Date Of Judgment 05-07-2018, Ita v. M/S G T Nexus Software 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.832/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX CIT (A)|5[‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA,5[‘T]FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALA, BBNGALURU - 560 O95. 2.THR DBEPUTY COMMISSIONBR OF INCOMB TAXCIRCLE — 3(1) (2),.CIRCLE — 3(1) (2),. 2 FLOOR, BMTC BUILDING, |80 FEET ROAD, KORMANGALA,BENGALURU - 560 O95... APPELLANTS|80 FEET ROAD, KORMANGALA,BENGALURU - 560 O95... APPELLANTS| (BY SRI. ARAVIND K V, ADV.) AND:| M/S GT NEXUS SOFTWARE PVT. LTD.,THE SIRIUS 6973,MILLERS ROAD,BENGALURU - 560 052PAN: AACCG 294].. RESPONDENT (BY SRI.S.SHARATH, ADV.) THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:18.04.2017 PASSED IN IT(TP)A NO.31/BANG/2016, FOR THE Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., ASSESSMENT YEAR 2011-2012 ANNEXURE - D, PRAYING TO: I.FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATEDABOVE. [I]. ALLOW THR APPKAL AND SBT ASIDEB THR ORDERPASSED)BYTHEINCOME-TAX.APPBRLLATBTRIBUNAL, BENGALURU IN IT(TP)A NO. 31/BANG/2016 DATED:18.04.2017,ANNBXURE-D CONFIRMING THR ORDER OF THR DRP AND)CONFKIRMTHEORDERPASSEDBY|THEDEBPUTYCOMMISSIONER OF INCOME TAX, CIRCLE-3(1)(2), BENGALURU. 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.Mr.S.SHARATH,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,‘BpBench, Bangalore, in|IT [TP| A No.409/Bang/2016dated|18.04.2017relating to the Assessment Year2011-12. 2. The substantial questions of law framed by theRevenue in the Memorandum of Appeal are as under: 1.“Whether on the facts and in thecircumstances of the case and in law, the)order of the Tribunal is not perverse in) Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., holding that the size and turnover of the)company are deciding factors for treating a)company as a comparable and consequently|erred in excluding certain comparable’s in the|case of the taxpayer? 2.Whether,Onthefactsand.circumstances of the case, the Tribunal is)right in law in setting aside the _ re-computation of deduction under section 10A\of the Act by following the decision of this)Hon’ble High Court in the case of CIT V/s.Tata Elxsi which has not reached finality?| 3Whether,Onthefactsand.circumstances of the case, the Tribunal is)rightin|lawin.directingassessingauthority/ Transfer Pricing Officer to excludecertaincomparablebasedOrlfunctionaldissimilarity even when the TPO has chosen)the said comparable by applying qualitative|and quantitative filers when culling out)comparable companies?” Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 4/12 3. Though the appeal has been admitted on5.01.2018|to consider the substantial questions of lawNos.1 and 3, learned counsel for the appellant submitsthat substantial question No.2 may also be consideredas the same is covered by the decision of the Hon’bleSupreme Court in|Commisstoner of Income-tax,Central - III vs. HCL Technologies Ltd., [2018] 93Taxmann.com 33(SC). Regarding Substantial Question No. 2: 4. The issue raised in the present appeal as to thededuction of expenditure incurred for)‘Export TurnOver’is also required to be deducted from‘Total Turn|Over’for the purpose of computing the deduction|u/s.10Aof the Act, the controversy is no longer |res integraand is covered by the decision of the DivisionBench of this Court in the case of.M/s.Tata Elxsti Ltd., 4/12 3. Though the appeal has been admitted on5.01.2018|to consider the substantial questions of lawNos.1 and 3, learned counsel for the appellant submitsthat substantial question No.2 may also be consideredas the same is covered by the decision of the Hon’bleSupreme Court in|Commisstoner of Income-tax,Central - III vs. HCL Technologies Ltd., [2018] 93Taxmann.com 33(SC). Regarding Substantial Question No. 2: 4. The issue raised in the present appeal as to thededuction of expenditure incurred for)‘Export TurnOver’is also required to be deducted from‘Total Turn|Over’for the purpose of computing the deduction|u/s.10Aof the Act, the controversy is no longer |res integraand is covered by the decision of the DivisionBench of this Court in the case of.M/s.Tata Elxsti Ltd., vs. Asst.Commissioner of Income Tax,decided on20.10.2015since reported in.(2015) 127 DTR O327 Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 5/12 (Kar), which has been affirmed by the Hon’ble Supreme Court in the case otfCommissioner of Income-tax,Central - III vs. HCL Technologies Ltd., [2018] 93Taxmann.com 33(SC). The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCL|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 whetherthe Tribunal was correct in holding that whilecomputing relief under Section IOA of the IT Act,the amount of communication expenses should beexcluded from the total turnover tf the same are.reduced from the export turnoverPr 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 is tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it is. Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 6/12 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. 1S. XXXXXX 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 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 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”. Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 7/12 o. The learned Tribunal, after discussing the rival contentionsoT|boththeAppellant-RevenueandRespondent-Assessee, has returned a finding withregard to question Nos. 1 and 3 as under: “ Therefore even if we apply the 10times tolerance range of assessee’s turnover|in respect of the comparable companies then|by considering the turnover of assessee oOfRs.18.18 crores, the companies which are.having the turnover less than Rs.1.8 crores|andTTltothan Rs.181 crores|will beexcluded.Accordingly,apart fromthe|functionaldissimilarity,thefollowingcompanies will be excluded by applying this|parameter of turnover tolerance range of 10)times of assessee’s turnover on both sides: Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 7/12 o. The learned Tribunal, after discussing the rival contentionsoT|boththeAppellant-RevenueandRespondent-Assessee, has returned a finding withregard to question Nos. 1 and 3 as under: “ Therefore even if we apply the 10times tolerance range of assessee’s turnover|in respect of the comparable companies then|by considering the turnover of assessee oOfRs.18.18 crores, the companies which are.having the turnover less than Rs.1.8 crores|andTTltothan Rs.181 crores|will beexcluded.Accordingly,apart fromthe|functionaldissimilarity,thefollowingcompanies will be excluded by applying this|parameter of turnover tolerance range of 10)times of assessee’s turnover on both sides: 1.Infosys Technology Ltd Rs.25,385 Crores 2.L&:TribunalInfotechLtd.Rs.2,331.51Crores 3Mindtree Limited (seg.) Rs.871.30 Crores|4 Persistent Systems Rs.610 Crores, 5)R.S. Software Ltd. Rs.188.26 Crores onSasken Communications Ltd. Rs.394.20 Crores Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 7.Tata Elxsi Ltd. (Seg.) Rs.358.20 Crores It is pertinent to note that the DRP hasapplied the turnover filter and the revenue|has challenged the same therefore, the issue|of turnover filter has been a subject matter in|theseappeals.Accordingly,these7companies are directed to be excluded. 10. Further in view of the functionalcomparability has been considered by this|Tribunal in the case of Applied Materials, the|following companies namely (i) AcropetalTechnologies Put. Ltd. (Seg.) and (i) ICRA)Techno Analytocs Ltd. are found to be|functionally not comparable. 11. As regards the E-Zest Solution Ltd,the issue of comparability has been remitted|to the record of the TPO. Accordingly the|following the earlier order of this Tribunal, thefunctional comparability of E-Zest SolutionLtd. has been remitted to the record of theTPO/A.O.” Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 9/12 6. The controversy involved herein is no moreTeSintegrain view of the decision of this Court inI1.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: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick judicial dispensation|in such cases. Had it been a case oOf|Substantialquestionof|interpretation|of|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| Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 10/12 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 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 10/12 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. 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. Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 11/12 57. We make it clear that the same'§yardsticks 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 “ArmLength 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.” 7. 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. Date of Judgment 05-07-2018, ITA No.832/2017 The Pr. Commissioner of Income Tax & another Vs. M/s G T Nexus Software Pvt. Ltd., 12/12 Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. —No costs. In. Sd/-.JUDGE. Sd/-.JUDGE|