Date Of Judgment 18-07-2018, Ita v. M/S Multitech Software Systems India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 18 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.530/2015 BETWEEN : 1.Pr. COMMISSIONER OF INCOME TAX,C.R.BUILDING, QUEENS ROAD,C.R.BUILDING, QUEENS ROAD, BANGALORE -560 OO] «|ASSISTANT COMMISSIONEROF INCOME TAX,| CIRCLE -12 (1), BANGALORE_ APPBLLANTS| (BY SRI E.I.SANMATHI, ADV.) AND : M/s MULTITECH SOFTWARE|SYSTEMS INDIA PVT. LTD.,NO.170, 3 CROSS, 10 MAIN,INDIRANAGARA 2 STAGE,BANGALORE-560038,PAN: AAACMY6150Q_. RESPONDENT. THIS [TA IS FILED UNDER SBKBCTION 260-A OF [INCOTAX ACT 1961, ARISING OUT OF ORDER DATED 30/04/2015.PASSED IN I[T(TPJA NO.175/BANG/2012, FOR THE ASSESSMENTYREAR 2005-06 ANNEXURE-A. PRAYING TO DECIDE THEFOREGOING QUESTION OF LAW AND/OR SUCH OTHER,QUESTIONS OF LAW AS MAY BE FORMULATED BY THEHON'BLKE COURT AS DEBEBMBD FIT AND SHBT ASIDE Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. APPELLATE ORDER DATED: 30/04/2015 PASSED BY THE ITAT,‘A’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO. LT(TP)A)NO.175/BANG/2012|KHORASSESSMENTYEARA2QOQOS-ANNEXURE-A, AS SOUGHT FOR IN THIS APPEAL.| THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. E.I. Sanmathi, Adv. for Appellants — Revenue. | This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, Bangalore Bench ‘A’, Bangalore inIT([TPIA No.175/Bang/201 dated30.04.2015, relating to the Assessment Year2005-06 ?)ThisAppealhasbeenadmittedOTL 29.02.2016to consider the substantial questions of law Nos.l1 and 2 as framed by the Revenue in theMemorandum of Appeal. aWhether, on the facts and in thecircumstances of the case, the Tribunal erred inordering for exclusion of M/s Foursoft Ltd., whichhas RPT or control transactions in excess of 15% Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. of total revenue by relying on its own decisionwhich has not reached finality in the case of24/7 CustomerCarePut.Ltd.in|ITA|No.227/Bang/2010 and even when the TPO had)computed in accordance with lawP D2 Whether, on the facts and in thecircumstances of the case, the Tribunal was rightin setting holding that the companies havingexceeding Rs.200 Crore should be excluded fromlist of comparables by relying upon its earlierdecision which has not reached finality and sameis not permitted? However, learned Counsel for the Appellants-Revenuesubmits that substantial question No.3 may also beconsidered which is quoted below for ready reference. 3.|Whether, on the facts and in thecircumstances of the case, the Tribunal was rightin setting computation of deduction done byassessingauthorityundersectionLOA|byexcluding the expenses incurred in foreigncurrency from export turnover (telecommunicationexpenses and expenses incurred in _ foreigcurrency)whilecomputingdeductionunderSection JOA even when same was in accordance|parameters of section 10A and when the decision relied up by Tribunal in the case of TATA Elxsihas not reached finality?” Regarding Substantial Question No.3: 3.The 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). 4The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCL|Technologies Ltd. (supra),is quoted below for readyreference: - relied up by Tribunal in the case of TATA Elxsihas not reached finality?” Regarding Substantial Question No.3: 3.The 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). 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,akin this case, arose before the Karnataka|High Court inCIT v. Tata Elxsi Ltd. [2012]204 Taxman 321/17/taxman.com 100/349ITR 98. The tssue before the Karnataka HighCourt was whether the Tribunal was correct|in holding that while computing relief under|Section 1OA of the IT Act, the amount of|communication expenses should be excludedfrom the total turnover if the same are Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 5/13 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 an|ordinary meaning 1s to be attributed to it, the|said ordinary meaning is to be in conformity|with the context in which it is used. Hence,what is excluded from ‘export turnover’ must|also be excluded from ‘total turnover’, since|one of the components of ‘total turnover’ 1s|export turnover. Any other interpretation|would run counter to the legislative intent and|would be impermissible. — TSB. XXXKXX X 19. In the instant case, tf the deductionson freight, telecommunication and insurance|attributable to the delivery of computer'software under Section 10A of the IT Act areallowed only in Export Turnover but not from|the Total Turnover then, it would give rise to|inadvertent,unlawful,meaninglessandulogical result which would cause _ graveinjustice to the Respondent which could have|never been the intention of the legislature. Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 20. Even in common parlance, when theobject of the formula is to arrive at the profit|from export business, expenses excluded fromexport turnover have to be excluded from total|CTUTNOVETalso.Otherwise,anyotherinterpretation makes the formula unworkable|and absurd. Hence, we are satisfied thatsuch deduction shall be allowed from the totalturnover in same proportion as well”. Regarding Substantial Question No.1: 5.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: "13.2.1We|have|heardtherivalcontentions of both the learned Departmental|Representative for revenue and the learnedAuthorised Representative of the assessee onthis1SSuUuandperusedandcarefullyconsidered the material on record. Thelearned Authorised Representative of the|assessee has referred to the decision of the|co-ordinate bench of this Tribunal in the case|of 24/7 Customer.Com Put. Ltd. in ITA| Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 7/13 No.227/Bang/ 2010whiuilmaking|submissions on the RPT filter in the case ofFour Soft Ltd.. We find that the co-ordinatebench of this Tribunal, in the aforesaid case,has directed that companies with RPT inexcess of 15% of total revenues are to be|excluded from the set of comparables. The|operative paragraph 13, thereof is extracted|hereunder °:- XXXX KXKXXX XXX Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 7/13 No.227/Bang/ 2010whiuilmaking|submissions on the RPT filter in the case ofFour Soft Ltd.. We find that the co-ordinatebench of this Tribunal, in the aforesaid case,has directed that companies with RPT inexcess of 15% of total revenues are to be|excluded from the set of comparables. The|operative paragraph 13, thereof is extracted|hereunder °:- XXXX KXKXXX XXX 13.2.2 In the light of the above decision of the|co-ordinate bench of this Tribunal in the case|of 24/7 Customer.Com Put. Ltd. (supra), we|find that the decision of the learned CIT(Appeals) in excluding those companies withany RPI is not in keeping with the above|decision of the co-ordinate bench of this|Tribunal. Respectfully following the above|decision, we hold that the learned CIT.(Appeals) was not correct in holding thatcompanies with any RPT have to be excluded|from the set of comparable companies, anddirect the TPO / A.O. to apply the RPTfilter at|15% of total revenues for including /|excludingthecomparable|companies, Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 8/13 excluded by the learned CIT (Appeals), in the|finalset.of|comparables. ConsequentlyGround No.3 raised by revenue is partly|allowed. | 13.2.3 In view of the decision of the co-ordinate bench of this Tribunal in 24/7|Customer.Com Put. Ltd. (supra), out of the 6|companies excluded by the learned CIT|(Appeals), five companies, namely (1) Sasken|Network Systems Ltd. (2) R.S. Software IndiaLtd. (3) Geometric Software Solutions Ltd. (4)| Tata|ElxstiLtd.and|(S)SaskenCommunications Technology Ltd. are restored|to the list of comparable companies as they|have RIP of less than 15%. Only onecompany, namely, similarly, Four Soft Ltd. at|S.No.6 of the TPO’s list of comparables is to|be excluded as a comparable company, on|the ground that it has RPT in excess of 15%.In the T.P. Order, the percentage of RPT oversales for this company has been mentionedas 19.89%. Therefore, following the decision|of the co-ordinate bench of this Tribunal in the|case of 24/7 Customer.Com Put. Ltd. (supra), we hold and direct that the company Four|soft Ltd. shall be excluded from the set of|comparable companies chosen by the TPO.” Regarding Substantial Question No.2: “14 3)We|have|heardthe|rivalcontentionsandperusedand.carefullyconsidered the material on record, including|the judicial decisions’ citedand placedreliance upon. We find that a co-ordinate|bench of this Tribunal in the case of Genisys|Integrating Systems (India) Put. Ltd. (Supra)has held that turnover its an important filter ofcomparability which has to be adopted for|determination of ALP and has determined the|upper limit of the turnover filter to be applied|at Rs.?0OO Crores in cases where the turnoverof the assessee 1s less than Rs.200 Crores. In|the case on hand, the turnover of the|assessee being approx. Rs.7.97 Crores only,|falls within the range of Rs.1 Crore to Rs.200Crores. Therefore, following the decision of|the co-ordinate bench of this Tribunal in the|case of Genisys Integrating Systems (India)|Put. Ltd. (supra), we hold and direct that only Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 10/13 those companies having a turnover of Rs.1|Crore|toRs.200Croresbetakenascomparablecompaniesand|consequentlyuphold the decision of the learned CIT(Appeals) in excluding the above mentioned|five companies, listed at para 14.1 of thisorder from the TPO’s list of comparables.|Consequently, Ground No.4 of Revenue’s|appeal is dismissed.“ 6.The controversy involved herein is no moreres integrain view ot the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018 Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 10/13 those companies having a turnover of Rs.1|Crore|toRs.200Croresbetakenascomparablecompaniesand|consequentlyuphold the decision of the learned CIT(Appeals) in excluding the above mentioned|five companies, listed at para 14.1 of thisorder from the TPO’s list of comparables.|Consequently, Ground No.4 of Revenue’s|appeal is dismissed.“ 6.The controversy involved herein is no moreres integrain view ot the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated25.06.2018 [Prl. Commissioner of Income Tax & Anr. V/s.M/s.Softbrands India Pvt. Ltd.,]wherein 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: | 05. A substantial quantum of international|trade and transactions depends upon the fair| Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 11/13 and quick judicial dispensation in such cases.Had it been a case of substantial question ofinterpretation ofprovisions of Double Taxation|Avoidance Treaties (DIAA), interpretation of|provisions of the Income Tax Act or Overriding|Effect of the Treaties over the DomesticLegislations or the questions like TreatyShopping, Base Erosion and Profit Shifting|(BEPS), Transfer of Shares in Tax Havens.(like in the case of Vodafone etc.), if based on|relevant facts, such substantial questions|of law could _ be raised before the High|Court underSection 260-Aof the Act, theCourts could have embarked upon such|exercise of framing and answering such|substantial question of law. On the otherhand, the appeals of the present tenor as to|whether the comparables have been rightly|picked up or not, Filters for arriving at thecorrect list of comparables have been rightly|applied or not, do not in our consideredopinion, give rise to any substantial question|of law. Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 12/13 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 cleqr that the sameyardsticks 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 “Arm Length 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. Date of Judgment 18-07-2018, ITA No.530/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd. 13/13 o8. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” T In the circumstances, having heard the learned Counsel for the Appellants-Revenue, We are of the considered opinion that no substantial question oflaw arises for consideration in the present case. _ 8.Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordinglydismissed. Nocosts. Copy of this order be sent to the Respondent- Assessee, forthwith. AN/-| Sd/-.JUDGE. Sd/-.JUDGE.