Date Of Judgment 06-07-2018 I.t.a v. M/S. Broadcom Communications Technologies Pvt. Ltd

1/11. 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.934/2017 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 RoadKormangala,Bengaluru-560 O95.Circle-2(1)(1), 2[nd]Floor,BMTC Building, 80 Feet RoadKormangala,Bengaluru-560 O95. .. Appellant (By Mr. Aravind K.V. Advocate) And: M/s. Broadcom Communications TechnologiesPvt. Ltd.,.(erstwhile Broadcom India TechnologiesPvt. Ltd., since merged.)/[th]Floor, RMZ Ecospace, Campus-1A,Bellandur Village, Varthur Hobh,Bengaluru-9560 103.PAN: AABCL OO1OD.. ...Respondent (By Ms. Manasa Ananthan, Advocate) Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 2/11. 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.494/Bang/2015 dated 06-04-2017|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 — RevenueMs. Manasa Ananthan, |Adv. for Respondent - Assessee 1. The Appellants - Revenue have filed this appealraising purported substantial questions of law arisingfrom the Order of thelearned Income Tax Appellate| Tribunal Bangalore Bench “B”,Annexure Dsdated 06/04/20171nN IT(TP)A No.494/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.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 3/11. “1. Whether on the facts and in the|circumstances of the case, the Tribunal 1isright in law in excluding certain comparables|on the basis of functional dissimilarity by|following its earlier Judgments which has notreached finality and even when the Transfer|PricingOfficerhasconsideredthe|comparables on the basis of qualitative and|quantitative filters? aDWhether on the facts and in the|circumstances of the case, Tribunal is right in|law in setting aside the recomputation of 10A|deduction made by assessing authority by|following the judgment of this Hon’ble HighCourt in the case of CIT v/s. Tata Elxi even|though the said decision has not reached|finalityandtheaSSeSSINngauthority|recomputed the 1OA deduction as per theprovisions of the ActP” 3. The learned counsel appearing for theAppellants — Revenue, Mr.K.V. Aravind submitted thatin so far as the second substantial question of law isconcerned, the same is covered by the decision of the Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 4/11. Hon'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'blesupremeCourtin.theCaSE€oT|HCL|Technologies Ltd. (supra),is quoted below for readyreference: - 3. The learned counsel appearing for theAppellants — Revenue, Mr.K.V. Aravind submitted thatin so far as the second substantial question of law isconcerned, the same is covered by the decision of the Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 4/11. Hon'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'blesupremeCourtin.theCaSE€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|the same are reduced from the’ exportturnover? 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 Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 9/11. 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 the|legislative intent and would be impermissible. TSB. XXXKXX X 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,meaninglessand.ulogical result which would cause _ graveinjustice to the Respondent which could have|never been the intention of the legislature. 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,arlyother Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 6/11 interpretation 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 first substantial questions oflaw raised by the Revenue are concerned, the learnedcounsel for the Revenue submitted that the learned|ITAT in its Order dated06/04/2017has given the|findings, the relevant portion of which is quoted belowfor ready reference:- “13. We heard rival submissions and|perused the material on record. From the|perusal of the Annual Report of E InfochipsBangalore Ltd., placed at page 426 to 429 (atpage 427) of the paper book, it is evident thatthe company is into business of both software|development and also IT enabled Servicesand derives income from consultancy charges|and no segmental information was provided|by the assessee-company. In the absence of|segmental information, this company cannot Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 7/11 be compared with that of the _ softwardevelopmentCOMPA? LYTheissueof|comparability of this company had come|before the co-ordinate bench of this Tribunal|in the following decisions: .. DE Shaw India Software Pvt.Ltd. inITA No.304/ Hyd/ 2015 (ITAT) (Hyd IT. Sun Life India Service Centre Put. Ltd.(ITA No. 750/ Del/ 2015 (ITAT})(Del) a Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 7/11 be compared with that of the _ softwardevelopmentCOMPA? LYTheissueof|comparability of this company had come|before the co-ordinate bench of this Tribunal|in the following decisions: .. DE Shaw India Software Pvt.Ltd. inITA No.304/ Hyd/ 2015 (ITAT) (Hyd IT. Sun Life India Service Centre Put. Ltd.(ITA No. 750/ Del/ 2015 (ITAT})(Del) a III. Pegasystems Worldwide India Put.Ltd., (IT(TP)A Nos.1758 & 1936/ Hyd/ 2014(ITAT, Hyd.) Therefore, respectfully following the decision|of the co-ordinate bench, we direct the|AO/TPO to exclude this company from the list.of comparables. 14, As regards, Sasken CommunicationTech Ltd., Infosys Technologies Ltd. and Kals|InformationsystemLtd., theissueof|comparability of these companies/ entitieshad come up for consideration before the co- Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 8/11. ordinate bench (Bengaluru) in the case of|ACIT vs. Broadcom Research India (P) Ltd.,_(72 taxman.com 77) to which one of us Viz,Accountant Member is a party t.e. author oforder, wherein it was held as follows:. . . . . . The learned standing counsel for the Revenue|has not brought any evidence on_ recordcontroverting the findings of the Tribunal.|Therefore, respectfully following the above|order, we hold that this company cannot be|considered as comparable.” Oo. However, this Court in a recent judgment in I.T.A.No.536/2015c/w.I.T.A.No.537/2015(Pr.Commissionerof|IncomeTax,Bangalore and Another Vs. M/s. Softbrands India P.Ltd.,) renderedon 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 assessee Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 9/11. or 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 ofSubstantialquestionof|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.), uf 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 present Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 10/11| tenor 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 substantialquestionof|lawandthe|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. Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 10/11| tenor 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 substantialquestionof|lawandthe|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 be Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd., 11/11) satisfied and have filed such appeals beforethis Court. Therefore we clarify that meredissatisfaction with the findings of factsarrived at by the learned Tribunal ts not at alla sufficient reason to invoke|Section 260-Aof the Act before this Court. o&. The appeals filed by the Revenue|are therefore dismissed with no order as tocosts.” 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. BMV* Sd/-.JUDGE| Sd/-.JU DGE