Date Of Judgment 10-07-2018, Ita v. M/S. Integral India Software Development Centre Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 10 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.194/2013 BETWEEN : 1.THERE COMMISSIONER OFINCOME-TAX, CIT|A}C.R. BUILDING, QUEENS ROADBANGALORE.INCOME-TAX, CIT|A}C.R. BUILDING, QUEENS ROADBANGALORE. «|THERE DEPUTLY COMMISSIONEOF INCOME-TAX, CIRCLE-12[3}RASHTROTHANA BHAVANNRUPATHUNGA ROADBANGALORE.» . APPELLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s. INTEGRAL INDIA SOFTWARE|DEVELOPMENT CENTRE PVT. LTD.,No.16/1, GROUND FLOOR,CAMBRIDGE ROAD, HALASURU.BANGALORE._. RESPONDENT. (BY SRI S.SHARATH, ADV. FOR SRI K.K.CHYTHANYA, ADV.) THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 23.11.2012, PASSED IN ITA No.1196/BANG/2011, FOR:THE ASSESSMENT YEAR 2007-08, ANNEXURE-D, PRAYING TO:il). FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., STATED THEREIN, 11]. ALLOW THE APPEAL AND SET ASIDE THEORDERSPASSED|BY|THREITAT,BANGALOREIN|ITA|No.1196/BANG/2011 DATED 23.11.2012, ANNEXURE-D, ANDCONFIRM THR ORDEBR OF THR APPKRHLLATKH COMMISSIOCONFKFIRMINTH EORDERPASSEDBY|TH EDEBPUTYCOMMISSIONER OF INCOME TAX, CIRCLE-12/3}], BANGALORE. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.Aravind,Adv. for Appellants — Revenue.Mr. S.Sharath,Adv. tor | Mr. K.K.Chythanya,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, Bangalore Bench ‘A’, Bangalore, inITA No.1196/Bang/2011dated|23.11.2012, relating to the Assessment Year2007-08. a2Theappealhas|beenadmitted|OTL 02.09.2013 to consider the substantial questions of law raised in the memorandum of appeal in paragraph V. Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 3/10 3.The substantial questions of law framed by the Revenue in the Memorandum of Appeal are asunder: “1.Whether the Tribunal was correct in holdingthat the telecommunication charges and expensesattributable to delivery of software outside Indiaare required to be reduced from the exportturnover as well as total turnover also, in theabsence of any specific provisions to this effectwhen computing the deduction u/s. 10A of theAct? D2 Whether the Tribunal was correct in holding|that 5% standard deduction should be extended|to the assessee after quantification of the Arm’sLength Price when the proviso to Sub section 2 tosection 92C of the Act did not provide for suchadeduction?” )Regarding first substantial question of law: 4The controversy is no longerres integraand|is covered by the decision of the Division Bench of this. Court in the case ofM/s.Tata Elxsi Ltd., vs. Asst.Commissioner of Income Tax,decided on20.10.2015since reported in(2015) 127 DTR O327 (Kar), which Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 4/10 has been affirmed by the Hon’ble Supreme Court in the case oftCommissioner of Income-tax, Central — III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC). 5.The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCL|Technologies Ltd. (supra),is quoted below for readyreference: - )Regarding first substantial question of law: 4The controversy is no longerres integraand|is covered by the decision of the Division Bench of this. Court in the case ofM/s.Tata Elxsi Ltd., vs. Asst.Commissioner of Income Tax,decided on20.10.2015since reported in(2015) 127 DTR O327 (Kar), which Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 4/10 has been affirmed by the Hon’ble Supreme Court in the case oftCommissioner of Income-tax, Central — III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC). 5.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|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 turnover? While giwing|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 is tobe attributed to it, the said ordinary meaning is tobe in conformity with the context in which it is. Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 5/10 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 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 illogical result whichwould cause grave injustice to the Respondentwhich 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”. Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 6/10 6.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned a finding as under:| )Regarding second substantial question of law: “3.2 We have also heard the learned DR whohas reiterated the contents of the DRP’s order. Wehave also considered the facts and materials onrecord including the decision of this Tribunal inthe assessee’s own case for assessment year2006-07. We find that for the assessment year2006-07 in the case of the same assessee, theTribunal had occasion to deal with the issue onidentical facts and circumstances. On such factsand circumstances, the Tribunal, in its orderdated 14.09.2011 cited supra [in which one of uswas a party/, restored the matter back to the fileof the assessing authority with a direction to theAO and the DRP to follow the directions given inthe case of M/s. Genisys Integrating Systems[India] Pvt. Ltd., cited [supra]. Following the same,we give a similar direction for this assessmentyear also. In other words, following directions aregiven to the AO/DRP: Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 7/10 al|The operating revenue and the operatingcost of the transactions relating to associatedenterprises only shall be considered; bfThe comparables having the turnover ofmore than 1.00 crore but less than 200.00 croresonly shall be taken into consideration. c/All the information relating to comparablewhich are sought to be used against the assesseeShall be furnished to the assessee. dlTo consider the objections of the assessee|that relate to additional comparables sought to beadopted by the TPO and pass a detailed order,and e]As regards the claim of plus or minus, the|amended provisions of the Finance Act, 2012)may be kept in mind.” T.The controversy involved herein is no moreres integrain view of the decision of this Court in 1.T.A. Nos.536/2015 c/w 537/201518:6125.06.2018 [Prl. |Commissioner.of|Income.TaxOQAnr.V/s.M/s.Softbrands India Pvt. Ltd.,]2wherein it has beenobserved that unless the finding of the Tribunal is found Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 8/10 ex 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: 05. A substantial quantum of international|trade and transactions depends upon the fair|and quick judicial dispensation in such cases.Had it been a case of substantial question ofinterpretation ofprovisions of Double Taxation|Avoidance Treaties (DTAA), interpretation ofprovisions of the Income Tax Act or Overriding|Effect of the Treaties over the DomesticLegislations or the questions like TreatyShopping, Base Erosion and Profit Shifting|(BEPS), Transfer of Shares in Tax Havens|(like in the case of Vodafone etc.), if based onrelevant facts, such substantial questions|of law could be raised before the High|Court underSection 260-Aof the Act, theCourts could have embarked upon such.exercise of framing and answering such|substantial question of law. On the otherhand, the appeals of the present tenor as to|whether the comparables have been rightly| Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 9/10 picked up or not, Filters for arriving at thecorrect list of comparables have been rightly|applied or not, do not in our consideredopinion, give rise to any substantial question|of law. 56. We are therefore of the considered|opinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested|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 sameyardsticks 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 before Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 10/10 this 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.” 8.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. Date of Judgment 10-07-2018, ITA No.194/2013 The Commissioner of Income-tax & Another Vs. M/s. Integral India Software Development Centre Pvt. Ltd., 10/10 this 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.” 8.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. QOHence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordinglydismissed. No costs. | NC. Sd/-.JUDGE. Sd/-.JUDGE.