Date Of Judgment 13-07-2018 I.t.a v. M/S. Sungard Solutions (India) Private Ltd

1/10. IN THE HIGH COURT OF KARNATAKA, BENGALURUDATED THIS THE 13[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.429/2014 Between: 1.Commissioner of Income Tax, C.R. Buildings, Queens Road, Bangalore. 2. The Assistant Commissioner of Income-tax, Circle-12(3), Bangalore. .. Appellant (By Mr. Jeevan J. Neeralgi, Advocate) And: M/s. Sungard Solutions(India) Private Ltd..,(formerly Known as |automated Securities Clearance (India), 4[th]Floor (6[th]level), Embassy Icon,|No.3, (old No.2) Infantry Road,Bangalore. 560 OO1.PAN .AAACH7/476 ... Respondent !By Mr. Asim Malik, Advocate) Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 2/10° This I.T.A. is tiled under Section 260-A of Income Tax!Act 1961, praying to: 1. decide the foregoing question of law|and/or such other questions of law as may be formulated bythe Hon’ble Court as deemed fit; set aside the appellate order|dated 16/05/2014 passed by the Income Tax Appellate|Tribunal ‘C’ Bench, Bangalore, in appeal proceedings in IT|(TP)A.No.1661/Bang/2012 for Assessment Year 2008-09 as sought for in this appeal and to grant such other relief as|deemed fit in the interest of justice and equity. This I.T.A. coming on tor Admission, this day S. SujathaJ. delivered the following:- JU DBGMENT Mr. Jeevan J. Neeralgi1.Adv. for Appellants - RevenueMr.Asim MalikAdv. for 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 “C”,Annexure A.dated 16/05/2014in.IT(TP)A.No.1661/Bang/2012forAY2008-09 2. The Revenue has suggested two substantialquestions of law, which are quoted below tor readyreference: _ Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 3/10. “1. Whether, on the facts and in the|circumstances of the case, the Tribunal was|right in law in holding that the functions of|the assessee are not comparable to thefunctions of M/s. KALS Information Systems|Ltd. & M/s.FCS Software Solutions Ltd.,without doing any FAR analysis in the case ofassessee and the other cases? D2 Whether, on the facts and in the|circumstances of the case, the Tribunal was|justified in law in holding that the size andturnover of the company are deciding factors|for treating a company as a comparable andaccordingly directing the AO/TPO not to|include M/s. Helios & Matheson Information|Technology BPO Ltd., as comparable in the|absence of Turnover criterion prescribed in|Rule 108 of IT Rules and also there being nocorrelationbetweenTUrnNoverandprofitmargin, but upheld the decision of upper limit|of Rs.200 crores.” 3. In so far as the substantial questions of law raised in the present appeal are concerned, the learned Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 4/10. counsel for the Revenue, Mr. Jeevan J. Neeralgisubmitted that the learned ITAT in its Order dated|16/05/2014has given the findings, the relevantportion of which is quoted below for ready reference:- “19. |We.have|consideredtherivalSUbDmMISSIONSThequestionwhether|KALSInformation System Ltd., can be considered ascomparable with Assessees who are engaged in thebusinessof|renderingcomputer|softwaredevelopment service has been considered by theITAT Bangalore Bench in the case of Triology E-Business Software Ltd.(supra). This tribunal on theabove question held as follows: “(a) KALS Information Systems Ltd: ree . tete . Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 4/10. counsel for the Revenue, Mr. Jeevan J. Neeralgisubmitted that the learned ITAT in its Order dated|16/05/2014has given the findings, the relevantportion of which is quoted below for ready reference:- “19. |We.have|consideredtherivalSUbDmMISSIONSThequestionwhether|KALSInformation System Ltd., can be considered ascomparable with Assessees who are engaged in thebusinessof|renderingcomputer|softwaredevelopment service has been considered by theITAT Bangalore Bench in the case of Triology E-Business Software Ltd.(supra). This tribunal on theabove question held as follows: “(a) KALS Information Systems Ltd: ree . tete . 20. Respectfully following the decision renderedby this Tribunal in the case of an Assesseeengagedin.renderingsoftwaredevelopmentservices, we hold that KALS Information Systemcannot be regarded as a comparable in the case ofthe assessee. Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 9/10. FCS Software Solutions Ltd: tete . ree . It has been the submission of the learnedcounsel for the assessee that the aforesaidcomparable company as revenue from softwareservices at less than 75% and therefore cannot betaken as software development service provider.Perusal of page.25 and 26 of the annual report ofthis company for Financial year 2007-08 showsthat the earnings from IT Consulting Services isonly 44% of the total revenues. One of the testsapplled by the TPO for selecting comparablecompanies is that the revenue from renderingsoftware development services should be more than79%. This company therefore cannot be regardedas a comparable even as per the filter applied bythe TPO. No reasons have been given by theTPO/DRP as to how this company satisfies theabove criteria for selection of comparable. In ouropinion neither the DRP nor the TPO has looked intothese aspects despite specific objections. We alsofind that this company was not chosen by theassessee in asst.year 2006-07 as comparable ashas been wrongly observed by the DRP in tts order. Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 6/10. In view of the above, we hold that this companycannot be regarded as comparable. The Assessee’s:objection in this regard are accepted. The otherobjections raised by the Assessee are therefore notconsidered. Helios & Mathesan Information Technology|Ltd; ree . ree . It can be seen from the aforesaid order of theTPO/DRP that the main objection of the assesseehas not been addressed by the DRP. The decisionrendered by the ITAT in the case of GenesisIntegratedoystems(Indta)JP.Ltd., (Supra)1S comparability of companies having falling within aparticular range. Companies whose turnover 1sbetween 1 Crore to 2YOO crores have beencategorized into one group. Companies havingturnover between YOO crores to 500 crores haquebeen placed into different groups. The TPO/DRPhave applied that classification to operating costsand have considered the above company ascomparable as the operating costs of the Assesseeand the comparable company were in the samerange of classification as laid down in the case of Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 7/10. Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 7/10. Genesis Integrated Systems (I) P.Ltd. By doing so,the entire analysis in our view gets distorted.Turnover as criteria for comparability and operatingcosts as criteria for comparability are entirelydifferent. The basis of classification of companiesfor comparability on the basis of turnover takes thescale/size of operation of company. Operatingcosts of companies will not reflect the scale/size ofoperation of company. In our view the TPO havingaccepted the turnover filter as laid down by theITAT in the case of Genisys Integrating Systems(supra) cannot carve out exception to the rule solaid down at his whims and fancies. We thereforehold that this company cannot be regarded ascomparable.” 4. 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.,) renderedon 25-06-2018,has held that in these type of cases,unless an.ex-facte» perversity in the findings of thelearned Income Tax Appellate Tribunal is established by Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 8/10. the 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.ASubstantialquantumofinternational trade and transactions dependsupon the fair and quick judicial dispensationin such cases. Had it been a case ofsubstantial questionof|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 and Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 9/10. answering 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 substantialquestionof|lawandtheSuggestedsubstantial 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’s Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 10/10| Length 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 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.” Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd., 10/10| Length 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 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.” Oo. 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/-| JUDGE|