Date Of Judgment 13-8-2018, Ita v. M/S. Aris Global Software Pvt. Ltd

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.995/2017 BETWEEN: 1.THE PR. COMMISSIONER OF INCOME-TAX"[‘T]FLOOR, BMTC BUILDING,"[‘T]FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA,BENGALURU - 560 O95.BENGALURU - 560 O95. 2.THERE INCOMBE-TAX OFFIC WARD-11(1), PRESENT ADDRESS,| ACIT, C-1(1)(1), ~ FLOOR, BMTC BUILDING,80 FEET ROAD, KORAMANGALA, BBNGALURU - 560 O95. _. APPBLLANTS (BY SRI.ARAVIND K V, ADV.) AND: M/s. ARIS GLOBAL SOFTWARE PVT. LTD.,.NO.19/2, 15[‘T]CROdS»s, DOLLARS COLONY,J. P. NAGAR, 4 PHADSE,,BENGALURU - 5600 078,PAN: AABCA 7218F_. RESPONDENT THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED:28/04/2017 PASSED IN CO. No.31/BANG/2016 IN. Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 2/13 IT(TPJA NO.94/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010 VIDE ANNBXURE - D. PRAYING TO: [. FORMULATER THE|SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II. ALLOWTHR APPBAL AND SET ASIDE THR ORDERS PASSBED BY THEINCOME TAX APPELLATE TRIBUNAL, BENGALURU IN CO.No.31/BANG/2016.IN|IT(TP)ANO.|94/BANG/2014DATED:28/04/2017 VIDE ANNEXURE —- D AND CONFIRM THEORDER OF THERE DRP CONFIRMING THR ORDER PASSED BY THASSI..COMMISSIONEROF.INCOME.TAX,|CIRCLE-1(1)(1),BENGALURU. THIS APPEAL COMING ON FOR ORDERS, £%(yTHIs DAY,|S. SUJATHA, J©, DELIVERED THE FOLLOWING; JU DBiGMENT Mr. K.V. Aravind, 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,Bangalore, inC.O. No.31/Bang/20161n IT JANo.94/Bang/2014dated28.04.2017, relating to theAssessment Year2009-10. ?)The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are asunder: Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 3/13 “1. Whether on the facts and in the circumstancesof the case, the Tribunal is right in law inexcluding certain comparables on the basis offunctional dissimilarity by following its earlierjudgments which has not reached finality andeven when the Transfer Pricing Officer hasconsidered the comparables on the basis ofqualitative and quantitative filters?| 2. Whether on the facts and in the circumstancesof the case, Tribunal is right in law in settingaside the recomputation of 1OA deduction madeby assessing authority by following the judgmentof this Hon’ble High Court in the case of CIT V/s.Tata Elxi even though the said decision has notreached finality and the assessing authorityrecomputed the l1OA deduction as_ per thprovisions of the ActP” 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 4/13 Regarding Substantial Question of Law No.2: 4The issue is covered by the decision of theHon’ble Supreme Court in the case of|Commissioner of Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 5.The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCL|Technologies Ltd. (supra),is quoted below for readyreference: - 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 4/13 Regarding Substantial Question of Law No.2: 4The issue is covered by the decision of theHon’ble Supreme Court in the case of|Commissioner of Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 5.The relevant portion of the judgment of theHon ’bleSupremeCourt1nthe.CASEoT HCL|Technologies Ltd. (supra),is quoted below for readyreference: - “17. The simular nature of controversy, akin|this 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 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 defined|by the legislature and an ordinary meaning is to| Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., be 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’1S|exportTurnover,Anyother|interpretation would run counter to the legislativeintent and would be impermissible. | 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 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, we are satisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell”. Regarding Substantial Question of law No.1: “17. We have considered the rival submissionsand we find that this Tribunal is applyingturnover filter as per which any comparablecompany whose turnover is either less than1/10[th]of the turnover of the tested party or more|than 10 times of the turnover of the tested party,are to be excluded from the lst of finalcomparables by applying this turnover filter.Accordingly, we direct the AO/TPO to excludethese 5 companies from the lst of finalcomparables viz., 91) KALS Information SystemsLtd. (2) Zylog Systems Ltd. (3) Mindtree Ltd. (Seg.)(4) Larsen & Toubro Infotech (5) Infosys Ltd. 18. Regarding remaining 4 companies 1e.,|Bodhtree Consulting Ltd., Tata Elxst Ltd. (Seg),Sasken Communication Technologies Ltd. andPersistent Systems Ltd. and it is the argument ofthe ld. AR of assessee that these companiesShould be excluded on account of functionaldissimilarity. Reliance has been placed on theTribunal’s order rendered in the case of ARM Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 7/13 18. Regarding remaining 4 companies 1e.,|Bodhtree Consulting Ltd., Tata Elxst Ltd. (Seg),Sasken Communication Technologies Ltd. andPersistent Systems Ltd. and it is the argument ofthe ld. AR of assessee that these companiesShould be excluded on account of functionaldissimilarity. Reliance has been placed on theTribunal’s order rendered in the case of ARM Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 7/13 Embedded Technologies P. Ltd. V. DCIT, TS-466-ITAT- 2015 (Bang)-TP (copy available on pages|573 to 591 of PB) in support of the request forexclusionofBodhtreeConsultingLtd. For!exclusion of Tata Elxsi Ltd. also, reliance hasbeen placed on the same Tribunal’s order. Forexclusion of Sasken Communication Technologies|Ltd., reliance has been placed on the Tribunal’sorder rendered in the case ofDCT v. Planet OnlinePut.Ltd.as|reportedin|56)taxmann.com.202(Hyd). For exclusion of Persistent SystemLtd., reliance has been placed on the Tribunal’sorder rendered in the case of Infinera India Put.Ltd. v. ITO as reported in TS-476-ITAT-2016(Bang) TP. 19.Regardingexclusion|Of|BodhtreeConsulting Ltd., we find that as per Tribunal’sorder rendered in the case of ARM EmbeddedTechnologies P. Ltd. (supra) and CISCO Systems(India)PrivateLtd.Vv.DCIT,TS-246-ITAT-2014(Bang)-TP, this company is_ functionallydifferent.ThoseTWO|companiesLé.,ARIEmbedded Technologies P. Ltd. (supra) andCISCO Systems (India) Private Ltd. were alsoengaged in providing software developmentservices and therefore the facts being simular, Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 8/13 respectfully following those two Tribunal orderhave‘direct the AO/TPO that in the present casealso, this company ti.e., Bodhtree Consulting Ltd.Should be excluded from the list of finalcomparable. 20. In respect of exclusion of Tata ElxsiLtd., reliance has been placed on the Tribunal’sorder rendered in the case of Infinera India Put.Ltd. (supra), copy available on pages 592 to 611of PB. We find that this Tribunal order is also ofthe same assessment year and in this Tribunalorder also, the Tribunal had considered thedecision rendered in the case of CISCO Systems(India) Private Ltd. (supra) and held that thiscompany is functionally different. 21. We have already seen that in the caseof CISCO Systems (India) Private Ltd. (supra), theassessee company was engaged in renderingsoftware development services and_ therefore,respectfully following this Tribunal’s order, wehold that in the present case also, this companyue., Tata Elxsi Ltd. should be excluded from thelist of final comparables for the reason that thiscompany is not functionally similar to the presentassesseeé COMPATLY Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 9/13 DQ?RegardingexclusionofSaskenCommunication Technologies Ltd., reliance hasbeen placed on the Tribunal order rendered in thecase ofDCT v. Planet Online Put. ltd. (supra), copy|available on pages 612 to 638 of PB. As per Para’2 of this Tribunal order, that company wasengaged in providing software developmentservices to its AE and therefore, the functionalprofile of that assessee and the present assesseeis similar. It was held by the Tribunal in that casein para 10.10 that the entire annual report of thatcompany has not been placed before the Tribunaland therefore, the Tribunal found itself not inaposition to give a conclusive finding in this regardand the Tribunal restored back the matter toAO/TPO for a fresh decision. Similarly, in thepresent case also, we restore this matter back toAO/TPO for afresh decision. YS.Regarding exclusion.Of|Persistentsystems Ltd., reliance has been placed on theTribunal order rendered in the case of InfineraIndia Put. Ltd. (supra), copy available on pages592 to 611 of PB. As per this Tribunal order, it isseen that the Tribunal followed another Tribunalorder rendered in the case of Unisys India Put. Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 10/13 Ltd. in IT (TP)A No.67(Bang)/2015 and it washeld that this company t1.e., Persistent systemsLtd. is in product designing services and is alsoproviding software product development andtherefore, the same cannot be a good comparablewith the company which is providing onlysoftwaredevelopmentSCYLVICESToitsAB. Respectfully following this Tribunal order, wehold that in the present case also, Persistentsystems Ltd. is not a good comparable andtherefore, the same should be excluded from thelist offinal comparables.” 6.However, this Court in a recent judgment inI.T.A. Nos.536/2015 c/w 537/2015delivered on 25.06.2018 (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 isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A otthe Act is not maintainable. The relevant portion of thesaid judgment is quoted below for ready reference: Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 11/13 “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.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 12/13 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.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 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.” Date of Judgment 13-8-2018, ITA No.995 /2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 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.” T Having 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/-.JUDGE| Sd/-.JUDGE|