Date Of Judgment 28-08-2018, Ita v. M/S. Winphoria Networks 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.1072/2017 BETWEEN : 1.PRINCIPAL COMMISSIONER ©OF INCOME TAX-4BMTC COMPLEX, KORAMANGALABENGALURU. «|THERE JOINT COMMISSIONEOF INCOME TAX (OSD)CIRCLE-12 (5), BMTC COMPLEX.KORAMANGALA>BBENGALURU._ APPBLLANTS| (BY SRI SANMATHI.E.I., ADV.) AND : M/s. WINPHORIA NETWORKS INDIA PVT. LTD.,(SINCE MERGED WITHMOTOROLA INDIA PVT LTD.,) NO.66/1, PLOT NO.95,BAGAMANB TKHCH PARKC.V. RAMAN NAGAR POST,BBRENGALURU-560 09PAN: AAACW 3220K.. _. RESPONDENT. THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|2600-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED 24/05/2017, PASSED IN IT(TP)A NO.25/BANG/2012,. Date of Judgment 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 2/10 FOR THE ASSESSMENT YEAR 2005-2006 (VIDE ANNEXURE-A),_PRAYING TO: (a) DECIDE THE FOREGOING QUESTION OF LAW,AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE.FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. (b).SETASIDE.TH EAPPELLATE|ORDERDATED:24/05/2017PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B'|BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO. IT(TP)A)NO.25/BANG/2012 FOR THE ASSESSMENT YEAR 2005-06 AS.SOUGHT FOR IN THIS APPEAL; (VIDE ANNEXURE-A) AND TO.GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE)INTKBREST OF JUSTICE. THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUJATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. Sanmath1.E.I.,|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 ‘B’, Bangalore, inIT[TP|A No.25/Bang/2012dated24.05.2017, relating to the Assessment Year2005-06. 2.The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are asunder: Date of Judgment 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 3/10 aWhetherOF.thefactsand|circumstances of the case, the Tribunal ts justified|in allowing the appeal in favour of the assesseeby relying on the decision of the Tata Elxsi, onwhich decision of this Hon’ble Court, the Revenueis infurther appeal before the Apex Court? D2 WhetherOF.the.factsand|circumstances of the case, the Tribunal ts right in|law.inholding thatfewcompaniesarefunctionally different from assessee when itsatisfies all the qualitative and quantitative filters|applied by the TPO. Tribunal has used anarrowerfunctionality filter than TPO, but has nottested other comparables against the narrowerfunctionality filter applied by itr” Regarding Substantial Question of Law No.1: 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 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 4/10 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 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 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 4/10 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|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 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 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 therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Date of Judgment 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 6/10 Regarding Substantial Question of Law No.2: “10. We heard rival submissions and'perusedmaterialon record. The issue ofcomparability of the above companies has comeup for consideration before the co-ordinate benchin the case of M/s. NIT Data Global Deliveryservices Ltd., [supra] wherein the comparability ofthese companies was discussed as under: KVeVNKK” Respectfully following the ratio of the|decision in the case of M/s. NTT DATA GlobalDelivery Services Ltd., [supral we uphold theorder of the TPO/AO in including the followingcomparable companies: {ij Exensys Software Solutions Ltd., /uf Sankhya Infotech {ut} Geometric Software Solutions Ltd., and| fw] Flextronics Software Systems Ltd. We direct the AO/TPO to exclude thefollowing companies from the list of comparablecompanies: {i} Foursoft Ltd., and {uf Thirdware Solutions Ltd., fut} Tata Elxsi Ltd.” Date of Judgment 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 7/10 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. {ij Exensys Software Solutions Ltd., /uf Sankhya Infotech {ut} Geometric Software Solutions Ltd., and| fw] Flextronics Software Systems Ltd. We direct the AO/TPO to exclude thefollowing companies from the list of comparablecompanies: {i} Foursoft Ltd., and {uf Thirdware Solutions Ltd., fut} Tata Elxsi Ltd.” Date of Judgment 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 7/10 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 otthe Act is not maintainable. The relevant portion of the said judgment is. quoted below for ready reference: “Conclusion: 55.Asubstantial quantumof|international trade and transactions depends|upon the fair and quick Judicial dispensation|in such cases. Had it been a case oOf|Substantialquestionof|interpretation|of|provisions of Double Taxation AvoidanceTreaties (DTAA), interpretation ofprovisions ofthe Income Tax Act or Overriding Effect of the| Date of Judgment 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 8/10 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|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|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| Date of Judgment 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 9/10 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. “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 the Date of Judgment 28-08-2018, ITA No.1072/2017 Principal Commissioner of Income Tax-4 & Another Vs. M/s. Winphoria Networks India Pvt. Ltd., 10/10 opinion that no substantial question of law arises in the present 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. NGC. Sd/-.JUDGE. Sd/-.JUDGE|