Date Of Judgment 04-07-2018 I.t.a v. M/S. Software Ag Bangalore Technologies Pvt Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 4 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.189/2016 BETWEEN: 1.PR. COMMISSIONBR OF INCOME TAX-6| C.R. BUILDINGS, QUEENS ROAD BANGALORE. OoDBPUTY COMMISSIONER OF INCOME TAX. CIRCLE 12(3), BANGALORE... APPBLLANT (By Mr. SANMATHI E.I. ADV.) AND: M/S. SOFTWARE AG BANGALORETECHNOLOGIES PVT LTD.,BRXORA BUSINBSS PARKWING B, 1 FLOOR, ELECTRAMARATHAHALLI — SARJAPUROUTER RING ROADBANGALORE -560 103. .. RESPONDENT (By Ms. SUJATHA D, ADV., FORMr. MALLAHARAO K, ADV..,) THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, PRAYING TO DECIDE THE FOREGOINGQUESTIONS OF LAW AND/OR SUCH OTHER QUESTIONS OF.LAW AS MAY BR FORMULATBED BY THR HON’BLE COURT ASDBEMBD FIT AND SHIT ASIDE THE APPELLATE ORDER DATED Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 2/10 04/09/2015 PASSED BY THE ITAT, ‘B’ BENCH, BENGALURU, AS.SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'’S CASE, IN|APPEL PROCEEDINGS IN IT(TP)A No.1343/Bang/2014 FOR A.Y..2009-10 ANNBXUREBE-A & GRANT SUCH OTHBR RELIEF ADEEMED FIT, IN THE INTERST OF JUSTICE. THIS LT.A. COMING ON FOR HEARING, THIS DAY | DR. VINEET KOTHARIJTY DBELIVE RED THR FOLLOWING JUDGMENT Mr. Sanmathi EI.Adv. for Appellants-Revenue Ms. Sujatha D, Adv. for Mr. Mallaharao K, Adv. for Respondent —Assessee| The Appellants-Revenue have filed this appeal u/s.260Aoft the!Income Tax Act, 1961, raising. purportedly certain substantial questions of law arising from the order of the.ITAT, ‘B’ Bench, Bangalore>.dated|04.09.2015passed in IT(TP)ANo.1343/ Bang/2014(The|Deputy Commissioner of Income Tax vs. M/s.Software AG Bangalore Technologies Pvt. Ltd.) forA.Y.2009-10 2. The proposed substantial questions of lawframed1n the Memorandum|ot appealby the. Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 3/10 Appellants-RevenueaTe€quotedbelowfor.ready reference: - “(1) Whether'ON.thefactsandin|thecircumstances of the case, the Tribunal wasjustified in law as well as facts in directing theTPO to apply the same principles as emergingfrom the orders of the Delhi & Bangalore Benchesof Tribunal in the case of SAP Labs India Put. Ltd.,& Haworth India Put. Ltd.,? (2)WhetherOTFthe factsandin|the circumstances of the case, the Tribunal wasjustified in holding that the size and turnover ofthe company are deciding factors for treating acompany as a comparable and consequently erredin excluding O2 companies, out of 11 companiesas comparables in the case of the assessee?r (3) Whether on the facts and in the circumstancesof the case, the Tribunal was justified in holdingthat few companies are functionally different fromthe assessee when it satisfies all the qualitativeand quantitative filters applied by the TPO. Thetribunal had used a narrower functionality filterthanthe.TPO, buthad.not|testedother| Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 4/10 comparables against the narrower functionalityfilter applied byit. ?” (4)WhetherON.thefactsandin|thecircumstances of the case, the Tribunal wasjustified in law in directing the Assessing Officer’to exclude reimbursement of certain expenditureincurred in foreign currency, both from the ExportTurnover and Total Turnover, without appreciatingthe fact that the statue allows exclusion of suchexpenditure expressly only from the ExportTurnover by way of specific definition of exportturnover defined in the Act, while there is noSpecific provision is Section 1IOA warrantingexclusion of the above expenses from the TotalTurnover?” 3The appeal was ADMITTED by the cognate Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 4/10 comparables against the narrower functionalityfilter applied byit. ?” (4)WhetherON.thefactsandin|thecircumstances of the case, the Tribunal wasjustified in law in directing the Assessing Officer’to exclude reimbursement of certain expenditureincurred in foreign currency, both from the ExportTurnover and Total Turnover, without appreciatingthe fact that the statue allows exclusion of suchexpenditure expressly only from the ExportTurnover by way of specific definition of exportturnover defined in the Act, while there is noSpecific provision is Section 1IOA warrantingexclusion of the above expenses from the TotalTurnover?” 3The appeal was ADMITTED by the cognate bench of this Court on|9091.10.20on the following substantial question of law Nos.1 to 3: “(1) Whether'ON.thefactsandin|thecircumstances of the case, the Tribunal wasjustified in law as well as facts in directing theTPO to apply the same principles as emergingfrom the orders of the Delhi & Bangalore Benches Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 5/10 of Tribunal in the case of SAP Labs India Put. Ltd.,& Haworth India Put. Ltd.,? (2)WhetherON.thefactsandin|thecircumstances of the case, the Tribunal wasjustified in holding that the size and turnover ofthe company are deciding factors for treating acompany as a comparable and consequently erredin excluding O2 companies, out of 11 companiesas comparables in the case of the assessee?r (3) Whether on the facts and in the circumstancesof the case, the Tribunal was justified in holdingthat few companies are functionally different fromthe assessee when it satisfies all the qualitativeand quantitative filters applied by the TPO. Thetribunal had used a narrower functionality filterthan|theTPO, buthad.NOT|testedothercomparables against the narrower functionalityfilter applied by it.P” 4The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and|the Respondent-assessee, has given the following|findings against Revenue with regard to various issuesraised before it with regard to.‘Transfer Pricing’and Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 6/10 ‘TransferPricingAdjustments’made.bythe concerned.authorities|below. Weconsider1T appropriate to quote the relevant portions hereunder: “21. We have considered the submissions ofthe ld. counsel for the assessee and are of the|view that in the light of Judicial precedentcited by the ld. counsel for the assessee,|turnover filter has to be applied in the present|case. The assessee’s turnover 1s PRs.32.84crores and the assessee cannot be comparedwith a company whose turnover is more than|200 crores as laid down in the decision|referred to above. Following the aforesaid|decision, we hold that the aforesaid 5|companies be excluded from the list of|comparable companies. D2.The ld. counsel then brought to ournotice that Bodhtree Consulting Ltd. and|KALS Information Systems Ltd. have been held tobe functionally not comparable with a companylike the assessee, which is purely a softwaredevelopment service provider. In thisregard, theld. counsel for the assessee drew our attention tothe ITAT Bangalore Bench decision in the case of Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 7/10 CISCOsystemsIndiq.Put.Ltd.,IT(TP)ANo.271/Bang/ 2014, order dated 14.8.2014. Inthis case for the AY 2009-10, the TribunalconsideredthecomparabilityofBodhtreeConsulting Ltd. as well as KALS Informationsystems Ltd, with a company engaged in theDuSINeSSofsoftwaredevelopmentServices.Following were the relevant observations of theTribunal:- XXXXX Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 7/10 CISCOsystemsIndiq.Put.Ltd.,IT(TP)ANo.271/Bang/ 2014, order dated 14.8.2014. Inthis case for the AY 2009-10, the TribunalconsideredthecomparabilityofBodhtreeConsulting Ltd. as well as KALS Informationsystems Ltd, with a company engaged in theDuSINeSSofsoftwaredevelopmentServices.Following were the relevant observations of theTribunal:- XXXXX YS.Following the aforesaid decision of theTribunal in the case of an assessee similarlyplaced with that of the assessee in the presentcase, we are of the view that Bodhtree ConsultingLtd. and KALS Information Systems Ltd. shouldbeexcludedfromthe|listofcomparablecompanies for the purpose of determining theALP. It is also relevant to point out that in thecase of CISCO Systems India Put. Ltd. (supra), thevery same 11 companies had been chosen by theTPO as comparables, thereby making it clear thatthe assessee in the present case and CISCOsystems India Put. Ltd. have the same businessprofile. ~ Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 8/10 5This Court in|ITA No.536/2015 C/w ITA. No.537/2015delivered OT] 25.06.2018 | (Pri. Commissioner of Income Tax & Anr. Vs. | M/s. Softbrands India Put. Ltd.,)| has held that inthese type of cases, unless an|ex-facle-perversity in thefindings of the learned Income Tax Appellate Tribunal is"established by the appellant, the appeal at the instanceot an assessee or the Revenue under|Section 260-Aot.the Act is not maintainable and the relevant portion ofthe said judgment is quoted below for ready reference: §— Conclusion: 038. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|OmCaASeofSubstantialquestionofinterpretation of provisions of Double TaxationAvoidance Treaties (DIAA), interpretation ofprovisions of the Income Tax Act or OverridingEffectofthe TreatiesOVEeCtheDomestic.Legislations or _ the questions like TreatyShopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like in Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 9/10 the case of Vodafone etc.), if based on relevantfacts, such substantial questions of law couldbe raised before the High Court underSection 260-A|of the Act, the Courts could haveembarked upon such exercise of framing and)answering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the consideredopinion that the present appeals filed by theRevenue do not give rise to any substantialquestion of law and the suggested substantialquestions of law do not meet the requirements ofSection 260-A.of the Act and thus the appealsfiled by the Revenue are found to be devoid ofmerit and the same are liable to be dismissed. | 57. We make it clear that the same|yardsticks and parameters will have to beapplied, even tf such appeals are filed by theAssessees, because, there may be cases wherethe Tribunal giving its own reasons and findingshas found certain comparables to be good Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 10/10 comparables to arrive at an‘Arm’s LengthPrice“in the case of the assessees with whichthe assessees may not be satisfied and have filedsuch appeals before this Court. Therefore weclarify that mere dissatisfaction with the findings|offacts arrived at by the learned Tribunal is notat all a sufficient reason to invokeSection 260-Aof the Act before this Court. 57. We make it clear that the same|yardsticks and parameters will have to beapplied, even tf such appeals are filed by theAssessees, because, there may be cases wherethe Tribunal giving its own reasons and findingshas found certain comparables to be good Date of Judgment 04-07-2018 I.T.A.No.189/2016 Pr. Commissioner of Income Tax-6 & Anr. Vs. M/s. Software AG Bangalore Technologies Pvt Ltd., 10/10 comparables to arrive at an‘Arm’s LengthPrice“in the case of the assessees with whichthe assessees may not be satisfied and have filedsuch appeals before this Court. Therefore weclarify that mere dissatisfaction with the findings|offacts arrived at by the learned Tribunal is notat all a sufficient reason to invokeSection 260-Aof the Act before this Court. o8. The appeals filed by the Revenue aretherefore dismissed with no order as to costs.” 6. Having heard the learned counsel for theappellants-Revenue, we are therefore of the opinion that no substantial question of law arises in the presentcase. The appeal filed by the Appellants-Revenue is) liable to be dismissed and it is@1".1""5@accordingly No costs. TL Sd/-| JUDGE Sd/-. JUDGE