Date Of Judgment 28-08-2018, Ita v. M/S.century Link Technologies India Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 28 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.1059/2017 BETWEEN : 1.THE PR. COMMISSIONER OF INCOME TAX,|[‘T]FLOOR, BMTC BUILDING ~[‘T]FLOOR, BMTC BUILDING ~80 FEET ROAD, KORMANGALABENGALURU — 560 O95BENGALURU — 560 O95 2.THR DEPUTY COMMISSIONER OF INCOME TAX |CIRCLE-12(2), PRESENT ADDRESSCIRCLE 2(1)(1),.2 FLOOR, BMTC BUILDING,80 FEET ROAD, KORMANGALABENGALURU — 560 O95 .. APPELLANTS (BY SRI. ARAVIND K V & SRI. DILIP, ADVS.) AND: M/s. CENTURY LINK TECHNOLOGIES INDIA PVT. LTD.,(FORMERLY KNOWN AS M/S QWEST TELECOMSOFTWARE SERVICES PVT. LTD..,)BLOCK B, I & II FLOOR,B WING , SURVEY NO.15/3 & 16°KADUBEESANAHALLI, VARTHUR HOBLIBBENGALURU — 560 103PAN: AAHCGS 7683M_. RESPONDENT Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 2/10 THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED:09.06.2017 PASSED IN C.O.NO.48/BANG/2016, FOR:THE ASSESSMENT YEAR 2008-2009 VIDE ANNEXURE - E,|PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OFLAW STATED ABOVE. Il. ALLOW THR APPEAL AND SKIT ASIDETHR ORDERS PASSED BY THR [NCOMB-TAX APPELLATE|TRIBUNAL, BENGALURU IN C.O.NO. 48/BANG/2016 DATED:09.06.2017 VIDE ANNBXURE - B CONFIRMING THR ORDER OF)THR APPBELLATK COMMISSIONBR AND CONFIRM THR ORDERPASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-2(1)(1), BENGALURU. S. SUJATHA, J., DELIVERED THE FOLLOWING: THIS APPEAL COMING ON FOR ORDERS, THIS _ DAY,| JU DGMENT Mr. K.V. AravindandMr. Dilip,Advs. tor 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 ‘B’, Bangalore, inC.O.No.48/ Bang/2016dated| 09.06.2017, relating to the Assessment Year2008-09. Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 3/10 a2The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether, on the facts and circumstances ofthe case, the Tribunal is right in law in settingaside the re-computation of deduction undersection IOA of the Act by following the decision ofthis Hon’ble High Court in the case of CIT v/s.Tata Elxsi which has not reached finality?| 2. Whether, on the facts and circumstances of thecase, the Tribunal is right in law in directingAO/TPO to exclude certain comparable based onfunctional dissimilarity even when the TPO haschosen.theSqidcomparablebyapplyingqualitative and quantitative filers when cullingout comparable companiesPr~ Regarding Substantial Question of Law No.1: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case of|Commissioner of Income-tax, Central - III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC). Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 4/10 4The relevant portion of the judgment of theHon'blesupremeCourtin.theCaSE€oT|HCL|Technologies Ltd. (supra),is quoted below for readyreference:-. Regarding Substantial Question of Law No.1: 3.The issue is covered by the decision of theHon’ble Supreme Court in the case of|Commissioner of Income-tax, Central - III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC). Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 4/10 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 ‘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. | Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 5/10 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 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 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 therival contentions of both the Appellants-Revenue and Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 6/10 Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.2: “13. We have considered the rival submissions aswell as perused the material on record. The issueof comparability of the above 11 comparables thefollowing comparables was examined by thiscoordinate bench of this Tribunal in case ofKodiak Networks (India) Put. Ltd. Vs. DCIT inIT(TP) A No.1540/Bang/2012 for the sameassessment year which is also engaged in thesoftware development services. One of us Le.Hon’ble judicial member, is the author of order,wherein, the Tribunalfollowing the decision of thecoordinate bench in the case of SDPLM SoftwareSolutions Ltd. Vs DCIT 42 taxmann.com 333 heldthat these companies were functionally differentand therefore held to be ircomparable with that ofthe pure software development companies. Therelevantobservation.made|bytheHon’bleTribunal in the case of Kodiak Networks (India)Pvt. Ltd. Vs DCIT are extracted below. Avanti Cincom Technologies Ltd. XXXXXXX Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 7/10 Q. Celestial Biolabs Ltd.| NXXXXKXXKXX Respectfullyfollowingthedecisionofthecoordinate bench in the qbove case twe direct theTPO to exclude the above companies from the listof comparables.” Avanti Cincom Technologies Ltd. XXXXXXX Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 7/10 Q. Celestial Biolabs Ltd.| NXXXXKXXKXX Respectfullyfollowingthedecisionofthecoordinate bench in the qbove case twe direct theTPO to exclude the above companies from the listof comparables.” 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. —v- M/s Softbrands India Pvt. Ltd.») has held that inthese type of cases, unless an ex-facie perversity in thefindings of the learned Income Tax Appellate Tribunal is"established by the appellant, the appeal at the instanceof an assessee or the Revenue under Section J60-A ofthe Act is not maintainable. The relevant portion of the said judgment is. quoted below for ready reference: Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 8/10 “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|etc.), tf based on relevant facts, such|substantial questions of law could beraised before the High Court underSection260-Aof 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| Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd. 9/10 consideredopinion,|giverisetO arysubstantial 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 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 | “ALength 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| 10/10 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. Copy of this Order be sent to the Respondent-Assessee forthwith. PMR Sd/-.JUDGE. Sd/-.JUDGE.