Date Of Judgment 28-08-2018, Ita v. M/S.marvel 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.273/2017 BETWEEN: 1.PR. COMMISSIONER OF INCOME TAX - 4.BMTC COMPLEX, KORAMANGALA,BMTC COMPLEX, KORAMANGALA, BANGALORE. 2.THE ASSISTANT COMMISSIONER OF INCOME TAX |CIRCLE-12 (1).BANGALORE.... APPELLANTS (BY SRI.LSANMATHI E I, ADV.) AND: M/S MARVEL INDIA PVT. LTD. —NO 23, AIRPORT ROAD, |~ FLOOR, LEELA GALLERIABANGALORE —- 560 OO8PAN: AABCM5559R ... RESPONDENT THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDERDATED:17/006/2016 PASSED IN IT(TP)A NO.1033/BANG/2011,FOR THE ASSESSMENT YEAR 2007-2008 VIDE ANNEXURE - APRAYING TO: (1) DECIDE THE FOREGOING QUESTION OF LAW,AND / OR SUCH OTHER QUESTIONS OF LAW AS MAY BE.RFORMULATBED BY THR HON'BLBE COURT AS DBEBMED FIT Date of Judgment 28-08-2018, ITA No.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. SETASIDE.TH EAPPELLATE|ORDERDATED:17/06/2016|PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’BENCH, BENGALURU, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS IN I[I(TP)ANO.1033/BANG/2011 FOR A.Y. 2007-2008 VIDE ANNEXURE -A. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. Sanmathi E.L,,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.1033/Bang/2011dated|17.06.2016, relating to the Assessment Year2007-08. 2.The substantial questions of law framed by the Revenue in the Memorandum of Appeal are asunder: “1.|WhetherOTFthe factsandin|thecircumstances of the case, that the Tribunal isright in law in including the expenditure incurredin foreign currency by relying upon the decision of Date of Judgment 28-08-2018, ITA No.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. 3/12 this Hon’ble High Court in the case of CITv/s.Tata Elaxy even when the said decision hasnot reached finality and no such way of re-computation as directed by the Tribunal isprovided under the provisions of IT Act and whenthe Revenue has preferred appeal before thisHon’ble Court against its original order?| 2. Whether on the facts and in the circumstancesof the case, Tribunal is right in law in directingthe Transfer Pricing Officer/assessing authorityto exclude certain comparables on the basis offunctional dissimilarity, applying filter, such as,onsite revenue, employee cost, export revenue,different year ending, declining revenue, turnover,revenue from relevant segment less than 75% oftotal revenue by following its earlier decisionseven when the TPO has applied qualitative andquantitative test and has chosen the comparableson the basis ofFAR analysis?”| Regarding Substantial Question of Law No.1: 3.The issue is covered by the decision of the Hon’ble Supreme Court in the case ofCommissioner of Date of Judgment 28-08-2018, ITA No.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. 4/12 Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 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 the Hon’ble Supreme Court in the case ofCommissioner of Date of Judgment 28-08-2018, ITA No.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. 4/12 Income-tax, Central -— III vs. HCL Technologies Ltd.,[2018] 93 Taxmann.com 33(SC). 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 ‘exportturnover’ must also be excluded from ‘totalturnover’, since one of the components of ‘total| 5/12 turnover’1S|exportTurnover,Anyother|interpretation would run counter to the legislativeintent and would be impermissible. LSE, 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 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”. Date of Judgment 28-08-2018, ITA No.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. 6/12 5.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.2: “7 We have considered the rival submissions. Wefind that in the present case, it is noted by theTPO on page No.2 & 3 of his order that theassessee company is engaged in _ renderinservices to the AE relating to designing ofintegrated circuits and the testing of integratedcircuits along with customer support. It is alsonotedbythe.TPOthattheinternational|transactions are mainly of Rs.15,03,62,370/- forsoftware services apart from re-imbursement ofexpenses of Rs.21.45 lacs and 22.61 lacs. In thecase of M/s Hewlet Packard (Ind.) SoftwareOperation Ltd. (Supra) also, the internationaltransaction included mainly the services renderedas software development services of Rs.5854.51lacks. Similarly, in the case of M/s.Meritor LVSIndia (P) Ltd., (Supra) also, it was noted by theTribunal in para-5 of the Tribunal’s order thatfinal TP adjustment recommended by the TPOwas only on the software development services Date of Judgment 28-08-2018, ITA No.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. 7/12 Date of Judgment 28-08-2018, ITA No.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. 7/12 (seg). Hence, in our considered opinion, these twoTribunal orders are squarely applicable in thepresent case because Id. DR of the revenue failedto point out any difference in facts in the presentcase and in these two cases. As per para-14 ofthe Tribunal order in the case of M/s HewletPackard (Ind.) Software Operation Ltd. (Supra),the Tribunal held that 11 comparables t.e. M/sAvant Cimcon Technologies Ltd., 2) M/s CelestialLabs Ltd., 3) M/s E-Zest Solutions Ltd., 4) M/sFlextronics Software Systems Ltd., (Seg) } 5) M/sHelios & Matheson Information Technology Ltd.,6) M/s Infosys Technologies Ltd., 7) M/s IshirInfotech Ltd., 8) M/s Kals Information SystemsLtd., 9) M/s Lucid Software Ltd., 10) Persistentsystems Ltd., and 11) M/s Wipro Ltd., (Seg) areto be excluded. Regarding M/s Megasoft Ltd., itwas held by the Tribunal that M/s Megasoft Ltdcan be considered for inclusion only aftersegmentation of its results. For the sake of readyreference, we reproduce para-14¢4 of this Tribunaorder is reproduced. In the tribunal orderrendered in the case of M/s Meritor LVS India (P)Ltd., (Supra) also, para-14 of the Tribunal order is|relevant which is also reproduced hereunder; NXXXXKXKXXX 8/12 It can be seen that as per this Tribunalorder also, it was held by the Tribunal that inrespect of M/s Megasoft Ltd., the AO/TPO weredirected to re-work its segmental results andconsider its comparability only with regard tosoftware development services (Seg). It wasdirected that M/s Accel Transmatic Ltd., (Seg)M/s Tata Elxst Ltd. and M/s Thirdware SolutionsLtd., should be excluded in addition to other 11comparables, which were directed to be excludedas per Tribunal order in the case of M/s HewletPackard (Ind.) Software Operation Ltd., (Supra).We therefore, direct the AO/TPO to exclude 14comparables including 11 comparables as perTribunal order in the case of M/s Hewlet Packard(Ind.) Software Operation Ltd., (Supra) and threecomparables as per Tribunal order in the case ofM/s Meritor LVS India (P) Ltd., (Supra), as notedabove. One comparable M/s Megasoft Ltd.,Should be considered for inclusion as per itssegmental results only. The AO/TPO should passnecessary order as per law and as per abovediscussion after providing an opportunity of beingheard to the assessee. These four grounds aredisposed of in this manner.” Date of Judgment 28-08-2018, ITA No.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. 9/12 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.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. 10/12 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.273/2017 Pr. Commissioner Of Income Tax - 4 & Another Vs. M/s.Marvel India Pvt. Ltd. 10/12 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| 11/12 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 12/12 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. PMR Sd/-.JU DGE Sd/-.JUDGE|