Date Of Judgment 06-07-2018 I.t.a v. M/S. Curam Software International Pvt. Ltd

1/12. IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 6[th]DAY OF JULY 2018 PRESENT THE HON'BLE Dr.JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA I.T.A.No.719/2017 Between:| 1.The Pr. Commissioner of Income-tax, CIT(A)5[th]Floor, BMTC Building,80 Feet Road, Kormangala,Bengaluru-560 O95.5[th]Floor, BMTC Building,80 Feet Road, Kormangala,Bengaluru-560 O95. 2.The Asst. Commissioner of Income-Tax,Circle-2(1) (1), 2[nd]Floor,BMTC Building, 80 Feet Road,Kormangala,Bengaluru-560 O95.Circle-2(1) (1), 2[nd]Floor,BMTC Building, 80 Feet Road,Kormangala,Bengaluru-560 O95. .. Appellant (By Mr. Aravind K.V. Advocate) And: M/s. Curam Software International Pvt. Ltd., C/o. IBM India Pvt. Ltd.,subramanya Arcade, 12,Bannerghatta Main Road,Bengaluru-9560 029.PAN: AACCC 5b479H. ... Respondent (By Mr. Mallaha Rao & Mr. Sandeep S Karhail. Advocates) Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 2/12. This I.T.A. is tiled under Section 260-A of Income Tax!Act 1961, praying 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 IT(TP)A No.499/Bang/2015 dated 21-03-2017|Annexure —D confirming the order of the DRP and confirm|the order passed by the Asst. Commissioner of Income Tax,Circle-2(1)(1), Bengaluru & etc. This I.T.A. coming on tor Admission, this day S. SujathaJ. delivered the following:- JU DBiGMENT Mr. Aravind K.V.Adv. for Appellants — RevenueMr. Mallaha Rao & | Mr.Sandeep S Karhail.Advs. tor Respondent - Assessee 1. The Appellants - Revenue have filed this appeal raising purported substantial questions of law arising from the Order oft thelearned Income Tax Appellate| Tribunal Bangalore Bench “B”,Annexure Dsdated21/03/2017in)IT(TP)A.No.499/Bang/2015forAY|2010-11 2. The Revenue has suggested two substantialquestions of law, which are quoted below for readyreference: Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 3/12. “1. Whether on the facts and in the|circumstances of the case, the Tribunal erred|in holding that the assign authority is not|right in including expenditure incurred in|foreign currency from export turnover andfrom total turnover by relying upon thedecision of this Hon’ble Court in case of CITV/s Tata Elsxt even when the assessingauthority has rightly included the according toparameters set out in section 1OA and the|decision relied upon by the Tribunal has not|reached finality? D2 Whether on the facts and in the|circumstances of the case, the Tribunal 1isright in law in directing the TPO to exclude|certain comparable on the basis offunctional|dissimilarity by following its earlier orders|which has not reached finality and even|when the TPO had chosen the comparable on|the basis of its functional similarity and by|application of qualitatiue and quantitative|testsP” Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 4/12. 3. The learned counsel appearing for theAppellants — Revenue, Mr.K.V. Aravind submitted thatin so far as the first substantial question of law isconcerned, the same is covered by the decision of theHon'ble Apex Court in the case ofCommissioner ofIncome-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). The relevant portion of the judgment of theHon'blesupremeCourt1nthe.CaSE€ot HCL|Technologies Ltd. (supra),is quoted below for readyreference: - Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 4/12. 3. The learned counsel appearing for theAppellants — Revenue, Mr.K.V. Aravind submitted thatin so far as the first substantial question of law isconcerned, the same is covered by the decision of theHon'ble Apex Court in the case ofCommissioner ofIncome-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). The relevant portion of the judgment of theHon'blesupremeCourt1nthe.CaSE€ot HCL|Technologies Ltd. (supra),is quoted below for readyreference: - “17. The similar nature of controversy,akin this case, arose before the Karnataka|High Court inCIT v. Tata Elxsi Ltd[2012]204 Taxman321/17/taxman.com100/349 ITR 98.The issue before theKarnataka High Court was whether theTribunal was correct in holding that while|computing relief under Section 10A of the ITAct, the amount of communication expensesShould be excluded from the total turnover tf| Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 9/12. the same are reduced from the _ exporturnover? While gwing the answer to the|issue, the High Court, inter-alia, held thatwhen a particular word is not defined by the|legislature and an ordinary meaning is to be|attributed to it, the said ordinary meaning 1s to be in conformity with the context in whichtt |is used. Hence, what is excluded from ‘exportturnover’ must also be excluded from ‘total|turnover’, since one of the components of|‘total turnover is export turnover. Any other|interpretation would run counter to thelegislative intent and would be impermissible. IS. XXXXXX 19. In the instant case, tf the deductionson freight, telecommunication and insurance|attributable to the delivery of computer'software under Section 10A of the IT Act areallowed only in Export Turnover but not from|the Total Turnover then, it would give rise to|inadvertent,unlawful,meaninglessandulogical result which would cause _ graveinjustice to the Respondent which could have|never been the intention of the legislature. Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 20. Even in common parlance, when theobject of the formula is to arrive at the profit|from export business, expenses excluded fromexport turnover have to be excluded from total|TUTnNOoOValso.Otherwise,arlyotherinterpretation makes the formula unworkable|and absurd. Hence, we are satisfied thatsuch deduction shall be allowed from the totalturnover in same proportion as well”. 4. In so far as the second substantial question oflaw raised by the Revenue is concerned, the learnedcounsel for the Revenue submitted that the learned|ITAT in its Order dated21/03/2017has given the|findings, the relevant portion of which is quoted belowfor ready reference:- “9.1 In support of its contentions, theassessee relied on the following case laws: 1.Curam Software International P. Ltd v.ITO [ITA No. 1280/ Bang/2012/ 2.Agnity India Technologies P. Ltd v. CIT[ITA No.1204/ Del/ 2011] Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 7/12. 3DCIT v. [Ikanos Communication Indiq PPLtd [ITA No.137/ Bang/ 2015 4 DCIT v. Applied Materials India P. LtdHIT(TPJA. 1807 Bang.2015/ an 5)DCIT v. Novell Software DevelopmentIndia P. Ltd [IT (TP) A.281/ Bang/ 2015] Now, let us examine the relevant portion ofthe order of this Tribunal, in the assessee’s|own case, supra, in the earlier year as under: . . . . . . 9.2. Now, let us examine the relevant portion|of the order of this Tribunal in DCIT v. Ikanos|Communication|India.P|Ltdin|ITANo.137/ Bang/ 201forAY!QYAO!1IOat|10.11.2015, which was providing contractsoftware development services to its principal, as under: . . . . . . Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 7/12. 3DCIT v. [Ikanos Communication Indiq PPLtd [ITA No.137/ Bang/ 2015 4 DCIT v. Applied Materials India P. LtdHIT(TPJA. 1807 Bang.2015/ an 5)DCIT v. Novell Software DevelopmentIndia P. Ltd [IT (TP) A.281/ Bang/ 2015] Now, let us examine the relevant portion ofthe order of this Tribunal, in the assessee’s|own case, supra, in the earlier year as under: . . . . . . 9.2. Now, let us examine the relevant portion|of the order of this Tribunal in DCIT v. Ikanos|Communication|India.P|Ltdin|ITANo.137/ Bang/ 201forAY!QYAO!1IOat|10.11.2015, which was providing contractsoftware development services to its principal, as under: . . . . . . 10. We have perused the orders and heard|the rival contentions. Notes to accounts of|ICRA Techno Analytics Ltd forming a part ofits audited financial statement of accounts| Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 8/12. and annual report for year ended 31.03.2010|mentions as under: •SignificantaccountingpoliciesandNotes to Accounts (Page 169 of theAnnual report) BACK6/7809TheCompanyWasincorporated on July 27, 1992 as ComputerExchangePrivateLimited(CEPL)andsubsequently became wholly owned subsidiary|Of ICRA Limited on August 25, 2005 and was.renamed as ICRA Techno Analytics Limited{ICTEAS}. The company is engaged in the|softwaredevelopmentOSconsultancy,engineering|SETVICeS,webdevelopment0%hosting and subsequently diversified itself intothe domain of business analytics and business.DiOCCSSoutsouTcing. In the note detailing of the revenuerecognition which also form a part of its|annual report it has been stated that itsTeEvVeNnStream|consistedof|softwaredevelopmentconsultancy,engineeringservices, web development and hosting. Thus.ICRA Techno Analytics had more than one.segment. There is no case for the Revenue.that the segmental results were separately|available in public domain or was_ notobtained by the TPO from the said company,invoking the powers vested on him. In such a| Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 9/12. situation the DRP, in our opinion, was.justified in directing exclusion of ICRA Techno.Analytics Ltd from the list of comparables.” Oo. However, this Court in a recent judgment inI.T.A.No.536/2015c/w.I.T.A.No.537/2015(Pr.Commissioner.of|IncomeTax,Bangalore andAnother Vs. M/s. Softbrands India P.Ltd.,) rendered on 25-06-2018,has held that in these type of cases,unless ansex-facle’ perversity in the findings of thelearned Income Tax Appellate Tribunal is established bythe appellant, the appeal at the instance of an assesseeor the Revenue under.Section 260-Aot the Act is notmaintainable and the relevant portion of the saidjudgment is quoted below for ready reference: “Conclusion: 55.|Asubstantial quantumofinternational trade and transactions dependsupon the fair and quick judicial dispensationin such cases. Had it been a case of Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 10/12| on 25-06-2018,has held that in these type of cases,unless ansex-facle’ perversity in the findings of thelearned Income Tax Appellate Tribunal is established bythe appellant, the appeal at the instance of an assesseeor the Revenue under.Section 260-Aot the Act is notmaintainable and the relevant portion of the saidjudgment is quoted below for ready reference: “Conclusion: 55.|Asubstantial quantumofinternational trade and transactions dependsupon the fair and quick judicial dispensationin such cases. Had it been a case of Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 10/12| substantialquestionof|interpretationofprovisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of theTreaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosionand Profit Shifting (BEPS), Transfer of Sharesin Tax Havens (like in the case of Vodafoneetc.), tf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof the Act, the Courts could haveembarked upon such exercise offraming andanswering such substantial question of law.On the other hand, the appeals of the presenttenor as to whether the comparables havebeen rightly picked up or not, Filters forarriving at the correct list of comparableshave been rightly applied or not, do not in ourconsideredopinion,|giverisetoanysubstantial question of law. 26. We are therefore of the considered|opinion that the present appeals filed by theRevenue do not give rise to any substantial Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 11/12) questionof|lawand.the|suggestedsubstantial questions of law do not meet therequirements ofSection 260-A.of the Act and|thus the appeals filed by the Revenue arefound to be devoid of merit and the same areliable to be dismissed. 57. We make it clear that the same'§yardsticks and parameters will have to beapplied, even if such appeals are filed by theAssessees, because, there may be caseswhere the Tribunal giving its own reasonsand findings has found certain comparablesto be good comparables to arrive at an|°‘Arm’sLength Price“in the case of the assesseeswith which the assessees may not besatisfied and have filed such appeals beforethis Court. Therefore we clarify that meredissatisfaction with the findings of factsarrived at by the learned Tribunal is not at alla sufficient reason to invoke.Section 260-Aof the Act before this Court. 58. The appeals filed by the Revenue|are therefore dismissed with no order as tocosts.” Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd., 12/12| 6. Having heard the learned counsel for theappellant — Revenue, this Court is satisfied that nosubstantial question of law would arise in the presentcase and the appeal filed by the Revenue is thereiore,liable to be dismissed. Accordingly, it is dismissed. | No costs. BM V~ Sd/-.JUDGE| Sd/-.JU DGE