Date Of Judgment 13-8-2018, Ita v. M/S. Tesco Hindusthan Service Centre Pvt. Ltd. 2/12

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 13 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.216/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME TAX-/7BMTC COMPLEX, KORAMANGALABMTC COMPLEX, KORAMANGALA BANGALORE 2.THR DEPULY COMMISSIONER OF INCOME TAX, CIRCLE-12(4) BANGALORE_. APPBLLANTS| (BY SRI.SANMATHI E I, ADV.) AND: TRHSCO HINDUSTHAN SERVICE CHENITRE PVI. LIDNO.81 & 82, EPIP AREA,WHITKRIBLD |BANGALORE - 66|PAN:AABCTS8915B _. RESPONDENT THIS INCOME TAX APPEAL IS FILED UNDER SKC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDER)DATED:09/12/2016 PASSED IN IT(TP)JA NO.1285/BANG/2011,FOR THE ASSESSMENT YEAR 2007-2008 (VIDE ANNEXURE-A)._PRAYING TO: (1) DECIDE THE FOREGOING QUESTION OF LAW,AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE.FORMULATED BY THE HON'BLE COURT AS DEEMED FIT.(2). Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 2/12 SETASIDE.TH EAPPELLATE|ORDERDATED:09/12/2016|PASSED IN IT(TPJ)A NO.1285/BANG/2011 FOR A.Y. 2007-08, BYTHEINCOMETAX|APPBRLLATBTRIBUNAL, ‘ALBENCH,|BENGALURU (VIDE ANNEXURE-A) AS SOUGHT FOR, IN THE.ABOVE CASK. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,|S. SUJATHA, J©, DELIVERED THE FOLLOWING: JU DGMENT Mr. E.I. Sanmathi, Adv. for Appellants - Revenue This Appeal is filed by the Revenue purportedlyraising the substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, ‘A’ Bench,1n IT [TPJA No.1285/Bang/2011dated|09.12.2016>relating to the Assessment Year|2007-08. 2.The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are asunder: “1. Whether, the Tribunal, on the facts and|in the circumstances of the case, Tribunal is rightin law in rejecting the comparables such as AvantCimcom Technologies Ltd., Celestial Labs Ltd., E-zest Solutions Ltd., Flextronics Software SystemsLtd., Helios and Matheson Information technology Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 3/12 Ltd., Infosys Technologies Ltd., Ishir Technologies|Ltd., Kals Information Systems Ltd., Lucidsoftware Ltd., Megasoft Ltd., Persistent SystemsLtd., Tata Elxy Ltd., Thirdware Solutions Ltd andWipro Ltd., by relying on its earlier orders whichhas been challenged before this Hon’ble Courtand even when the TPO had rightly chosen thesaid comparison after applying all the requiredtests in accordance with the provisions of the Act? 2. Whether, the Tribunal, on the facts and|in the circumstances of the case, the Tribunal isright in law in holding that RPT in excess of 15%to be excluded from the list of comparables and inthe instant case the RPT tis 22.90%, hence,Tribunal directed to exclude the same even whenthe TPO after making detailed analysis andbased on facts and circumstances of the caseconcluded to apply 25% filter and excess 25%were eliminated since Accounting Standard 18 isapplicable to all enterprise which are directly orindirectly controlled by all enterprises? 3)Whether, the Tribunal, on the factsand in the circumstances of the case, theTribunal is right in law in excluding M/s.Megasoft Limited as comparable by holding thatRPT was not examined by the TPO for this Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 4/12 company and directed the TPO to reexamine inthe light of its order in the case of Meritior LVSIndia Put. Ltd., even though the said decision has|not reached finality and without appreciating thatMegasoft is proper uncontrolled comparableselected by the TPO on the basis of specific factsbrought on record by the TPOP 3)Whether, the Tribunal, on the factsand in the circumstances of the case, theTribunal is right in law in excluding M/s.Megasoft Limited as comparable by holding thatRPT was not examined by the TPO for this Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 4/12 company and directed the TPO to reexamine inthe light of its order in the case of Meritior LVSIndia Put. Ltd., even though the said decision has|not reached finality and without appreciating thatMegasoft is proper uncontrolled comparableselected by the TPO on the basis of specific factsbrought on record by the TPOP 4.Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law giwing relief to assessee in respect ofcomputation of deduction under section 1OA byrelying upon the decision of this Hon'ble Court incase of CIT V/s Tata Elxsit when said judgmenthas been challenged before Apex Court?” 5.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: Regarding Substantial Question of law No.4: 6.The issue is covered by the decision of theHon’ble Supreme Court in the case ofCommissioner of Income-tax, Central —- III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 5/12 T.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 Taxman|3S21/17/taxman.com 100/349 ITR 98. The issuebefore the Karnataka High Court was whetherthe Tribunal was correct in holding that whilecomputing relief under Section IOA of the IT Act,the amount of communication expenses should beexcluded from the total turnover tf the same are.reduced from the export turnoverPr While givingthe 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.used. Hence, what is excluded from ‘export|turnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘total|turnover’1Sexportturnover.Anyotherinterpretation would run counter to the legislativeintent and would be impermissible. | Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 6/12 LSE, 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 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 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”. Regarding Substantial Question of law No.1: “14. (1) Avant Cincom Technologies Ltd.,(2) Celestial Labs Ltd., (3) E-Zest Solutions Ltd.,(4) Flextronics Software Systems Ltd, (5) Helios& Matheson Information Technology Ltd. (6) Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 7/12 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 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”. Regarding Substantial Question of law No.1: “14. (1) Avant Cincom Technologies Ltd.,(2) Celestial Labs Ltd., (3) E-Zest Solutions Ltd.,(4) Flextronics Software Systems Ltd, (5) Helios& Matheson Information Technology Ltd. (6) Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 7/12 Infosys Technologies Ltd., (7) Ishir Infotech Ltd.,(S) KALS Information Systems Ltd., (9 Lucidsoftware Ltd., (10) Megasoft Ltd., (11) PersistentoystemsLtd.,(12)TataElxsiLtd. (13)Thirdware Solutions Ltd., and (14) Wipro Ltd. | These companies are functionally different from)the assessee company and some of them canalso be excluded by applying the turnoverfilter. Thesecompanies|We.,rexaminedbythe.Tribunal in the case of Meritor LVS India (P) Ltd.(supra) and AOL Online India Put. Ltd. (supra)and the Tribunal has concluded that these.companies are not good comparables and they|were directed to be excluded from the list ofcomparables. The relevant observations of the|Tribunal in the case of Meritor LVS India (P) Ltd.(supra) with respect to these companies areextracted hereunder:- _ XXKXXXXKKK Regarding Substantial Question of law No.2: “35. Having carefully examined the order of thelower authorities in the light of the order of theTribunal, we find that this comparable wasexamined by the Tribunal in the light of material Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 8/12 available on record. The Tribunal has restored thematter to the AO/TPO to verify the contention ofthe assessee that the company is in ITeS andwhether segmental data are available or not anddecide afresh whether this company needs to becompared with the final list of comparables. Sincesegmental datas are not available, this companyrequires to be re-examined by the AO/TPO. We,however, for the sake of reference, extract theobservations of the Tribunal with regard to thiscomparable while adjudicating the issue in thecase of Stream International Services (P) Ltd.(Supra) :-— XXXXXXXXXXNX 36. Since on a similar set of facts, the Tribunalhas restored the examination of this comparableto the AO/TPO, we find no justification to dealwith the issue and we accordingly restore thematter to the AO/TPO with a direction to re-examine the segmental data of the comparableand decide the issue afresh.” Regarding Substantial Question of law No.3: “19. Having carefully examined the orders oflower authorities in the light of rival submissions, Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 9/12 we find that in assessee's own case it wasrestored to the AO for reconsideration. The issueof RPT was not examined by the TPO. Therefore,we are of the view that in the interest ofjustice,this comparable be re-examined by the TPO/AOagain in the light of the order of the Tribunal inthe case of Meritor LVS India (P) Ltd. (supra) andthe RPT filter. Accordingly, we direct the AO/TPOto examine the comparability of this company inthe terms indicated above.” 8.However, this Court in a recent judgment inI.T.A. Nos.536/2015 c/w 537/2015delivered on25.06.2018 (Prl. Commissioner of Income Tax & Anr. Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 9/12 we find that in assessee's own case it wasrestored to the AO for reconsideration. The issueof RPT was not examined by the TPO. Therefore,we are of the view that in the interest ofjustice,this comparable be re-examined by the TPO/AOagain in the light of the order of the Tribunal inthe case of Meritor LVS India (P) Ltd. (supra) andthe RPT filter. Accordingly, we direct the AO/TPOto examine the comparability of this company inthe terms indicated above.” 8.However, this Court in a recent judgment inI.T.A. Nos.536/2015 c/w 537/2015delivered on25.06.2018 (Prl. Commissioner of Income Tax & Anr. —v- M/s Softbrands India Pvt. Ltd.») has held that inthese type of cases, unless an ex-facie perversity in thefindings of the learned Income Tax Appellate Tribunal is"established by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A ofthe Act is not maintainable. The relevant portion of thesaid judgment is quoted below for ready reference: Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 10/12 “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 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 11/12 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 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 12/12 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.” QOHaving heard the learned counsel appearing for the Appellants-Revenue, we are therefore of theopinion that no substantial question of law arises in thepresent case also. The Appeal filed by the Appellants-| Revenue is liable to be dismissed and it is dismissed|accordingly. No costs. Copy of this order be sent to the Respondent-Assessee, forthwith. AN/- Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd. 12/12 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.” QOHaving heard the learned counsel appearing for the Appellants-Revenue, we are therefore of theopinion that no substantial question of law arises in thepresent case also. The Appeal filed by the Appellants-| Revenue is liable to be dismissed and it is dismissed|accordingly. No costs. Copy of this order be sent to the Respondent-Assessee, forthwith. AN/- Sd/-.JU DGE Sd/-.JUDGE|