Date Of Judgment 19-07-2018, Ita v. M/S Amba Research India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 19 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.443/2015 BETWEEN : 1.THERE COMMISSIONER OF [INCOME TC.R. BUILDING, QUEENS ROAD,|BANGALORE,C.R. BUILDING, QUEENS ROAD,|BANGALORE, «|THE Dy. COMMISSIONER OFINCOME TAX, CIRCLE-11(1),INCOME TAX, CIRCLE-11(1), RASHTROTHANA BHAVAN, NRUPATHUNGA ROAD,BANGALORE -560 OO]NRUPATHUNGA ROAD,BANGALORE -560 OO] _ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND : M/s AMBA RESEARCH INDIA PVT. LTD.,|12 FLOOR, CONCORDE TOWER,U.B. CITY NO.24,VITTAL MALLAYA ROAD,BANGALORE,PAN: AABCA 9391H | .. RESPONDENT. (RESPONDENT SERVED.)| THIS [TA IS FILED UNDER SECTION 260-A OF INCOME|TAX ACT 1961, ARISING OUT OF ORDER DATED 17/04/2015.PASSED IN ITA NO.13760/BANG/2014, FOR THE ASSESSMENTYREAR 2OO9-2010 ANNEXURE-D. PRAYING TO: [I. FORMULAT Date of Judgment 19-07-2018, ITA No.443/2015 The Commissioner of Income Tax & another Vs. M/s Amba Research India Pvt. Ltd. THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II.|ALLOW THR APPEAL AND SET ASIDE THR ORDER PASSBED BYTHE ITAT, BANGALORE IN ITA NO.1376/BANG/2014 DATED17/04/2015 ANNEXURE-D CONFIRMING THE ORDER OF THE.APPBERELLATK COMMISSIONBR AND CONFIRM THR ORDPASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,|CIRCLE-11(1), BANGALORE. | THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V. Aravind, 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, BangaloreBench ‘B’, Bangalore inIT[TPJA No.1376/ Bang/201dated17.04.2015, relating to the Assessment Year2009-1]. 2.ThisAppealhasbeenadmittedOT)24.11.2015|to consider the following substantial|questions of law as framed by the Revenue in theMemorandum of Appeal. aWhether the Tribunal twas correct inholding that foreign exchange loss/gain is Date of Judgment 19-07-2018, ITA No.443/2015 The Commissioner of Income Tax & another Vs. M/s Amba Research India Pvt. Ltd. 3/10 operating in nature, without ascertaining thenexus of the forex gain/loss with the businessactivity of the assessee and without appreciatingthat such loss/gain though attributable to theoperating activity is not derived from theoperating activity? D2 Whether the Tribunal was right inconcluding that forex gain/loss are to be treatedas operating in nature without appreciating thatthough they may be incidental to the operatingactivity, they cannot be deemed as operating innature since, they are not critical to operational ofthe business conducted by the assessee? 3.|Whether the Tribunal twas correct indirecting the assessing officer to recomputed thededuction under section 1OA after reducingtelecommunicationExXPeNnseandExXPeNnseincurred in foreign currency on travel from totalturnover also, without appreciating that there isno provision in section 10A to the effect that suchexpenses should also be reduced from the totalturnover, as clause (Ww) of the explanation tosection 1OA provides that such expenses have tobe reduced only from the export turnover?” Regarding Substantial Question No.3: 3.The issue is covered by the decision of the Hon’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 ’bleSupremeCourt1nthe.CASEoT HCL| 4/10 Technologies Ltd. (supra),is quoted below for readyreference: - Regarding Substantial Question No.3: 3.The issue is covered by the decision of the Hon’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 ’bleSupremeCourt1nthe.CASEoT HCL| 4/10 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 arereduced from the export turnover? While|giving the answer to the issue, the HighCourt, inter-alia, held that when a particular|word 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,meaninglessand.illogical result which would cause grave|injustice to the Respondent which could have|never been the intention of the legislature. 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|TUTnNOoOValso.Otherwise,arlyotherinterpretation makes the formula unworkable|and absurd. Hence, we are satisfied thatsuch deduction shall be allowed from the totalturnover in same proportion as well”. Date of Judgment 19-07-2018, ITA No.443/2015 The Commissioner of Income Tax & another Vs. M/s Amba Research India Pvt. Ltd. Regarding Substantial Question Nos.1 & 2: 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned findings as under: “57 We have heard the rival contentions|and perused and carefully considered the|material on record; including the judicial|decisions cited and placed reliance upon. We|observe that it has not been disputed that the|foreign exchange gain has arisen as aCOMSEQUETICEof|the|realizationof|theconsideration for rendering ITES services andtherefore there is no reason for its exclusion|from the operating revenues for the purpose ofcalculating the operating margin of the|assessee. We find that this proposition has|been upheld by a co-ordinate bench of this|Tribunal in the case of Mindteck (India) Ltd. in|IT(IPJANo. 70/Bang/ 201at.2?1.8.2014wherein at para 11 thereof it has been held|as under :- XXXXXX|XXX Following the decision of the co-ordinate benchesof this Tribunal in the case of Sap Labs India Date of Judgment 19-07-2018, ITA No.443/2015 The Commissioner of Income Tax & another Vs. M/s Amba Research India Pvt. Ltd. 7/10 (Put.) Ltd. (surpa), Triology E Business SoftwareIndia Put. Ltd. (supra) and Mindteck (India) Ltd.(supra), we hold that operating revenue should becomputed by including the foreign exchange gain.Consequently, the grounds at S.Nos.2 to 4 raisedby revenue are dismissed.” XXXXXX|XXX Following the decision of the co-ordinate benchesof this Tribunal in the case of Sap Labs India Date of Judgment 19-07-2018, ITA No.443/2015 The Commissioner of Income Tax & another Vs. M/s Amba Research India Pvt. Ltd. 7/10 (Put.) Ltd. (surpa), Triology E Business SoftwareIndia Put. Ltd. (supra) and Mindteck (India) Ltd.(supra), we hold that operating revenue should becomputed by including the foreign exchange gain.Consequently, the grounds at S.Nos.2 to 4 raisedby revenue are dismissed.” 6.The controversy involved herein is no moreres integrain view oft 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 Judgment is quoted below for ready reference: “Conclusion: 05. A substantial quantum of international|trade and transactions depends upon the fair|and quick judicial dispensation in such cases.Had it been a case of substantial question ofinterpretation ofprovisions of Double Taxation|Avoidance Treaties (DTAA), interpretation ofprovisions of the Income Tax Act or Overriding|Effect of the Treaties over the Domestic 8/10 Legislations 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 onrelevant 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. 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 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| Date of Judgment 19-07-2018, ITA No.443/2015 The Commissioner of Income Tax & another Vs. M/s Amba Research India Pvt. Ltd. 9/10 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. 58. The appeals filed by the Revenue are|therefore dismissed with no order as_ tocosts.” T In the circumstances, having heard thelearned Counsel appearing for the Appellants-Revenue,We are of the considered opinion that no substantialquestion of law arises for consideration in the presentCase. | 10/10 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|