Date Of Judgment 17-07-2018, Ita v. M/S Actiance India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 1/ DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.114/2015 BETWEEN : 1.THERE COMMISSIONER OF [INCOME-IC.R. BUILDING, QUEENS ROADBANGALORE,C.R. BUILDING, QUEENS ROADBANGALORE, «|THE INCOME-TAX OFFICERWARD-11(1)WARD-11(1) RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE -56000 1 _ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s ACTIANCE INDIA PVT. LTD.,|(FORMERLY KNOWN AS FACE TIMECOMMUNICATIONS INDIA PVT. LTD.)LH PARC RICHMONDEol, RICHMOND ROADBANGALORE -560025PAN: AABCV2Z926N.. RESPONDENT. (RESPONDENT SERVED.)| THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 17/10/2014 PASSED IN IT(TP)A NO.1295/BANG/2010,KOR.THEASSEKSSMENTYHAR|2006-2007|ANNEBEXURE-D Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. 2/12 PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF|LAW STATED ABOVE. Il. ALLOW THR APPEAL AND SKIT ASIDETHE ORDER PASSED BY THE ITAT, BANGALORE IN I[T(TP)ANO.1295/BANG/2010 DATED 17/10/2014 ANNEXURE-D ANDCONFIRM THR ORDER OF THR DRP CONFIRMING THR ORDER|PASSED BY THE INCOME TAX, WARD-11(2), BANGALORE. THIS APPEAL COMING ON FOR HEARING, 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 purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, Bangalore Bench ‘A’, Bangalore, inITA No.1295/Bang/2010dated17.10.2014, relating to the Assessment Year2006-07. 2.TheappealhasbeenadmittedOT)18.08.2015 to consider the substantial questions of law.No.1 to 3 as indicated in the memorandum of appeal.However, learned counsel for the Revenue seeks to.consider all the substantial questions of law framed inthe memorandum of appeal, which reads as under: Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. 3/12 “1.WhetherOF|the factsandin|the circumstances of the case, the Tribunal ts right inlaw in holding the functions of the assessee areNOTcomparabletothe functionsofKALSInformationoystemsLtd.andM/sAccelTransmission.Limitedbysuperimposingdecisions of other benches of Tribunal withoutdoing any FAR analysis in the instant case evenwhenthiscomparables satisfiesallthequalitative and quantitative filters applied by theTPO and the Tribunal ought to have decidedcomparability of these companies on the basis ofspecific facts brought on record by the TPO in thecase of assessee?| D2 WhetherOF|the factsandin|the circumstances of the case, the Tribunal is right inholding that foreign exchange loss/gain isoperating in nature without ascertaining thenexus of forex gain/loss with the businessactivity of the taxpayer and without appreciatingthat such loss/gain attributable to the operatingactivity is not derived from the operating activity|and though they may be incidental to theoperating activity, they cannot be deemed asoperating in nature since they are not critical to operational activities of the business conductedby the taxpayer? 3.|WhetherOnlthe factsandin|thecircumstances of the case right in considering thecomparables as engaged in software products|business, merely because it has developedsoftwareproductsbyfollowingsoftwaredevelopment services for its development, withouthave legal ownership on software products? 4 |WhetherOnlthefactsandin|the circumstances of the case, the Tribunal ts right in|law.insettingasidetheexclusion.oftelecommunication and travel expenses only fromexport turnover by placing reliance on _ thdecision of this Hon’ble Court in case of CIT vs.Tata Elxsi even when the sqid decision has notreached finality and no such type of computationis prescribed under the I.T.Act as held in the saidcase?” operational activities of the business conductedby the taxpayer? 3.|WhetherOnlthe factsandin|thecircumstances of the case right in considering thecomparables as engaged in software products|business, merely because it has developedsoftwareproductsbyfollowingsoftwaredevelopment services for its development, withouthave legal ownership on software products? 4 |WhetherOnlthefactsandin|the circumstances of the case, the Tribunal ts right in|law.insettingasidetheexclusion.oftelecommunication and travel expenses only fromexport turnover by placing reliance on _ thdecision of this Hon’ble Court in case of CIT vs.Tata Elxsi even when the sqid decision has notreached finality and no such type of computationis prescribed under the I.T.Act as held in the saidcase?” Regarding Substantial Question of law No.4: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case ofCommissioner of Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. 5/12 Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 4The 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 ‘exportturnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘total| Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. 6/12 turnover’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 illogical result whichwould cause grave injustice to the Respondentwhich could have never been the intention of thelegislature. 20. Even in common parlance, when the object ofthe formula is to arrive at the profit from exportbusiness, expenses excluded from export turnoverhave to be excluded from total turnover also. |Otherwise, any other interpretation makes theformula unworkable and absurd. Hence, we aresatisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell”. Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. 7/12 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: Regarding Substantial Question of law No.1: “18. The following were the _ relevanobservations of the Tribunal on the aforesaidcomparable companies in the case of Trilogy E-Business Software India Put. Ltd., [supray]:- KVeVNKK” Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. 7/12 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: Regarding Substantial Question of law No.1: “18. The following were the _ relevanobservations of the Tribunal on the aforesaidcomparable companies in the case of Trilogy E-Business Software India Put. Ltd., [supray]:- KVeVNKK” LY.The facts and circumstances underwhich the aforesaid companies were consideredas comparable is identical in the case of theAssessee as well as in the case of Trilogy E-Business Software India Pvt. Ltd., /supraj.Respectfully following the decision of the Tribunalreferred to above, we direct that the followingcompanies be excluded from the list of 26comparables arrived at by the TPO:- al|KALS Information Systems LimitedbfAccel Transmission Limited.” Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. 8/12 Regarding Substantial Question of law Nos.2 and 3: “20. As far as the comparable chosen by theTPO viz., TATA Elxsi ts concerned, this Tribunal inthe case of Yodlee Infotech Put. Ltd., Vs. ITO in|ITA No.1538/Bang/2012 by its order dated90.08.2013 held that this company is_ notfunctionallycomparablewithasoftwaredevelopment service provider. The following were|the relevant observations of the Tribunal in this|regard. KVM YI.|In view of the above, the aforesaidcompany should also be excluded for the purposeof comparison while determining the ALP of theinternational transaction in question.| DD?As far as the comparable chosen by|the TPO viz., Megasoft Ltd., in the list of finalcomparables chosen by the TPO ts concerned, this|Tribunal in the case of Trilogy E-Business|software India Put. Ltd., [supra] had held thatonly segmental data of the said company shouldbe taken for the purpose of comparison. Following|are the relevant observations of the Tribunal:-| KVeVNKK” Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. YS.In view of the aforesaid decision ofthe Tribunal, segmental margins in so far as itrelates to providing software services by Megasoftalone should be taken for the purpose ofcomparison.” 6.The controversy involved herein is no moreres integrain view of the decision of this Court in 1.T.A.Nos.536/2015 c/w 537/2015.684.25.06.2018 [Prl. |Commissioner.of|Income.TaxaAnr.V/s.M/s.Softbrands India Pvt. Ltd.,]2wherein it has beenobserved that unless the finding of the Tribunal is foundex 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: 55.ASubstantialquantumof|international trade and transactions dependsupon the fair and quick judicial dispensation|in such cases. Had it been a case of|substantial questionof|interpretationof|provisions of Double Taxation Avoidance Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. 10/12 Treaties (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|consideredopinion, giveriseTo anysubstantial question of law. 10/12 Treaties (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|consideredopinion, giveriseTo anysubstantial question of law. 06. Weare therefore of the consideredopinion that the present appeals filed by the|Revenue do not give rise to any substantialquestionof|lawand.theSuggested|substantial questions of law do not meet the Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. requirements 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 saqme'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|a sufficient reason to invoke.Section 260-Aof the Act before this Court. o8. The appeals filed by the Revenueare therefore dismissed with no order as to|costs.” Date of Judgment 17-07-2018, ITA No.114/2015 The Commissioner of Income-tax & Another Vs. M/s Actiance India Pvt. Ltd. 12/12 T.In the circumstances, having heard the learned Counsel appearing for both the sides, we are of the considered opinion that no substantial question of law arises for consideration in the present case. 8.Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordinglydismissed. No costs. A copy of this order shall be sent to the. Respondent-ASssessee. NC. Sd/-.JU DGE Sd/-.JU DGE