Date Of Judgment 16-8-2018, Ita v. M/S.citrix R & D India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 16 DAY OF AUGUST 2018 PRESENT THR HON’BLE DR.JUSTICEK VINBET KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.993/2017 BETWEEN| 1.THR PR. COMMISSIONER OF INCOME TAX ©! FLOOR, BMTC BUILDING80 FEET ROAD, KORAMANGALA —BRENGALURU - 560095! FLOOR, BMTC BUILDING80 FEET ROAD, KORAMANGALA —BRENGALURU - 560095 2.THER INCOMBE-TAX OFFICKRWARD-11(1) PRESENT ADDRESSWARD-11(1) PRESENT ADDRESS WARD —- 2 (1) (1)2 FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALABENGALURU — 560 O9)D2 FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALABENGALURU — 560 O9)D . APPELLANTS | (BY SRI.ARAVIND K V, ADV.) AND: M/s. CITRIX R & D INDIA PVT. LTD. |NO 33, PRESTIGE DYNASTY, |ULSOOR ROAD,BENGALURU — 560 042PAN: AABCN 3639C .. RESPONDENT THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-AOF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:24.03.2017 PASSED IN IT(TPJ)A NO.1245/BANG/2011, FOR THEASSESSMENT YEAR-2007-2008 VIDE ANNEXURE - D ,| Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS|OF LAW STATBKD ABOVE. II. ALLOW THR APPBAL AND SBTASIDETHREORDERS)PASSED|BY|TH EINCOME-TAX|APPBLLATEKTRIBUNAL,BENGALURUIN|IT(TP)ANO.1245/BANG/2011 DATED: 24.03.2017 VIDE ANNEXURE D.AND CONFIRM THERE ORDER OF THERE DRP CONFIRMING ORDER PASSED BY THE INCOME TAX OFFICER, WARD-2(1)(1),.BENGALURU. THIS APPEAL COMING ON FOR ORDERS, THIS 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|the Order of the Income Tax Appellate Tribunal, ‘A’|Bench, Bengaluru, inIT [TPJA No.1245/Bang/2011dated|24.03.2017, relating to the Assessment Year2007-08. ooThe substantial questions of law framed by|the Revenue in the Memorandum of Appeal are as|under: Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 3/12 “1WhetherOrlthe|factsandcircumstances of the case, the Tribunal iscorrect in directing the assessing officer toexclude.EXPEMsesincurredin|foreigncurrency and other expenses that has beenexcluded from ETO, from the total turnoveralsoandaccordingly recomputed thededuction wnder section 10Awithoutappreciating the fact that there is noprovision in sec. 1OA that such expensesShould be reduced from the total turnoveralso as clause (tv) of the Explanation 2 tosec. 1OA provides that such expenses areto be reduced only from the _ exporturnover? D2 Whether on the facts and in thecircumstances of the case, the Tribunal isright in law in excluding comparables|namely, Bodhtree Consulting Ltd, Tata)Elxst Ltd and Infosys Technology Ltd on|the ground offunctional dissimilarity even)when Transfer Pricing Officer has rightly|chosen the same considering its functions:which are similar to assessee’s and has Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 4/12 satisfied all the required tests and withoutdoing an FAR analysis of the taxpayerwith those other cases?”| Regarding Substantial Question of law No.1: 3.The issue is covered by the decision of the|Hon’ble Supreme Court in the case ofCommissioner of Income-tax, Central —- III vs. HCL TechnologiesLtd., [2018] 93 Taxmann.com 33(SC). 4The relevant portion of the judgment of the Hon'ble|SupremeCourt1nNtheCASEOT HCL|Technologies Ltd. (supra),is quoted below for readyreference:-. Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 4/12 satisfied all the required tests and withoutdoing an FAR analysis of the taxpayerwith those other cases?”| Regarding Substantial Question of law No.1: 3.The issue is covered by the decision of the|Hon’ble Supreme Court in the case ofCommissioner of Income-tax, Central —- III vs. HCL TechnologiesLtd., [2018] 93 Taxmann.com 33(SC). 4The relevant portion of the judgment of the Hon'ble|SupremeCourt1nNtheCASEOT HCL|Technologies Ltd. (supra),is quoted below for readyreference:-. “17. The similar nature of controversy,|akin this case, arose before the Karnataka High|Court in|CIT v. Tata Elxsi Ltd. {2012} 204|Taxman 321/17/taxman.com 100/349 ITR 98.The issue before the Karnataka High Court waswhether the Tribunal was correct in holding thatwhile computing relief under Section 10OA of theIT Act, the amount of communication expenses|Should be excluded from the total turnover if the| Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 5/12 same are reduced from the export turnover?While giving the answer to the issue, the HighCourt, inter-alia, held that when a particularword is not defined by the legislature and anordinary meaning is to be attributed to it, thesaid ordinary meaning is to be in conformitywith the context in which it is used. Hence,|what is excluded from ‘export turnover’ mustalso be excluded from ‘total turnover’, since oneof the components of ‘total turnover’ is exportturnover. Any other interpretation would runcounter to the legislative intent and would beimpermissible. | LS. XXXXXX 19. In the instant case, if the deductions|on freight, telecommunication and insuranceattributable to the delivery of computer softwareunder Section 1OA of the IT Act are allowed onlyin Export Turnover but not from the TotalTurnover then, it would give rise to inadvertent,unlawful, meaningless and ulogical 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 Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 6/12 from export business, expenses excluded from|export turnover have to be excluded from total)Turnover.also.Otherwise,anyotherinterpretation makes the formula unworkableand absurd. Hence, we are satisfied that such|deduction shall be allowed from the_ totalturnover in same proportion as well”. 5.The learned Tribunal, after discussing the|rival contentions of both the Appellants-Revenue and|Respondent-Assessee, has returned findings as under: Regarding Substantial Question of law No.2: “9. We heard rival submissions and perusedmaterial on record. The comparability of the|abovementioned companies had come up for|consideration before the co-ordinate bench ofthis Tribunal in the case of Tesco Hindustan|Service Centre (P) Ltd. (supra) in which one ofus, viz., the Judicial Member is the author. |The relevant findings of the Tribunal are as|under: XXXXXXXXXX Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 7/12 10. The ld.CIT(DR) has not brought on record|anything controverting the above findings ofthe tribunal. In the circumstances, we dtrect|the AO/TPO to exclude the abovementionedcases from the list of comparables on the|ground offunctionality.” Regarding Substantial Question of law No.2: “9. We heard rival submissions and perusedmaterial on record. The comparability of the|abovementioned companies had come up for|consideration before the co-ordinate bench ofthis Tribunal in the case of Tesco Hindustan|Service Centre (P) Ltd. (supra) in which one ofus, viz., the Judicial Member is the author. |The relevant findings of the Tribunal are as|under: XXXXXXXXXX Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 7/12 10. The ld.CIT(DR) has not brought on record|anything controverting the above findings ofthe tribunal. In the circumstances, we dtrect|the AO/TPO to exclude the abovementionedcases from the list of comparables on the|ground offunctionality.” 11. As regards Quintegra Solutions Ltd., as|comparable, it is the contention of the learned|counsel for the assessee that this company|was not functionally comparable with that of|the assessee-company as it is engaged in|product engineering services, development ofproprietary software products and it has gotsubstantial R & D activity resulting in creation|of IPRs. Our attention was also drawn to)page 12 of Annual Report. Reliance was.placed on the following decisions: 1.NXP Semiconductors [ndiq Pvt. Ltd.(IT(TP) A No.1174/ Bang/ 201111.LSI Technologies India Put. Ltd.|Vs. ITO (59 taxmann.com 434) (Bang.Trib.) Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., From a perusal of the Annual Report it is clearthat the company is engaged in product|engineering services and software products.Now, the law ts quite settled to the extent thatsoftwaredevelopmentSeCTVICESCOMPA?LYcannot be compared with that of a company|engaged in software products company. This|reasoning was also followed by co-ordinate|bench in the cases cited and relied on by the|learned counsel for the assessee. In _ thcircumstances, we direct the AO/TPO toexclude those companies form the lst of|comparables. SaskenCommunicationTechnologies Ltd., 12. It is contended that during the financial|year 2006-07, it acquired Botnia Higtechwhich resulted in significant restructuring. It|is further contended that the company owns|IPRs. Hence, it is claimed that this companycannot be compared with the company which|is engaged in software service provider.Reliance was placed on the decision in the|case of Meritor LVS India (P) Ltd. vs. ACIT (64| Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 9/12 taxmann.com 136 (Bang) (Trib) and Motorolasolutions India Put. Ltd. vs. ACIT (ITA|No.5637/ Del/ 201 1) 6.However, this Court in a recent judgment|1nI.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 heldthat in these type of cases, unless an _ ex-faciperversity in the findings of the learned Income Tax|Appellate Tribunal is established by the appellant, the|appeal at the instance of an assessee or the Revenue|under Section 2Z60O-A of the Act is not maintainableThe relevant portion of the said judgment is quoted|below for ready reference: “Conclusion: | 55.ASubstantialquantumof|internationaltradeand|transactionsdepends upon the fair and quick judicialdispensation in such cases. Had it beena 10/12 9/12 taxmann.com 136 (Bang) (Trib) and Motorolasolutions India Put. Ltd. vs. ACIT (ITA|No.5637/ Del/ 201 1) 6.However, this Court in a recent judgment|1nI.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 heldthat in these type of cases, unless an _ ex-faciperversity in the findings of the learned Income Tax|Appellate Tribunal is established by the appellant, the|appeal at the instance of an assessee or the Revenue|under Section 2Z60O-A of the Act is not maintainableThe relevant portion of the said judgment is quoted|below for ready reference: “Conclusion: | 55.ASubstantialquantumof|internationaltradeand|transactionsdepends upon the fair and quick judicialdispensation in such cases. Had it beena 10/12 case of substantial question of interpretationof provisions of Double Taxation AvoidanceTreaties (DTAA), interpretation of provisionsof the Income Tax Act or Overriding Effect ofthe Treaties over the Domestic Legislationsor the questions like Treaty Shopping, BaseEroston and Profit Shifting (BEPS), Transferof Shares in Tax Havens (like in the case ofVodafone etc.), if based on relevant facts,such substantial questions of law couldbe ratsed before the High Court underSection 260-Aof the Act, the Courts couldhave embarked upon such exercise offraming and answering such substantialquestion of law. On the other hand, theappeals of the present tenor as to whetherthe comparables have been rightly picked upor not, Filters for arriving at the correct list ofcomparables have been rightly applied ornot, do not in our considered opinion, giverise to any substantial question of law.| 56. Wearethereforeof|the|considered opinion that the present appealsfiled by the Revenue do not give rise to any Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 11/12 Substantialquestionof|lawandthe.suggested substantial questions of law donot meet the requirements ofSection 260-Aof the Act and thus the appeals filed by theRevenue are found to be devoid of merit andthe same are liable to be dismissed. 57. We make it cleaqr that the same.yardsticks and parameters will have to beapplied, even tf such appeals are filed bythe Assessees, 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 Length Price“ in the case of theassessees with which the assessees maynot be satisfied and have filed such appealsbefore this Court. Therefore we clarify thatmere dissatisfaction with the findings offacts arrived at by the learned Tribunal isnot at all a sufficient reason to invokeSection 260-Aof the Act before this Court. | o8. The appeals filed by the Revenue aretherefore dismissed with no order as tocosts.” Date of Judgment 16-8-2018, ITA No.993 /2017 The Pr. Commissioner of Income-Tax & Another Vs. M/s.Citrix R & D India Pvt. ltd., 12/12 T.Havingheardthe.learnedCounsel]appearing for the Appellants-Revenue, we are therefore| of the opinion that no substantial question of law|arises in the present 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|