Commissioner Of Income Tax & Another v. M/S Softtek India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 16 DAY OF JULY 2O18 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.126/2015 BETWEEN : 1.COMMISSIONER OF INCOME TAX, C R BUILDINGS, QUEENS ROAD, BANGALORE - 560 OO]. 2.INCOME TAX OFFICEHKWARD 12 (2),BANGALORE._. APPBLLANTS (BY SRI. E.]. SANMATHI, ADV. ) AND: M/S SOFTTEK INDIA PVT. LTD.,(FORMERLY KNOWN AS SYSTECK|INTEGRATORS INDIA) PVT. LTD.|OZONE MANAY TECH PARK,|A BLOCK, HOSUR MAIN ROAD,BANGALORE._. RESPONDENT (BY SRI.S.SHARATH, ADV. FOR SRIL.CHYTHANYA.K.K, ADV. ) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:|31/10/2014 PASSED IN ITA NO.222/BANG/2014, FOR THE.ASSESSMENT YBRBAR:2ZOO9-10 ANNEKEXURE - A PRAYING TO:1.DECIDE THE FOREGOING QUESTION OF LAW AND/ OR SUCH. Date of Judgment 16-07-2018, ITA No.126/2015 Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 2/12 OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY)HON'BLE COURT AS DEEMED FIT. 2. SEIT ASIDE JHEAPPELLATE ORDER DATED 31/10/2014 PASSED BY THEINCOME TAX APPELLATE TRIBUNAL, 'C'’ BENCH, BANGALORE,IN APPEAL PROCEEDINGS NO. LIT(TP)A. NO.222/BANG/2014—FOR ASSESSMENT YEAR:2009-10 ANNEXURE - A, AS SOUGHT|FOR IN THIS APPBRAL AND TO GRANT SUCH OTHBR RELIEF ASDEEMED FIT, IN THE INTEREST OF JUSTICE. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr.E.I.Sanmathi ,Adv. for Appellants — Revenue.Mr.S.Sharath,Adv. for Mr.Chythnya.K.K.,Adv. for Respondent — Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal,# $Bench, Bangalore, in|IT A No.222/Bang/2014dated. 01.10.2014relating to the Assessment Year|2009-10. 2. This Appeal has been admitted on|19.32.201 to consider the following substantial questions of law as. framed by the Revenue in the Memorandum of Appeal: Whether on the facts and in the|circumstances of the case, the Tribunal 1is Date of Judgment 16-07-2018, ITA No.126/2015 Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 3/12 rightinlawIn|holdingthatBodhtreeConsultingLtd., cannot.betreatedas|comparable being functionally different when|it satisfies all the qualitative and quantitative|futers applied by the TPO”? uy)Whether on the facts and in the|circumstances of the case, the Tribunal 1isright in law in referring the decision of other|Tribunal Benches to reject the comparable|withoutappreciatingthe|factthat|comparability analysis is case specific and it|cannot be transplanted from other cases? ut)Whether on the facts and in the|circumstances of the case, the Tribunal 1isright in law in holding that the reimbursement|of traveling, telecommunication expense and|foreign exchange loss are to be excluded bothfrom total turnover as well as from exportturnover for computation of deduction under|section 1OB without appreciating the fact thattheStatueallows|exclusionof|suchexpenditure only from the export turnover by|way of specific definition of export turnover as Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 4/12 envisaged in the Act and the case relied upon|by the Tribunal in the case of clIT V/s. TATAElsxi Ltd has not reached finality?”| Regarding Substantial Question No.3: 3. The controversy is no longerres integraand iscovered by the decision of the Hon’ble Supreme Court inthe case ofCommisstoner of Income-tax, Central — IIIvs. HCL Technologies Ltd., [2018] 93 Taxmann.com33(SC). The relevant portion of the judgment of theHon'blesupremeCourt1nthe.CaSE€ot HCL|Technologies Ltd. (supra),is quoted below for readyreference: - Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 4/12 envisaged in the Act and the case relied upon|by the Tribunal in the case of clIT V/s. TATAElsxi Ltd has not reached finality?”| Regarding Substantial Question No.3: 3. The controversy is no longerres integraand iscovered by the decision of the Hon’ble Supreme Court inthe case ofCommisstoner of Income-tax, Central — IIIvs. HCL Technologies Ltd., [2018] 93 Taxmann.com33(SC). The relevant portion of the judgment of theHon'blesupremeCourt1nthe.CaSE€ot HCL|Technologies Ltd. (supra),is quoted below for readyreference: - “17. The simular nature of controversy, akin|this case, arose before the Karnataka High CourtinCIT v. Tata Elxsi Ltd[2012] 204 Taxman321/17/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| Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. excluded from the total turnover tf the same arereduced from the export turnoverP While givingthe answer to the issue, the High Court, inter-alia,held that when a particular word is not definedby the legislature and an ordinary meaning 1s tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it isused. Hence, what is excluded from ‘exportturnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘totalturnover’1Sexportturnover.Anyotherinterpretation would run counter to the legislativeintent and would be impermissible. | LSE, XXXXXX 19. In the instant case, if the deductions on|freight,telecommunicationand|insuranceattributable to the delivery of computer softwareunder Section 10A of the IT Act are allowed onlyin Export Turnover but not from the TotalTurnover then, it would give rise to inadvertent,unlawful, meaningless and wulogical result whichwould cause grave injustice to the Respondentwhich could have never been the intention of thelegislature. 20. Even in common parlance, when the|object of the formula is to arrive at the profit from Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. export business, expenses excluded from exportturnover have to be excluded from total turnoveralso. Otherwise, any other interpretation makesthe formula unworkable and absurd. Hence, weare satisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell”. 4. The learned Tribunal, after discussing the rivalcontentions oT boththeAppellant-RevenueandRespondent-Assessee, has returned a finding as under:RegardingSubstantialQuestionofLaw| Nos. 182 “4,2 One of the companies, which has beentaken as a comparable by the TPO, is M/s. Bodhtree Consulting Ltd, the net margin ofwhich is 62.23%. The learned counsel for the|assessee submitted that this company 1s|functionally different as the assessee was.only into software development whereas|M/s.Bodhtree Consulting Ltd., was also intosoftware product development. He submittedthat this issue had been considered by|various benches of this Tribunal such as ‘A’| Date of Judgment 16-07-2018, ITA No.126/2015 Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 7/12 Nos. 182 “4,2 One of the companies, which has beentaken as a comparable by the TPO, is M/s. Bodhtree Consulting Ltd, the net margin ofwhich is 62.23%. The learned counsel for the|assessee submitted that this company 1s|functionally different as the assessee was.only into software development whereas|M/s.Bodhtree Consulting Ltd., was also intosoftware product development. He submittedthat this issue had been considered by|various benches of this Tribunal such as ‘A’| Date of Judgment 16-07-2018, ITA No.126/2015 Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 7/12 benchof|the|TribunalIn|IT(IP)No.271/ Bang/ 2014 dated 14.08.2014 in thcase of M/s Cisco Systems (India) Put. Ltd.,|vs. DCIT for the very same assessment year|1.e.YOOYI-1Oand|It LUGSheld|that|M/s.BodhtreeConsultingLtd 1Sin|thebusiness of software products and also was|engaged in providing open and end to end|web solutions software consultancy and|design & development of software using|latest technology. Thus the Tribunal has.held that M/s _ Bodhtree Consulting Ltdcannot be regarded as the comparable since|the assessee therein was only a software|development services company. The learned|counsel for the assessee has also placed|reliance upon the decision of the ‘B’ of the|Tribunal in IT(TP)A No.70/ Bang/ 2014 date21.8.2014 in the case of Mindteck (India) Ltd. Vs_DCTT|wheretnforthe|VeTY|SAIN assessment year 2009-10, the tribunal has|considered the fact that the profit margin of|the said company was fluctuating abnormally|between financial years 2003-04 and 2009-10 because of the revenue recognition model| Date of Judgment 16-07-2018, ITA No.126/2015 Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 8/12 followed by it and that it would be safe toexclude M/s Bodhtree Consulting Ltd, from|the final list of comparables chosen by the|assessee. Thus, according to the learned|counsel for the assessee, the facts of the case|beforeUS|beingsimular,M/sBodhtreeConsulting Ltd., has to be excluded from the|list of comparables in the assessee’s’ cCasealso.ThelearnedDepartmentalRepresentative, however, supported the|orders of the authorities below. 43Having regard to the contentions of therival parties and also the material on record,we find that the assessee is only a software|services company whereas M/s_ BodhtreeConsulting Ltd., is also into the business of|softwareproductdevelopmentand.segmented data is not available in the public.development and segmented data is_ notavailable in the public domain. Therefore, we|are satisfied that it is functionally differentand cannot be considered as a comparable tothe assessee- company. AS regards revenue| Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 9/12 recognition model of the assessee and M/s|Bodhtree Consulting Ltd., are concerned,since the relevqnt material to determine the|revenue model of the assessee herein is not|available on record, we are not inclined togive any finding on this issue. Therefore, wedirect the AO to exclude M/s.Bodhtree|Consulting Ltd., from the list of comparable as|it is functionally different.” oS. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inL.T.A.Nos.536/2015 c/w 537/2015dated.25.06.2018 (Prl.Commissioner of Income Tax & Anr. -v- M/s’Softbrands India Pvt. Ltd.,) Wherein it has beenobserved that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgmentis quoted below for ready reference: “Conclusion: Date of Judgment 16-07-2018, ITA No.126/2015 Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 10/12 oS. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inL.T.A.Nos.536/2015 c/w 537/2015dated.25.06.2018 (Prl.Commissioner of Income Tax & Anr. -v- M/s’Softbrands India Pvt. Ltd.,) Wherein it has beenobserved that unless the finding of the Tribunal is foundex facie perverse, the Appeal u/s. 260-A of the Act, isnot maintainable. The relevant portion of the Judgmentis quoted below for ready reference: “Conclusion: Date of Judgment 16-07-2018, ITA No.126/2015 Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 10/12 55.ASubstantialquantumof|international trade and transactions dependsupon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|substantial questionof|interpretationof|provisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the|Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Shares|in Tax Havens (like in the case of Vodafone|etc.), tf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof the Act, the Courts could have|embarked upon such exercise offraming 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, Futers for|arriving at the correct list of comparables|have been rightly applied or not, do not in our|consideredopinion, giveriseTo anysubstantial question of law. Date of Judgment 16-07-2018, ITA No.126/2015 Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 11/12 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|law.andthe|Suggested|substantial questions of law do not meet therequirements ofSection 260-A|of the Act andthus 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 cleqr that the sameyardsticks and parameters will have to beapplied, even tf 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|7s “Arm Length Price“in the case of the assesseeswith which the assessees may not be|satisfied and have filed such appeals beforethis Court. Therefore we clarify that mere|dissatisfaction with the findings of facts|arrived at by the learned Tribunal ts not at all|a sufficient reason to invoke.Section 260-Aof the Act before this Court. Date of Judgment 16-07-2018, ITA No.126/2015 Commissioner of Income Tax & another Vs. M/s Softtek India Pvt. Ltd. 12/12 o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” 6. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of lawarises for consideration in the present case. Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. — No costs. In. Sd/-.JU DGE Sd/-.JUDGE.