Date Of Judgment 09-07-2018, Ita v. M/S Integral India Software Development Centre Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 9 DAY OF JULY 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.25/2012 BETWEEN : 1.THERE COMMISSIONER OF [INCOME-IC.R.BUILDING, QUEENS ROAD,BANGALOREC.R.BUILDING, QUEENS ROAD,BANGALORE «|THER INCOME-TAX OFFICER WARD-11(2), C.R.BUILDING, |QUEENS ROAD, BANGALORE| _ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s INTEGRAL INDIA SOFTWARE|DEVELOPMENT CENTRE PVT. LTD., —NO.16/1, GROUND FLOOR,CAMBRIDGE ROAD,BANGALORBE-560 O0O_. RESPONDENT. (BY SRI TATA KRISHNA, ADV. FOR SRI CHYTHANYA K.K., ADV.) THIS TTA IS FILED UNDER SECIION 2J6O0-A OF INCOMTAX ACT 1961, ARISING OUT OF ORDER DATED 14.09.2011PASSED IN ITA NO.1246/BANG/2010, FOR THE ASSESSMENTYEAR 2006-2007 ANNEXURE-D, PRAYING TO: I. FORMULATETHE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II.ALLOW THE APPEAL AND SEI ASIDE THE ORDERS PASSED BYTHE ITAT, BANGALORE IN ITA NO.1246/BANG/2010 DATED Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 14.09.2011 ANNEBEXURE-D AND CONFIRM THE ORDER OF THAPPBRELLATEKE COMMISSIONBR CONFIRMING THR ORDER PASBY THE INCOME TAX OFFICER, WARD-11(2), BANGALORE. THIS APPEAL COMING ON FOR HEARING, THIS DAY,S.SUJATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue. Mr. Tata Krishna,Adv. forMr. Chythanya K.K.,Ady.for Respondent — Assessee. This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal,SA?Bench, Bangalore, inIT A No.1246/Bang/2010dated14.09.2011|relating to the Assessment Year2006-077 a2ThisAppealhas|beenadmitted|OTL5.10.2012to consider the following substantialquestions of law as framed by the Revenue in theMemorandum of Appeal: aWhether the Tribunal twas correct inholding that the telecommunication charges andexpenses incurred abroad are required to bereduced from the export turnover as well as total Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 3/10 turnover also, in the absence of any specificprovisions to this effect when computing thededuction u/s IOA of the Act P D2 Whether the Tribunal twas correct inholding that the Dispute Resolution Panel has notconsidered the various objections raised by theassessee regarding the computation made by theTransferPricingOfficerandconsequently|remitted the matter back without considering thecontroversy ?| 3.|Whether the Tribunal was correct indirecting the Dispute Resolution Panel to considerthe case of M/s Genesis Integrating SystemsIndia Put. Ltd., which is subject matter of appealbefore this Hon'ble Court P° Regarding Substantial Question No.1: 3. The issue raised in the present appeal as to thededuction of expenditure incurred for|‘Export Turn) Over’is also required to be deducted from‘Total Turn Over’for the purpose of computing the deduction|u/s.1OAof the Act, the controversy is no longer |res integraand is covered by the decision of the Division Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 4/10 Bench of this Court in the case of.M/s.Tata Elxsti Ltd., vs. Asst.Commisstoner of Income Tax,decided on.20.10.2015since reported in.(2015) 127 DTR O327(Kar}, which has been affirmed by the Hon’ble SupremeCourt 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|HCLTechnologies Ltd. (supra),is quoted below for readyreference: - Over’for the purpose of computing the deduction|u/s.1OAof the Act, the controversy is no longer |res integraand is covered by the decision of the Division Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 4/10 Bench of this Court in the case of.M/s.Tata Elxsti Ltd., vs. Asst.Commisstoner of Income Tax,decided on.20.10.2015since reported in.(2015) 127 DTR O327(Kar}, which has been affirmed by the Hon’ble SupremeCourt 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|HCLTechnologies 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 turnoverPr While giving Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 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 1s 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 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 turnover Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 6/10 also. 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. The learned Tribunal, after discussing the rival contentions ot boththeAppellant-RevenueandRespondent-Assessee, has returned a finding with regard to question Nos. 2 and 3 as under: “Having heard both the parties and havingconsidered the riwal contentions, we find that theassessee has raised various objections before theTPO and while making TP adjustment, the TPOhas considered the same and has rejected theobjections of the assessee. The assessee has'again raised the objections before the DRP but theDRP has summarily sustained the order of theTPO and the AO. The DRP 1s entrusted with theduty of dealing with the objections of theassessee judicially. There is no speaking order ofthe DRP on the objections of the assessee. In viewof the same, we deem itfit and proper to remit the|issue to the file of the assessing authority with a Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 7/10 Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 7/10 direction to refer the matter to the DRP who inturn shall dispose off the assessee’ objectionsjudicially and by a speaking order. The DRP shallalso.takeintoconsiderationthejudicialprecedents on the issue and also order of theTribunal in ITA No.1231 of 2010 dated 5/8/2011in the case of M/s Genisys Integrating SystemsIndia Pvt. Ltd. where similar issues have beenconsidered. The copy of the order in the case ofM/s Genisys Integrating Systems India Put. Ltd.Shall be appended to this order.” oS. 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: Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 8/10 “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 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|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-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| Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 9/10 consideredopinion,|giverisetO arysubstantial 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. 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| Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd. 10/10 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.” 6.|In the circumstances, having heard the learned Counsel appearing for both the sides, We are ofthe considered opinion that no substantial question oflaw arises for consideration in the present case. _ Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. —No costs. Sd/-.JUDGE. Sd/-.JUDGE.