Date Of Judgment 05-07-2018 I.t.a v. M/S. Cerner Healthcare Solutions Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE O5 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA|I.T.A.No.489/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME-TAX, CIT{(A)5[‘T]FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-560 OOD.5[‘T]FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-560 OOD. 2.THE INCOME-TAX OFFICKRWARD-11(1), PRESENT ADDRESSACIT, CIRCLE-2(1)(1), 2 KFLOOR|BMIC BUILDING80 FEET ROAD, KORMANGALA|BBENGALURU-560 095.WARD-11(1), PRESENT ADDRESSACIT, CIRCLE-2(1)(1), 2 KFLOOR|BMIC BUILDING80 FEET ROAD, KORMANGALA|BBENGALURU-560 095. .. APPBLLANT (By Mr. K.V. ARAVIND, ADV.) AND: M/S. CERNER HEALTHCARE SOLUTIONS PVT. LTD.,GROUND FLOOR, WING B, BLOCK H2MOUNTAIN ASHMANTAYA BMBASSY BUSINESS PARK|OUT RING ROAD, NAGAWARABBRENGALURU-560 04PAN: AACCC3 /95R. . RESPONDENT (By Mr. MALLAHARAO K & SANDEEP 8. KARHAIL, ADVS.) Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 2/12 THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL ANDSET ASIDE THR ORDBRS PASSED BY THR [INCOMB TAXAPPBRLLATETRIBUNAL, BENGALURUIN|IT(TP)ANo.44/Bang/2015 DATED 16/01/2017 AND CONFIRM THE.ORDER OF THR APPKLLATKE COMMISSIONER CONFIRMING THEORDER PASSBED BY THR ASST. COMMISSIONBR OF [INCOMTAX, CIRCLE-2(1)(1), BENGALURU & ETC. | THIS I.T.A. COMING ON FOR ADMISSION, THIS DAYDr. VINEET KOTHARIJ' DRLIVBERED THR FOLLOWING:- JUDGMENT Mr. K.V. Aravind,Adv. for Appellants-_Revenue | Mr. Mallaharao K 8 Mr. Sandeep S. Karhail,Advs. for Respondent -Assessee 1. The Appellants-Revenue have filed this appeal u/s.260Aof the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order ot theITAT, Bengaluru Bench ‘A’, Bengaluru, dated.16.01.2017passed inIT(TP)A No.44/Bang/2015.(Cerner Healthcare Solutions Put.Ltd., vs. Income Tax Officer)forA.Y.JZO10-11 Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 3/12 2. The proposed substantial questions of lawframed.1n theMemorandumoT|appealby theAppellants-Revenue|aTe€quotedbelowforreadyreference:-. “1. Whether on the facts and in thecircumstances of the case, the Tribunal erred inholding that the assign authority is not right inincluding expenditure incurred in foreign currencyform export turnover and from total turnover byrelying upon the decision of this Hon'ble Court incase of CIT Vs. Tata Elsxit even when theassessing authority has rightly included theaccording to parameters set out in section 1OAand the decision relied upon by the Tribunal hasnot reached finality ?. 2. Whether on the facts and in_ thecircumstances of the case, the Tribunal erred indirecting the TPO to exclude certain comparableby relying on its earlier decisions which has notreached finality and even when the TPO hasrightly chosen the said comparable consideringthe functions and as the said comparablesatisfies all the required tests?| 3.|Whether on the facts and in thecircumstances of the case, the Tribunal is right in Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 4/12 law in directing the assessing authority to allowactual adjustment towards the differences in theworking capital position between assessee andcompanies selected as comparable by relying onits earlier decision in case of Moog Controls IndiaPvt. Ltd.inITA No.551/Bang/2015 dated27/11/2015 even when the assessee had notproducedmaterialwithregardtodemonstrate such claim and without appreciatingthat actual working capital employed by thecomparable during the year is not provided byassessee?r 3.|Whether on the facts and in thecircumstances of the case, the Tribunal is right in Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 4/12 law in directing the assessing authority to allowactual adjustment towards the differences in theworking capital position between assessee andcompanies selected as comparable by relying onits earlier decision in case of Moog Controls IndiaPvt. Ltd.inITA No.551/Bang/2015 dated27/11/2015 even when the assessee had notproducedmaterialwithregardtodemonstrate such claim and without appreciatingthat actual working capital employed by thecomparable during the year is not provided byassessee?r 4.|Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in directing the assessing authority to acceptthe TPO to consider Foreign Exchange Fluctuationas operating in nature by relying on its earlierdecision in the case of Electronics for ImagingIndia Put. Ltd even when the Transfer PricingOfficer has rightly treated foreign exchangefluctuations as non-operating in nature?”. 3. Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the > substantial question of law No.1,as the issue)regarding deduction of expenditure incurred for‘Export Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 5/12 Turn Over’ is also required to be deducted from|‘TotalTurn Over’for the purpose of computing the deductionu/s.1OAof the Act, the controversy is no longer |res integraand is covered by the decision of the DivisionBench of this Court in the case ofM/s.Tata Elxsti Ltd.,vs. Asst.Commisstoner of Income Tax,decided on20.10.2015since reported in.(2015) 127 DTR 0327(Kar), which has been affirmed by the Hon’ble SupremeCourt in the case of|Commissioner 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 whether| Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 6/12 the Tribunal was correct in holding that whilecomputing relief under Section 1OA of the IT Act,the amount of communication expenses should beexcluded 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 is 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 Respondent Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., which could have never been the intention of thelegislature. 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 Respondent Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., which could have never been the intention of thelegislature. 20. Even in common parlance, when theobject of the formula ts 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”. 4 Mr.K.V.Aravind also submits that he does notpress thesubstantial question of law Nos.3 and 4.Hissubmission is recorded. 5.Regarding substantial question of law No. 2- The learned Tribunal, after discussing the rivalcontentions of both the Appellants-Revenue and theRespondent-assessee, has given the following findingsagainst Revenue with regard to various issues raisedbefore it with regard to‘Transfer Pricing’and‘Transfer|PricingAdjustments’made.bytheconcerned. Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 8/12 authorities below. We consider it appropriate to quotethe relevant portions hereunder:- ¢LTIWe|have.consideredthe.rivalsubmissions and gone through relevant materials.The relevant portion of the order from the case ofElectronics for India Imaging India P Ltd ay 2010-Ilin IT (TPRJA no. 212/Bang/2015 & CO No94/Bang/2015 dt 24.02.2016 is extracted asunder: XXXXXXXXXXXXXXXXXNX &$. Ihe relevant portion of the order from|the case of Pegasystems Worldwide India P LtdayY2O1O-]1ITA|No.1758/ Hyd/ 201fo1936/ Hyd/ 2014 dt 16.10.2015 ts extracted aunder: NXXXXXKXXKXXXXMK 13.We find that the CIT (A) accepted the|assessee’s plea by following the decisions of thisTribunal in Genisys Integrating System v DCIT 15ITR Trib 475, Kodiak Networks v ACIT 15 ITR Trib610, Trilogy e-Business Software India v DCIT 23ITR Trib 464 and held that those companies Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 9/12 which are within the turnover range of Rs onecrore to Rs two hundred crore only should betaken into consideration for the TP study andhence directed the TPO to exclude Infosys Ltd,Larsen & Toubro Infotech Ltd, Mindtree Ltd (seg) ,Persistent System Ltd, Sasken communicationTechnologies and Tata Elxsi Ltd(seg) againstwhich the Revenue filed appeals. However, fromthe decisions extracted , supra , the assessee hasmade out a case for the exclusion of ICRA TechnoAnalytics Ltd. (seg), Infosys Technologies Ltd.,KALSInformationoystemsLtd,PersistentoystemsLtd,SaskenCommunicationTechnologies Ltd, Tata Elxsi Ltd and L&T InfotechLtd. Following them, we direct the TPO to excludethem from the list of comparables. To that extent,the assessee’s appeal grounds are allowed andthe Revenue’s appeal grounds are dismissed.With regard to the comparable Mindtree Ltd (seg),sincetheaSSCSSCChasnotopposedthe|Revenue’s appeal, the Revenue’s appeal on that)comparable is treated as allowed”. 6. This Court insITA No.536/2015 C/w ITA.No.537/2015delivered OT] 25.06.2018 | (Pri. Commissioner of Income Tax & Anr. Vs. | Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 10/12 6. This Court insITA No.536/2015 C/w ITA.No.537/2015delivered OT] 25.06.2018 | (Pri. Commissioner of Income Tax & Anr. Vs. | Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 10/12 M/s. Softbrands India Pvt. Ltd.,}1 has held that inthese type of cases, unless an|ex-facleperversity in thefindings of the learned Income Tax Appellate Tribunal isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under|Section 260-AoT|the Act is not maintainable. The relevant portion of the said judgment is. quoted below for ready reference: §— Conclusion: oo. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|aCaSeofsubstantialquestion.Of|interpretation of provisions of Double TaxationAvoidance Treaties (DIAA), interpretation ofprovisions of the Income Tax Act or OverridingEffectofthe TreatiesOVETthe|Domestic.Legislations or _ the questions like TreatyShopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), if based on relevantfacts, such substantial questions of law couldbe raised before the High Court underSection Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 11/12 260-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 goodcomparables to arrive at an‘Arm’s LengthPrice“in the case of the assessees with whichthe assessees may not be satisfied and have filed Date of Judgment 05-07-2018 I.T.A.No.489/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 12/12 such 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 are)therefore dismissed with no order as to costs.” /7. Having heard the learned counsels for the parties, we are therefore of the opinion that nosubstantial question of law arises in the present casealso. The appeal filed by the Appellants-Revenue isliable to be dismissed and it is.,"D,""/.accordinglyNo costs. Sd/-. JUDGE Sd/-|JUDGE JUDGE Srl.