Date Of Judgment 26-07-2018, Ita v. M/S. Arctern Consulting [P] Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 26 DAY OF JULY 2O18| PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS..JUSTICK S.SUJATHA I.T.A.No.158/2018 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME-ITAX "[‘T]FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA| BENGALURU-560095.. «|THE INCOME-TAX OFFICER WARD-1]1]/2], 2 KFLOOR| BMTC BUILDING, 80 FEET ROAD KORMANGALA BBENGALURU-560095. _ APPBLLANTS| (BY SRI K.V.ARAVIND, ADV.) AND ; M/s. ARCTERN CONSULTING [P]} LTD.,49/8, Il FLOOR, 60 FEET ROADNBAR JYOTINIVAS COLLEGE|KORAMANGALA>BENGALURU-560095 PAN: AABCA 9O1IS3S.. RESPONDENT. THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 11.08.2017 PASSED IN IT/TP|JA No.302/BANG/2015, FORTHE ASSESSMENT YEAR 2010-11, PRAYING TO: I}. FORMULATE Date of Judgment 26-07-2018, ITA No.158/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd., 2/9 THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE; II]..ALLOW THR APPBAL AND SBT ASIDE THR ORDERS PASSBD BY)THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN.IT|TPJA No.302/BANG/2015 DATED 11.08.2017 AND CONFIRM)THE ORDER OF THR DRP CONFIRMING THR ORDER PASSED BY)THE INCOME TAX OFFICER, WARD-1{1][2], BENGALURU; AND.Hl], TO PASS SUCH OTHER SUITABLE ORDERS AS THIS.HON’BLE COURT DBEMS FIT TO GRANT IN THR FACTS AND.CIRCUMSTANCES OF THR CASE IN THR INTBERBST OF JUSTICEAND EQUITY.| THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUJATHA, 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 ‘A’, Bangalore, inIT[TP|A No.302/Bang/2015dated|11.08.2017, relating to the Assessment Year2010-11. a2The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are asunder: Date of Judgment 26-07-2018, ITA No.158/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd., 3/9 aWhether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in excluding certain comparable’s on thebasis of functional dissimuarity by following itsearlierjudgments? D2 Whether on the facts and in thecircumstances of the case, Tribunal ts right in law)in setting aside the recomputation of l10Adeduction made by the assessing authority byfollowing the judgment of this Hon’ble High Courtin the case of CIT v/s. Tata ElxiP” 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.CaSE€ot HCLTechnologies Ltd. (supra),is quoted below for readyreference:-. Date of Judgment 26-07-2018, ITA No.158/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd., 4/9 D2 Whether on the facts and in thecircumstances of the case, Tribunal ts right in law)in setting aside the recomputation of l10Adeduction made by the assessing authority byfollowing the judgment of this Hon’ble High Courtin the case of CIT v/s. Tata ElxiP” 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.CaSE€ot HCLTechnologies Ltd. (supra),is quoted below for readyreference:-. Date of Judgment 26-07-2018, ITA No.158/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd., 4/9 “17. The simular nature of controversy, akin|this 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 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 defined|by the legislature and an ordinary meaning is to|be attributed to it, the said ordinary meaning is tobe in conformity with the context in which it is|used. Hence, what is excluded from ‘export|turnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘total|turnover’1Sexportturnover.Anyotherinterpretation would run counter to the legislativeintent and would be impermissible. 1S. 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 only| Date of Judgment 26-07-2018, ITA No.158/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd., 5/9 in 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 theobject of the formula ts 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 and Respondent-Assessee, has returned the findings asunder: Regarding Substantial Question of Law No.1: “46. The revenue is seeking restoration of3 companies in the set of comparables viz.,|M/s. Date of Judgment 26-07-2018, ITA No.158/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd., 6/9 E-clerx Services Ltd., M/s. Infosys BPO Ltd..,& M/s. Icra Online Ltd. 47.We have heard the learned DR aswell as leqrned AR and considered the relevantmaterial on record. At the outset, we note that the|functional comparability of these 3 companieshave been examined by the co-ordinate bench ofthis Tribunal in the case of DCIT Vs. TescoHindustan Ltd., 79 Taxmann.com 259 in paras13 to 15.4 as under:| KVeVNKK” Accordingly, we do not find any error orillegality in the directions of the DRP in directingthe TPO/AO to exclude these 3 companies fromthe set of comparables.” 6.The controversy involved herein is no moreres integrain view of the decision of this Court in|L.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, is KVeVNKK” Accordingly, we do not find any error orillegality in the directions of the DRP in directingthe TPO/AO to exclude these 3 companies fromthe set of comparables.” 6.The controversy involved herein is no moreres integrain view of the decision of this Court in|L.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, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference: “Conclusion: 55.|Asubstantialquantumof)international trade and transactions dependsupon the fair and quick judicial dispensation insuch cases. Had it been a case of substantialquestion of interpretation of provisions ofDouble Taxation Avoidance Treaties (DTAA),interpretation of provisions of the Income TaxAct or Overriding Effect of the Treaties over theDomestic Legislations or the questions likeTreaty Shopping, Base Erosion and _ ProfiShifting (BEPS), Transfer of Shares in TaxHavens (like in the case of Vodafone etc.), tfbased on relevant facts, such substantialquestions of law could be raised before theHigh Court underSection 260-A of the Act, theCourtscouldhave|embarkedUpor”suchexercise of framing and answering suchsubstantial question of law. On the other hand,the appeals of the present tenor as to whetherthe comparables have been rightly picked up ornot, Filters for arriving at the correct list ofcomparables have been rightly applied or not, Date of Judgment 26-07-2018, ITA No.158/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd., 8/9 do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the considered|opinion 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 requirementsofSection 260-Aof the Act and thus theappeals filed by the Revenue are found to bedevoid of merit and the same are liable to bedismissed. 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 andfindings has found certain comparables to begood comparables to arrive at an'7s| “ArLength Price’ in the case of the assessees|with which the assessees may not be satisfiedand have filed such appeals before this Court.Therefore we clarify that mere dissatisfactionwith the findings of facts arrived at by thelearned Tribunal is not at all a sufficient reason Date of Judgment 26-07-2018, ITA No.158/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd., 9/9 to invokeSection 260-Aof the Act before this|Court. 58. The appeals filed by the Revenue are|therefore dismissed with no order as to costs.” T.In the circumstances, having heard the learned Counsel appearing for the Appellants-Revenue, we are of the considered opinion that no substantialquestion of law arises for consideration in the presentCAaSe. 8.Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordinglydismissed. Nocosts.| A copy of this Order shall be sent to the Respondent-ASssessee. NC, Sd/-.JUDGE| Sd/-.JUDGE|