Date Of Judgment 21-08-2018, Ita v. M/S. Verifone India Technology Private Limited

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 21 DAY OF AUGUST 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.615/2017 BETWEEN : 1.PR. COMMISSIONEROF INCOME TAX-/BMTC COMPLEX, KORMANGALA|BANGALORE.OF INCOME TAX-/BMTC COMPLEX, KORMANGALA|BANGALORE. «|DEPUTY COMMISSIONEROF INCOME TAX.CIRCLE-12] 5}BANGALORE. _ APPBLLANTS| (BY SRI SANMATHI.E.I., ADV.) AND : M/s. VERIFONE INDIA |THCHNOLOGY PRIVALILE LIMITEA-101, CYBER PARK,PLOT No./76/77/78,DODDATHOGUR VILLAGEBEGUR HOBLI, SOUTH TALUKBENGALURU-560100.. .. RESPONDENT. THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 24.03.2017 PASSED IN IT/TP|A No.1/BANG/2014, FOR:THEASSESSMENTYRARAQOSB-2ZOOVIDEANNEXURE-A,|PRAYING TO: |1]| DECIDE THE FOREGOING QUESTION OF LAW Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 2/10 AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE.RFORMULATBED BY THR HON’BLBE COURT AS DBBMED FIT ASEIT ASIDE THK APPELLATE ORDER DATED 24.03.2017 PASSEDBY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH,|BANGALORE,AS|SOUGHTFOR,|IN|TH EREBESPONDENASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN IT/TP|A.No.1/BANG/2014 FOR A.Y 2008-2009 VIDE ANNEXURE-A ANDGRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THEINTKBREST OF JUSTICE. THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT 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[TP|A No.1/Bang/2014dated|24.03.2017, relating to the Assessment Year2008-09. a2The substantial questions of law framed by the Revenue in the Memorandum of Appeal are asunder: Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. aWhether on the facts and in thecircumstances of the case, the Tribunal ts justified|in rejecting companies on functional dissimilargrounds when it satisfies all the qualitative andquantitative filters applied by the TPO by using anarrowerfunctionality filter than TPO, but has nottested other comparables against the narrowerfunctionality filter applied by it?| D2 Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in setting aside the computation made undersection 10A of the Act by following the judgmentof this Hon'ble High Court in the case of CIT V/s.Tata Elxsi even when the sqid decision has notreached finality?” Regarding Substantial Question of Law No.2: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case ofCommissioner 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 Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 4/10 Technologies Ltd. (supra),is quoted below for ready reference: - Regarding Substantial Question of Law No.2: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case ofCommissioner 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 Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 4/10 Technologies Ltd. (supra),is quoted below for ready reference: - “17. The similar nature of controversy, akinthis case, arose before the Karnataka High CourtinCIT v. Tata Elxsi Ltd. [2012] 204 Taxman|321/17/taxman.com 100/349 ITR 98. The issuebefore the Karnataka High Court was whether|the Tribunal was correct in holding that while|computing relief under Section 10A of the IT Act,the amount of communication expenses should be|excluded from the total turnover if the same are.reduced from the export turnover? While giwing|the 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 ‘totalturnover’1S|exportTurnover,Anyother|interpretation would run counter to the legislativeintent and would be impermissible. TSB. XXXXXX Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 5/10 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 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 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”. 5.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 6/10 Regarding Substantial Question of Law No.1: “12=|We|have.consideredthe|rivalsubmissions and perused the material on record.We find that the above comparables had come forconsideration before the coordinate bench in thecase of Trilogy where the issue whether thiscompany can be compared with that of puresoftwaredevelopmentcompaniesWasconsidered, and it was held as follows: KVeVNKK” 13. The learned DR has not brought anyevidence on record controverting the findings ofthe Tribunal in the above case. Hence, we haveno option but to follow the orders of thecoordinate bench. Accordingly, we uphold theexclusion of these comparables on the ground offunctional dissimilarities. Thus the grounds ofappeal filed by the revenue are dismissed.” 6.However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 7/10 —v- M/s Softbrands India Pvt. Ltd.») has held that in KVeVNKK” 13. The learned DR has not brought anyevidence on record controverting the findings ofthe Tribunal in the above case. Hence, we haveno option but to follow the orders of thecoordinate bench. Accordingly, we uphold theexclusion of these comparables on the ground offunctional dissimilarities. Thus the grounds ofappeal filed by the revenue are dismissed.” 6.However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 7/10 —v- M/s Softbrands India Pvt. Ltd.») has held that in these type of cases, unless an ex-iacie perversity in thefindings of the learned Income Tax Appellate Tribunal isestablished by the appellant, the appeal at the instanceof an assessee or the Revenue under Section 260-A otthe Act is not maintainable. The relevant portion of the said judgment isquoted 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 oOf|substantial questionof|interpretationof|provisions of Double Taxation AvoidanceTreaties (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| Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 8/10 etc.), uf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-4of 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 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 be Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 9/10 applied, 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. “ArLength 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.” T.Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of theopinion that no substantial question of law arises in thepresent case also. The Appeal filed by the Appellants-|Revenue is liable to be dismissed and it is dismissed|accordingly. No costs. Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited. 10/10 Copy of this Order be sent to the Respondent- Assessee forthwith. NGC. Sd/-.JUDGE. Sd/-.JUDGE|