Date Of Judgment 19-07-2018, Ita v. M/S.symbol Technologies 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.534/2015 BETWEEN : 1.COMMISSIONER OF INCOMETAX-III C.R. BUILDING,|TAX-III C.R. BUILDING,| QUEENS ROAD, BANGALORE. 2.ASSISTANT COMMISSIONER OFINCOME TAX,INCOME TAX, CIRCLE- 12 (3), BANGALORE._. APPBLLANTS| (BY SRI.E I SANMATHI, ADV.) AND:| M/s. SYMBOL TECHNOLOGIESINDIA PVT. LITD.,RMZ-ECOSPACE, 4 FLOOR,BLOCK 3B,|SARJAPUR OUTER RING ROAD,DEVARABEESANAHALLT,VARTHUR HOBLI,BANGALORE - 560 037._. RESPONDENT (BY SRI.SANDEEP HUILGOL , ADV. FOR) SRILT SURYANARAYANA, ADV.) THIS TTA IS FILED UNDER SECIION 2J6O0-A OF INCOMTAX ACT 1961, ARISING OUT OF ORDER DATED:27/03/20195 Date of Judgment 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd. 2/12 PASSED IN IT(TP)A NO.296/BANG/2012, FOR THE ASSESSMENT)YREAR 2OO5-06 ANNEXURE -A. PRAYING TO: A. DECIDE THE.FOREGOING QUESTION OF LAW AND / OR SUCH OTHER,QUESTIONS OF LAW AS MAY BE FORMULATED BY THEHON'BLKE COURT AS DBEMBD FIT. B. SBT ASIDE THRAPPELLATE ORDERS DATED: 27/03/2015 THE ITAT, 'B' BENCH,BENGALURU IN IT(TP)A NO. 296/BANG/2012 FOR ASSESSMENTYRAR 2005-06 ANNBXURE-A AND TO GRANT SUCH OTHER|RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. E.I. Sanmathi, Adv. for Appellants — Revenue. |Mr. Sandeep Huilgol,Adv., forMr. T. Suryanarayana,|Adv., for Respondent- Assessee This Appeal is filed by the Revenue purportedlyraising substantial questions of law arising from theOrder of the Income Tax Appellate Tribunal, “B’ Bench,Bangalore|in.IT[TP|ANo.296/ Bang/201dated| 2'7.03.201, relating to the Assessment Year2005-06. a2ThisAppealhas|beenadmitted|OTL 14.06.2016to consider the substantial question of law.No.1 as framed by the Revenue in the Memorandum ofAppeal. Date of Judgment 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd. 3/12 “1) Whether on the facts and in thecircumstances of the case the Tribunal is right inlaw in excluding Infosys Technologies Ltd., TataElxsi Ltd., by placing reliance on its earlier orderwithout appreciating the functional similarity ofthe.aASSCSSCECOMPA?withthe.above|comparables without going into merits of each ofthe case?| However, learned Counsel for the Appellants-Revenuesubmits that substantial question Nos.2 and 3 as alsoadditional substantial question of law Nos.4 and 5 nowraised may also be considered which is quoted below forready reference.| 2) Whether on the facts and in thecircumstances of the case, the Tribunal wasjustifiedinlaw|inholding thattheexpenses/charges incurred in foreign currency,|and foreign exchange loss from total turnoverincurred inforeignCUrTerncy,and|foreignexchange loss from total turnover as well as fromexport turnover for computation of deductionu/s.10A whereas such exclusion is permitted toarrive at export turnover only as_ per _ t definitions given in Sec. 10A of the IT Act and totalturnover has not been defined in the Section? 3) Whether the Tribunal ts correct in law in|holding that the deduction u/s.10A should becomputed in the above manner following thejudgment ofjurisdictional High Court in the caseof CIT vs Tata Elxsi Ltd., which has not becomefinal since the same has not been accepted by theDepartment and SLPs filed by the revenue on thisissue are pending before the Hon’ble SupremeCourt? 4) Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in excluding certain comparable’s on theground ofRPT being more than 15%? oO)Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in excluding Foursoft Ltd and ThirdwaresoftwareSolutionsLtdOTLthe groundoffunctional dissimuarity?”| Regarding Substantial Question Nos.2 & 3: 3) Whether the Tribunal ts correct in law in|holding that the deduction u/s.10A should becomputed in the above manner following thejudgment ofjurisdictional High Court in the caseof CIT vs Tata Elxsi Ltd., which has not becomefinal since the same has not been accepted by theDepartment and SLPs filed by the revenue on thisissue are pending before the Hon’ble SupremeCourt? 4) Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in excluding certain comparable’s on theground ofRPT being more than 15%? oO)Whether on the facts and in thecircumstances of the case, the Tribunal is right inlaw in excluding Foursoft Ltd and ThirdwaresoftwareSolutionsLtdOTLthe groundoffunctional dissimuarity?”| Regarding Substantial Question Nos.2 & 3: 3.The issue is covered by the decision of the Hon’ble Supreme Court in the case of|Commissioner of Date of Judgment 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies 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 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies 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 onfreight,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 the|object of the formula is 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, weare satisfied that such deduction shall be allowedfrom the total turnover in same proportion aswell”. Date of Judgment 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd. 7/12 Regarding Substantial Question No.1: 5.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: “20. We have considered his submission and findthat the ITAT Hyderabad Bench on identicalfacts, held on comparability of TATA Elxsi Ltd. asfollows:-NXXXXKXXXX Date of Judgment 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd. 7/12 Regarding Substantial Question No.1: 5.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: “20. We have considered his submission and findthat the ITAT Hyderabad Bench on identicalfacts, held on comparability of TATA Elxsi Ltd. asfollows:-NXXXXKXXXX WieThough the issue has been set aside to theAO in the aforesaid decision, the ITAT Hyderabadin the case of NII Data India EnterpriseApplicationServices Put.Ltd.,ITANo.1612/ HYd/ 2010 order dated 23.10.2015 anin a subsequent ruling in the case of InvensysDevelopmentCentre(Put.Ltd.,ITA|No.1256/ Hyd/ 2010 order dated 28.02.2014,heldthatTATAElxsi11SNot|functionallycomparable with that of a software developmentservice provider such as the ASSe€SS€é. DT.In view of the aforesaid decision renderedon identical facts and circumstances, we are of the view that TATA Elxsi Ltd., should be excludedfrom the list of comparable companies. ~ Regarding Additional Substantial Questions of lawnow raised: “13. We have heard the rival submissions. As faras the grounds of appeal of the Revenue areconcerned, the ground with regard to improperapplication of the Related Party Transaction (RPT)filter by the CIT (A), it is not in dispute before usthat this Tribunal, in the cases of24/7 CustomerPut. Ltd. (ITA No.227/ Bang/ 201>and SonyIndia Private Ltd. reported in (2009) 315 ITR(S150 (Del.) and various other cases has taken aview that comparables having RPT of upto 15% oftotal revenues can be considered. In viewthereof, the Revenue’s grievance on this issue asprojected in the relevant ground has to beallowed. It is held that the CIT(A) ought to haveadopted a threshold limit of 15% of the totalrevenue attributable to related party transactionas ground for rejecting comparable companies.Consequently It 1S heldthatcomparablecompanies having RPI upto 15% of the totalrevenues Qlone can be included.” XXXXXXXXX Date of Judgment 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd. 9/12 “92. We have considered his submission andfind that the ITAT Hyderabad Bench on identicalfacts, held that the aforesaid two companies Viz.,Four Soft Ltd., and Thirdware Solutions Ltd., areNOTcomparable|companitesinsoftwareDevelopment Services Companies. The followingLWwWere NXXXXKXXKXX YS.In view of the aforesaid decision rendered|on identical facts and circumstances, we are ofthe view that Foursoft Ltd., and Thirdwaresolutions Ltd., should be excluded from the list ofcomparable companies7 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 537/2015dated25.06.2018[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: Date of Judgment 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd. 10/12 “Conclusion: YS.In view of the aforesaid decision rendered|on identical facts and circumstances, we are ofthe view that Foursoft Ltd., and Thirdwaresolutions Ltd., should be excluded from the list ofcomparable companies7 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 537/2015dated25.06.2018[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: Date of Judgment 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd. 10/12 “Conclusion: 55. 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 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 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 considered| opinion, 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|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 19-07-2018, ITA No.534/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd. 12/12 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.In the circumstances, having heard the learned Counsel appearing for both the sides, We are ofthe 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. AN/- Sd/-.JUDGE| Sd/-.JUDGE|