Date Of Judgment 28-08-2018, Ita v. M/S. Cerner Healthcare Solutions 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.490/2017 BETWEEN : 1.THE PR.COMMISSIONEROF INCOME-TAX, |![‘T]FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-560 OOD.OF INCOME-TAX, |![‘T]FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-560 OOD. «|THER INCOME-TAX OFFICER WARD -11(1), PRESENT ADDRESSACIT, CIRCLE-2(1)(1)~ FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-506 OOD.WARD -11(1), PRESENT ADDRESSACIT, CIRCLE-2(1)(1)~ FLOOR, BMTC BUILDING80 FEET ROAD, KORMANGALA|BENGALURU-506 OOD. . APPELLANTS| (BY SRI K.V.ARAVIND, AND SRI DILIP, ADVS.) AND ; M/s. CERNER HEALTHCARESOLUTIONS PVT. LTD., GROUND FLOOR, WING B,BLOCK H2, MOUNTAIN ASH,MANYATA EMBASSY BUSINESS PARK,OUT RING ROAD, NAGAWARABBENGALURU-560 045.PAN: AACGCC 3795R._. RESPONDENT. Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 16/01/2017, PASSED IN IT|TP/A NO.69/BANG/2015,.FOR THE ASSESSMENT YEAR 2010-2011 VIDE ANNEXURE-D,PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS|OF LAW STATED ABOVE. 2. ALLOW THERE APPKAL AND SEASIDE THR ORDERS PASSED BY THR INCOME TAX APPELLATETRIBUNAL,|BBRENGALURIN|IT(TP)ANO.69/BANG/2015_DATED:16/01/2017 VIDE ANNEXURE-D AND CONFIRM THEORDER OF THR APPKLLATKE COMMISSIONER CONFIRMING THEORDER PASSBED BY THR ASST. COMMISSIONBR OF [INCOMTAX, CIRCLE-2(1)(1), BENGALURU. S. SUATHA, J., DELIVERED THE FOLLOWING: THIS APPEAL COMING ON FOR ORDERS, THIS DAY,| JU DBiGMENT Mr. K.V.Aravind1Mr. Dilip,Advs. 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.69/Bang/2015dated16.01.2017, relating to the Assessment Year2010-11. a2The substantial questions of law framed bythe Revenue in the Memorandum of Appeal are asunder: Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 3/12 aWhether on the facts and in thecircumstances of the case, the Tribunal erred inholding that the assign authority is not right inincluding expenditure incurred in foreign currencyfrom export turnover and from total turnover byrelying upon the decision of this Hon'ble Court incase of CIT V/s. Tata Elsxt even when theassessing authority has rightly included theaccording to parameters set out in section 10Aand the decision relied upon by the Tribunal hasnot reached finality? D2 Whether on the facts and in thecircumstances of the case, the Tribunal erred indirecting the TPO to exclude certain comparableby relying on its earlier decisions which has notreached finality and even when the TPO hasrightly chosen the said comparable consideringthe functions and as the said comparablesatisfies all the required tests?| 3.|Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in directing the assessing authority to allowactual adjustment towards the differences in theworking capital position between assessee andcompanies selected as comparable by relying onits earlier decision in case of Moong Controls Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 4/12 India Put. Ltd., in ITA No.551/ Bang/ 2015 date27.11.2015 even when the assessee had not!produced|materialwithregardTodemonstrate such claim and without appreciatingthat actual working capital employed by thecomparable during the year is not provided byassessee? 3.|Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in directing the assessing authority to allowactual adjustment towards the differences in theworking capital position between assessee andcompanies selected as comparable by relying onits earlier decision in case of Moong Controls Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 4/12 India Put. Ltd., in ITA No.551/ Bang/ 2015 date27.11.2015 even when the assessee had not!produced|materialwithregardTodemonstrate such claim and without appreciatingthat actual working capital employed by thecomparable during the year is not provided byassessee? 4 |Whether on the facts and in thecircumstances of the case, the Tribunal ts right in|law in directing the assessing authority to acceptthe TPO to consider Foreign Exchange Fluctuationas operating in nature by relying on its earlierdecision in the case of Electronics for ImagingIndia Put. Ltd., even when the Transfer PricingOfficer has rightly treated foreign exchangefluctuations as non-operating in nature?” 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). Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 5/12 4The relevant portion of the judgment of the Hon'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.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 6/12 LSE, XXXXXX 19. In the instant case, if the deductions on|freight,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 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 the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 7/12 Regarding Substantial Question of Law Nos.2 & 3: 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 the rival contentions of both the Appellants-Revenue andRespondent-Assessee, has returned the findings asunder: Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 7/12 Regarding Substantial Question of Law Nos.2 & 3: “11.We|have.consideredtherivalsubmissions and gone through relevant materials.The relevant portion of the order from the case ofElectronics for India Imaging India P Ltd ay 2010-Ilin IT (TPRJA no. 212/Bang/2015 & CO No94/Bang/2015 dt 24.02.2016 is extracted as)under: KVeVNKK” 13. We find that the CIT (A) accepted theassessee’s plea by following the decisions of thisTribunal in Genisys Integrating System v DCIT 15ITR Trib 475, Kodiak Networks v ACIT 15 ITR Trib610, Trilogy e-Business Software India v DCIT 23ITR Trib 464 and held that those companieswhich are within the turnover range of Rs onecrore to Rs two hundred crore only should betaken into consideration for the TP study andhence directed the TPO to exclude Infosys Ltd,Larsen & Toubro Infotech Ltd, Mindtree Ltd (seg) ,Persistent System Ltd, Sasken communicationTechnologies and Tata Elxsit Ltd(seg) againstwhich the Revenue filed appeals. However, fromthe decisions extracted, supra , the assessee hasmade out a case for the exclusion of ICRA Techno Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 8/12 Analytics Ltd. (seg), Infosys Technologies Ltd.,KALS|InformationoystemsLtd,PersistentoystemsLtd,SaskenCommunicationTechnologies Ltd, Tata Elxsi Ltd and L&T InfotechLtd. Following them, we direct the TPO to excludethem from the list of comparables. To that extent,the assessee’s appeal grounds are allowed andthe Revenue’s appeal grounds are dismissed.With regard to the comparable Mindtree Ltd (seg),sincetheaSSCSSCChasnotopposedthe|Revenue’s appeal, the Revenue’s appeal on that)comparable is treated as allowed.” Regarding Substantial Question of Law No.4: “14. The next issue that the AR submittedthat the TPO has considered foreign exchangefluctuations as non-operating in nature. Its foreignexchange gain should be considered as operatingin nature. The CIT (A) has, inter alia, directed theTPO to accept the assessee’s claim, on which, theRevenue is on appeal. We have considered therival contentions. This issue is remitted back tothe TPO to examine whether the foreign exchangeloss / gain is out of current years’s transactionsor not. If that gain/ loss arises out of currentyear’s transactions, then, it should be treated as Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 9/12 operating in nature. To that extent Revenue’sclaim 1s allowed.” 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.|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 Avoidance 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.|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 Avoidance Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 10/12 Treaties (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.), uf 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 the Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 11/12 requirements 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 clear that the same'§yardsticks 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 | “A Length 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.” Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd., 12/12 T.Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of theopinion 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|