Date Of Judgment 05-07-2018, Ita v. M/S. Ariba Technologies India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 5 DAY OF JULY 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.227/2015 BETWEEN : 1.THERE COMMISSIONER OFINCOME-TAX, CIT|A}INCOME-TAX, CIT|A} C.R. BUILDING, QUEENS ROAD BANGALORE. «|THE INCOME-TAX OFFICER CIRCLE-11[1} RASHTROTHANA BHAVAN NRUPATHUNGA ROADBANGALORE.». APPELLANTS| (BY SRI K.V.ARAVIND., ADV.) AND : M/s. ARIBA TECHNOLOGIES INDIA PVT LTD.,RMZ ICON, #51, PALACE ROAD.BANGALORE -560052. PAN: AADCA OOLSP._. RESPONDENT. (BY Mrs. MANASA ANANTHAN., ADV FOR SRI T. SURYANARAYANA., ADV.) THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 19.12.2014 PASSED IN ITA NO.1179/BANG/2010, FOR:THE ASSESSMENT YEAR 2006-2007, ANNEXURE-D, PRAYING| Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 2/15 TO [1]. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED ABOVE. {2}. ALLOW THE APPEAL AND SET ASIDE THE)ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,BENGALURU, IN ITA No.1179/BANG/2010 DATED 19.12.2014,ANNEBEXURE-D AND CONFIRM THR ORDER OF THR DRCONFIRMING THR ORDBR PASSBD BY THR INCOMB TAX!OFFICER, CIRCLE-11/1], BANGALORE... THIS APPEAL COMING ON FOR HEARING, THIS DAY,Dr, VINEET KOTHARI, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind.,Adv. for Appellants — Revenue.Mrs. Manasa Ananthan.,.Adv. tor Mr. T.Suryanarayana.,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, BangaloreBench ‘A’, Bangalore, inIT A. No.11'79/Bang/2010dated19.12.2014, relating to the Assessment Year2006-07. 2.TheappealhasbeenadmittedOTL16.11.2015 to consider the substantial questions of lawNo.1 to 7 formulated in the appeal memorandum. Though substantial question No.8 is formulated but not Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 3/15 admitted, learned counsel for the Appellants-Revenuesubmits that the same is covered by the decision of theHon'ble Supreme Court in the case of|Commissioner of Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 3.The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are as.under: “TYWhether, the Tribunal, on the factsand in the circumstances of the case was right inexcludingAccelTransmaticsLtd.,KALS|Information Systems Ltd., Tata Elxsi Ltd., /[seg/andLucidsoftwareLtd fromthelist|ofcomparables holding that they are functionallydifferentwithoutappreciatingthatthecomparable satisfyall the.qualitativeandquantitative filters applied by the TPO and thatselection of comparables in a case depends onassessee specific FAR analysis and not decidingthe selection of the comparables on the basis ofspecific facts brought on record by the TPO? Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 4/15 [2]Whether, the Tribunal, on the factsand in the circumstances of the case was right inexcluding M/s. Lucid Software Ltd and M/s. TataElxsi Ltd [seg/ from the list of comparables relying|on the decision of the Bangalore Tribunal in thecase of M/s. Loica Put Ltd., wherein interaliareliance was placed on the decision in the case ofTelecordia Technologies India Put. Ltd., and notdeciding the selection of the comparables on thebasis of specific facts brought on record by theTPOP Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 4/15 [2]Whether, the Tribunal, on the factsand in the circumstances of the case was right inexcluding M/s. Lucid Software Ltd and M/s. TataElxsi Ltd [seg/ from the list of comparables relying|on the decision of the Bangalore Tribunal in thecase of M/s. Loica Put Ltd., wherein interaliareliance was placed on the decision in the case ofTelecordia Technologies India Put. Ltd., and notdeciding the selection of the comparables on thebasis of specific facts brought on record by theTPOP [3]Whether, the Tribunal, on the factsand in the circumstances of the case was right indeleting M/s. Megasoft Ltd., M/s. Geometricsoftware Ltd and M/s. Aztech Software Ltd ascomparable by fixing the RPTfuter at 15% of totalrevenue and by superimposing the decisions ofTribunal in other cases without going into specificfacts in the case of taxpayer and withoutadducing the basis for arriving at the 15% cut offjor RPTfilter, in the case of the taxpayer?| [4/WhetherOF.thefactsand|circumstances of the case, the Tribunal wascorrect in relying upon the decisions in the case ofother assesses to reject the comparables withoutappreciating that selection of comparables in a Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 5/15 case depends on assessee specific FAR analysis|and that the Tribunal ought to have decided thecomparability of the companies on the basis ofthe specific facts brought on record by the TPO inthe case of the assessee? [S/Whether, the Tribunal, on the factsand in the circumstances of the case was right inconsidering the comparables as engaged insoftware products business, merely because ithas developed software products by followingsoftwaredevelopmentPTOcess,,developmentservices for its development, without have legalownership on software products?| [6]Whether, the Tribunal, on the factsand in the circumstances of the case was right inexcludingMapleEsolutionLtd.,Datamatics FinancialServices|Ltd.,VishalInformationTechnologicalServices|Ltd.,AstitC.|MehtaFinancial Services Ltd., Gold Stone Infratech Ltd.,Apex Knowledge Solution Put. Ltd., from the list ofcomparables holding that they are functionallydifferentwithoutappreciatingthatthecomparables’ satisfy all the qualitative andquantitative filters applied by the TPO and thatselection of comparables in a case depends onassess specific FAR analysis and not deciding the Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 6/15 selection of the comparables on the basis ofspecific facts brought on record by the TPO?| [7]Whether, the Tribunal, on the factsand in the circumstances of the case was right inexcluding M/s. Apex Knowledge Solution Put.Ltd., relying on it’s own decision in the case ofM/s. Google India Put. Ltd., and not deciding theselection of the comparables on the basis ofspecific facts brought on record by the TPO?| [S/Whether the Hon’ble Tribunal isjustified in directing the assessing officer torecomputed the deduction under section 10A afterreducing Internet charges of Rs.11,555/- andreimbursement of internet expenses to employeesof Rs.95,575/- from the total turnover also,without appreciating that there is no provision insection IOA that such expenses should bereduced from the total turnover, as clause [w/ ofthe Explanation to section 1OA provides that suchexpenses are to be reduced only from the exportturnover and by relying on the decision of thisHon’ble Court, which has not reached its finailityand a SLP has been filed against such order on)this issue in the case of Tata Elxsi Ltd., 349 ITRQOS?” Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 7/15 -Regarding substantial question of law No.8: Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 7/15 -Regarding substantial question of law No.8: 4Learned counsel for the Appellants-Revenue|submitsthat.the.issueregardingdeductionot expenditure incurred for‘Export Turn Over’is also.required to be deducted from‘Total Turn Over’for thepurpose of computing the deductionu/s.1OAof the Act,|the controversy is no longer|res integraand is covered|by the decision of the Division Bench of this Court intheCa SCoT M/s.TataElxsiLtd.,DS,Asst.Commissioner of Income Tax,decided on20.10.2015since reported in(2015) 127 DTR O327 (Kar), whichhas been affirmed by the Hon’ble Supreme Court in thecase oftCommissioner of Income-tax, Central — III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com33(SC). 5.The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCL| Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 8/15 Technologies Ltd. (supra),is quoted below for readyreference: - “17. The similar nature of controversy, akinthis 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|excluded from the total turnover if the same are.reduced from the export turnover? While giwing|the answer to the issue, the High Court, inter-alia,held that when a particular word is not definedby the legislature and an ordinary meaning is tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it is.used. Hence, what is excluded from ‘exportturnover must also be excluded from ‘totalturnover’, since one of the components of ‘totalturnover|1S|exportTurnover,Anyother|interpretation would run counter to the legislativeintent and would be impermissible. TSB. XXXXXX Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 9/15 19, In the instant case, if the deductions onfreight,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 illogical 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 fromexport 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”. 6.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned a finding as under:| Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 10/15 -Regarding substantial questions of law Nos.1 to 7: 20. Even in common parlance, when the|object of the formula is to arrive at the profit fromexport 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”. 6.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned a finding as under:| Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 10/15 -Regarding substantial questions of law Nos.1 to 7: 4D4. Wehave.consideredthe|rivalsubmissions. As far as comparable companieschosen by the TPO at S.No.1, 3, 6, 7 & 8 Uiz.,MapleE SolutionLtd.,DatamaticsFinancial services Ltd., Vishal Information TechnologicalServices Ltd., Asit C.Mehta Financial ServicesLtd., and Gold Stone Infratech Ltd., in the list ofcomparable companies chosen by the TPO, wefind that the Hyderabad Bench of the ITAT in thecase of HSBC Electronic Data Processing IndiaLtd., V/s. ACIT, ITA No.1624/ Hyd/ 2010 by ordedated 28.06.2013 considered comparability ofthese companies in the case of a companyengaged in rendering IT enabled services to itsAE similar to that of the Assessee in the presentcase. The Tribunal held that the aforesaidcompanies are not comparable. The followingwere the relevant observations of Tribunal. KVeVNKK” YS.The facts and circumstances and theAssessmentyearforwhichthe aforesaidcompanies were not considered as comparableare identical to the case decided by theHyderabad Bench of ITAT and that of the case of Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 11/15 the Assessee. Respectfully following the decisionof the Hyderabad Bench of ITAT, we direct theTPO to exclude the aforesaid companies from thelust of comparable while arriving at the arithmeticmean of comparable. The relevant grounds ofappeal of the Assessee are allowed. YI6.Thelearnedcounselfurthersubmitted that the comparable company chosen|by the TPO viz., Apex Knowledge Solution Put.Ltd., should be excluded from the lst ofcomparable companies chosen by the TPO. In thisregard our attention was drawn to the decision ofthe ITAT Bangalore Bench in the case of GoogleIndia Put. Ltd., Vs. DCIT ITA No. 1368/ Bang/ 20IAY 06-07] order dated 19.10.2012. 27.We have considered the submissionof the learned counsel for the Assessee. We findthat in the case of Google India Put. Ltd., /supra],this Tribunal in the case of TP adjustment in ITenabled services segment of an Assessee for AY06-07|consideredthe.comparabilityofthecompany M/s. Apex Knowledge Solution Put. Ltd.,in the IT Enabled Services segment. The Tribunalin para 16 of its order held that the said companyis not functional comparable as it providesservices such as E-publishing knowledge based Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 12/15 services etc. In view of the above, we direct theTPO to exclude the aforesaid company also fromthe final list of comparable companies for thepurpose of determining the ALP.” T The controversy involved herein is no more res integrain view of the decision of this Court in 1.T.A.Nos.536/2015 c/w 537/20154:<8425.06.2018 [Prl. |Commissioner.of|Income.TaxaAnr.V/s.M/s.Softbrands India Pvt. Ltd.,]2wherein 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 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 12/15 services etc. In view of the above, we direct theTPO to exclude the aforesaid company also fromthe final list of comparable companies for thepurpose of determining the ALP.” T The controversy involved herein is no more res integrain view of the decision of this Court in 1.T.A.Nos.536/2015 c/w 537/20154:<8425.06.2018 [Prl. |Commissioner.of|Income.TaxaAnr.V/s.M/s.Softbrands India Pvt. Ltd.,]2wherein 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: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case of|substantialquestionof|interpretation of|provisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions of Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 13/15 the 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.), uf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-4of 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 arysubstantial 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 substantialquestionof|lawand.theSuggested|substantial questions of law do not meet therequirements ofSection 260-A|of the Act and Date of Judgment 05-07-2018, ITA No.227/2015 The Commissioner of Income-Tax, CIT [A] & another Vs. M/s. Ariba Technologies India Pvt. Ltd., 14/15 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 tit cleqr that the same'yardsticks and parameters will have to be.applied, 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. “Ar 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. o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” 8.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. QOHence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordinglydismissed. Nocosts.| NC. Sd/-.JUDGE| Sd/-.JUDGE|