Date Of Judgment 23-07-2018, Ita v. M/S. Verisign Services India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 23 DAY OF JULY 2018 PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A. No.295/2016 BETWEEN : 1.Pr. COMMISSIONER OF INCOME TAX-/BMTC COMPLEX, KORAMANGALABMTC COMPLEX, KORAMANGALA BANGALORE, «|DEPUTY COMMISSIONER ~OF INCOME TAX, CIRCLE-12(5)14/3, 9[‘TH]KFLOOR, R.P.BHAVAN,NRUPATHUNGA ROAD,BANGALORE-O1._ APPBLLANTS| (BY SRI E.I.SANMATHI, ADV.) AND : M/s VERISIGN SERVICES INDIA PVT. LTD.,SUMMIT NO.6/B, 7 MAIN.3 BLOCK, 80 FT. ROADKORAMANGALA>BANGALORBE-560 034PAN: AAACL87/12 FI_. RESPONDENT. (BY SMT.J.KEERTHANA REDDY, ADV. FOR SRI T.SURYANARAYANA, ADV.) THIS [TA IS FILED UNDER SBKBCTION 260-A OF [INCOTAX ACT 1961, ARISING OUT OF ORDER DATED 30/10/2015.PASSEDIN|IT(TP)ANO.1404/BANG/2010,KOR.THE Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., ASSESSMENT YEAR 2006-2007 ANNEXURE-A. PRAYING TO: (A),DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH.OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THEHON'BLE COURT AS DEEMED FIT. (B) SET ASIDE THE.APPELLATE ORDER DATED 30/10/2015 PASSED BY THE ITAT,‘A’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO. IT(TP)A)NO.1404/BANG/2010 FOR ASSESSMENT YEAR 2006-2007ANNEXURE-A, AS SOUGHT FOR IN THIS APPEAL AND TO GRANTSUCH OTHER RELIEFK AS DEEMED HIT THIS APPEAL COMING ON FOR HEARING, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. E.I.Sanmathi,Adv. for Appellants — Revenue.Mrs. J.Keerthana Reddy,Adv., for | Mr. 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, BangaloreBench ‘A’, Bangalore in.IT|TP|A No.1404/Bang/2010 dated00.10.2015, relating to the Assessment Year2006-07. ? ThisAppealhasbeenadmittedOT)07.11.2017to consider the following substantialquestions of law as framed by the Revenue in theMemorandum of Appeal. Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 3/10 aWhether on the facts and in thecircumstances of the case, the Tribunal was rightin holding that few companies are functionallydifferent from assessee when it satisfies all thequalitative and quantitative filters applied by theTPO without testing the other comparablesagainst the narrower functionality filter appliedby it? D2 Whether on the facts and in thecircumstances of the case, the Tribunal was rightin directing the assessing authority to excludecomparable companies having RPI transactionsmore than 15% without asking the TPO to make afresh)TPStudysinceaqualitativeandquantitative filter, namely, RPI filter, has beenchanged resulting in changing criteria whichrequires afresh TP study using updated filters?” 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding Substantial Question No.1: “15. We have perused the orders andheard the rival contentions and also carefullygone through the chart submitted by the assesseeand the decisions relied upon by the assessee. Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 4/10 3.The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding Substantial Question No.1: “15. We have perused the orders andheard the rival contentions and also carefullygone through the chart submitted by the assesseeand the decisions relied upon by the assessee. Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 4/10 The decision mainly relied on by the assessee forexclusion of various companies listed by it in itschart is that of Co-ordinate Bench in the case ofM/s ThoughtWorks Tech./Ind.]/ Put. Ltd., Vs. DCITinIT/ITPIANo. 1326/Bang//2010dated30.07.2015. On the strength of this orderaASSCSSCE1S seekingexclusionM/s.|Aztecsoftware Ltd., M/s. Geometric Software Ltd.,[Seg./ M/s. Infosys Ltd., and M/s. Kals Infosystems Ltd., M/s. Mindtree Consulting Ltd.,M/s. Persistent Systems Ltd., M/s. SaskaenCommunications [Seg./ M/s. Tata Elxsi Ltd., [Seg./M/s.|AccelTransmaticsLtd.,[Seg./,M/s.|Flextronics Software Systems Ltd., [Seg./ M/s.Megasoft Ltd., and M/s. itGate Global Solutions[Seg./. No doubt, the decision of the Co-ordinateBench in the case of M/s. ThoughtWorks [Ind./Put. Ltd., [supra/ was also for the very sameassessment year and also in relation to softwareservices development segment. Therefore, in ouropinion, assessee is justified in relying on theabove decision for seeking exclusion. The Co-ordinate Bench at para-6.3 of the above decisionheld M/s. Aztec Software Ltd., [supra] and M/sGeometric Software Ltd., [Seg./ to be not goodcomparables on account of application of RPTfilter. M/s. Infosys Ltd., [supra] was directed to Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 5/10 be excluded on application of turnover filter atpara 6.2 of very same decision. M/s. Kals Infosystems Ltd /supra/ was held to be functionallynot comparable to a_ software developmentservices provider at para 6.4 to 6.5 of the verysame decision. M/s. Mindtree Consulting Ltd.,and M/s. Persistent System Ltd., excluded onapplication of upper turnover of Rs.200 Crores atpara-6.2 of the very same decision. M/s. SaskenCommunication Ltd., [Seg./ was directed to beexcluded for the very same reason. M/s. TataElxsit Ltd., was found to be functionally notcomparable at 6.4 to 6.5 of the same decision.M/s. Accel Transmatcics Ltd [Supraj/ was alsofound functionally not comparable to a softwaredevelopment services provider in the very samepara. M/s. Flextronics Software System Ltd/Supral was directed to excluded applying theturnover filter at para-6.2 of the same ruling. M/s.Megasoft Ltd [Supra] was directed to be excludedapplying the RPT filter of 15% at Para-6.3 of thevery same decision. M/s. tGate Global SolutionsLtd [Supra] was directed to be excluded byapplication of turnover filter again at para-6.2 ofthe same order. These paras 6.2, 6.3, 6.4 & 6.5are reproduced hereunder:| XXXXX Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 6/10 In all these cases, the Tribunal hadconsidered the functional dissimilarity of thesecompanies with software development companieslike the assessee and has held as under forexclusion of these companies.” Regarding Substantial Question No.2: “15. We also find that 15% as_ thethreshold limit for applying RPT filter was laiddown by the Co-ordinate Bench decision in thecase of 24/7 Customer.com Pvt. Ltd., Vs. DCIT[2013] 140 ITD 944. Similarly, Co-ordinate Benchin the case of M/s Genesis Integrating System[Ind.]| Put. Ltd., V/s. DCIT [2011] 64 DTR 0225had directed exclusion of companies, applying theturnoverfilter of 1 to 200 Crores. | XXXXX Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 6/10 In all these cases, the Tribunal hadconsidered the functional dissimilarity of thesecompanies with software development companieslike the assessee and has held as under forexclusion of these companies.” Regarding Substantial Question No.2: “15. We also find that 15% as_ thethreshold limit for applying RPT filter was laiddown by the Co-ordinate Bench decision in thecase of 24/7 Customer.com Pvt. Ltd., Vs. DCIT[2013] 140 ITD 944. Similarly, Co-ordinate Benchin the case of M/s Genesis Integrating System[Ind.]| Put. Ltd., V/s. DCIT [2011] 64 DTR 0225had directed exclusion of companies, applying theturnoverfilter of 1 to 200 Crores. | 16.However, out of the very manycompanies which prima facie have to be excludedon account of the decision of the Co-ordinateBenches in the case of M/s ThoughtWorks Tech.|[Ind.} Put. Ltd., /supra/, 24x7 Customer.Com Put.Ltd., [Supral and M/s Genesys Integratingsystem India Put. Ltd., [supra/, we find that M/sAztec Software Ltd., M/s. Accel Transmatics Ltd.,/Seg./ M/s. Megasoft Ltd., were part of assessee’sown transfer pricing study. Further, vis-a-visM/s. Geometric Software Ltd., [Segment! M/s. Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 7/10 MindtreeConsultingLtd.,M/s.|Persistentsystems Ltd., assessee had not raise anyobjections before either the TPO or DRP againsttheir exclusion. At the same time, we note thatvis-a-vis M/s. Aztec Software Ltd., and M/s.Accel Transmatics Ltd., and M/s. Megasoft Ltd.,through it formed a part of assessee’s owntransfer pricing study, assessee had exclusioneither before the TPO and/or the DRP seekingtheir exclusion citing the application of RPT filterand functional disparity. The DRP had rejectedthis. Considering all these, and the Co-ordinateBench decision cited above, we direct exclusion ofthe following companies. XXXXX 17.Comparabilityof M/s.Geometric|softwareLtd.,[SegmentalM/s.|MinadtreeConsulting Ltd., and M/s. Persistent SystemsLtd., are remitted back to the file of the AO/TPOfor consideration afresh in accordance with thejudgment of Punjab & Haryana High Court in thecase of M/s. Quark Systems Ltd., /[Supra/ sincetheir exclusion was not sought by the assesseebeforethe|lowerauthorities.Orderedaccordingly.” Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 8/10 4The controversy involved herein is no moreres integrain view ot the decision of this Court inI1.T.A.Nos.536/2015 c/w 537/2015dated95.06.2018[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: oo. A substantial quantum of international tradeand transactions depends upon the fair and quickjudicial dispensation in such cases. Had it beena case of substantial question of interpretation ofprovisions of Double Taxation Avoidance Treaties(DTAA), interpretation of provisions of the IncomeTax Act or Overriding Effect of the Treaties overthe Domestic Legislations or the questions likeTreaty Shopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), if based on relevantfacts, such substantial questions of law couldbe raised before the High Court underSection Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 9/10 “Conclusion: oo. A substantial quantum of international tradeand transactions depends upon the fair and quickjudicial dispensation in such cases. Had it beena case of substantial question of interpretation ofprovisions of Double Taxation Avoidance Treaties(DTAA), interpretation of provisions of the IncomeTax Act or Overriding Effect of the Treaties overthe Domestic Legislations or the questions likeTreaty Shopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), if based on relevantfacts, such substantial questions of law couldbe raised before the High Court underSection Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 9/10 260-A|of the Act, the Courts could haveembarked upon such exercise of framing and)answering such substantial question of law. Onthe other hand, the appeals of the present tenoras to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the consideredopinion that the present appeals filed by theRevenue do not give rise to any substantialquestion of law and the suggested substantialquestions of law do not meet the requirements ofSection 260-A.of the Act and thus the appealsfiled by the Revenue are found to be devoid ofmerit 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 theAssessees, because, there may be cases wherethe Tribunal giving its own reasons and findingshas found certain comparables to be goodcomparables to arrive at an‘Arm’s LengthPrice“ in the case of the assessees with whichthe assessees may not be satisfied and have filed Date of Judgment 23-07-2018, ITA No.295/2016 Pr. Commissioner of Income Tax-7 & another Vs. M/s. VeriSign Services India Pvt. Ltd., 10/10 such appeals before this Court. Therefore weclarify that mere dissatisfaction with the findings|offacts arrived at by the learned Tribunal is notat all a sufficient reason to invokeSection 260-Aof the Act before this Court. o8. The appeals filed by the Revenue are)therefore dismissed with no order as to costs.” 5.In the circumstances, having heard thelearned Counsel appearing for both the parties, We areof the considered opinion that no substantial questionof law arises for consideration in the present case. 6.Hence, the Appeal filed by the Appellants-Revenue is liable to be dismissed and is accordinglydismissed. Nocosts. AN / Sd/-.JUDGE| Sd/-.JUDGE|