reliance in this regard was placed on the decisions of the coordinate bench in the case of Cypress Semiconductor Technology India [ENTITY]. vs. DCIT (ITA No. 1167/Bang/2010; assessee's own case for assessment year 2005-06 in [CASE NUMBER]/Bang/2011; [PRECEDENT].
(i) On the other hand, learned Departmental Representative placed reliance on the orders of the lower authorities.
Same as earlier
(ii) We heard rival submissions and perused the material on record. The issue of comparability of this company has come up for consideration in the case of Cypress Semiconductor Technology India P. Ltd. (supra). The relevant paragraphs are extracted hereunder:
xxxxxxxxxxxxxx Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY]., Therefore, respectfully following the decision of the co-ordinate bench, we hold that this company cannot be compared with that of pure software Development Company. Therefore, we direct the TPO/AP to exclude this company from the list of comparables".
6. However, this Court in a recent judgment in [CASE NUMBER] C/w [CASE NUMBER] delivered on 25.06.2018 ([PRECEDENT],) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under [SECTION] of the Act is not maintainable.
The relevant portion of the said 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 Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY]., been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the [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 [ENTITY] etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under [SECTION] 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] of the Act and thus the appeals Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY]., 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] 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 counsel for the Appellants-Revenue, 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 Date of Judgment 16-08-2018 [CASE NUMBER] [ENTITY] Vs. M/s. [ENTITY]., liable to be dismissed and it is dismissed accordingly. No costs.
Copy of this order be sent to the Respondent- Assessee forthwith.
JUDGE Sd/-
JUDGE Srl.