Date Of Judgment 28-08-2018, Ita v. M/S. Yokogawa India 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.941/2017 BETWEEN : 1.THE COMMIssIONER OF INCOME-TAX, | LTU, JSS TOWERS, Bok II] STAGE. BBENGALURU-560095. «|THE ASST. COMMISSIONER OF INCOME-TAX. LTU, CIRCLE-1, JSS TOWERS BSK II STAGE BBENGALURU-560085._ APPBLLANTS| (BY SRI K.V.ARAVIND AND SRI DILIP, ADVS.) AND ; M/s. YOKOGAWA INDIA LTD.,PLOT No.96, ELECTRONIC CITY.HOSUR ROAD, BENGALURU-560100—PAN: AAACY O84 OP. _. RESPONDENT. THIS INCOMB TAX APPBAL IS FILED UNDER SECTION|260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER|DATED 09.06.2017 PASSED IN IT(TP)A No.464/BANG/2015, FOR.THE ASSESSMENT YEAR 2010-11 VIDE ANNEXURE-D, PRAYINGTO: I} FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED ABOVE. II} ALLOW THE APPEAL AND SET ASIDE THE)ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL,BENGALURU IN IT(TP)A NO.464/BANG/2015 DATED: 09.06.2017.VIDBE ANNBXURE-D AND CONFIRM THR ORDER OF THR DRP Date of Judgment 28-08-2018, ITA No.941/2017 The Commissioner of Income-tax & Another Vs. M/s. Yokogawa India Ltd., CONFKFIRMINTHEORDERPASSEDBY|THEASST..COMMISSIONER OF INCOME TAX, LTU, CIRCLE-1, BENGALURU. THIS APPEAL COMING ON FOR ORDERS, THIS DAY,|S. SUATHA, J., DELIVERED THE FOLLOWING: JU DBiGMENT Mr. K.V.AravindAndMr. Dilip,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.464/Bang/2015 dated|09.06.2017, relating to the Assessment Year2010-11. 2.The substantial questions of law framed by the Revenue in the Memorandum of Appeal are asunder: “Whether the Hon'ble Tribunal is justifiedin setting aside the determination ofArms LengthPrice done by assessing authority and hasdirected the assessing authority to the file of theTPO/AO by considering the payment in respect of Date of Judgment 28-08-2018, ITA No.941/2017 The Commissioner of Income-tax & Another Vs. M/s. Yokogawa India Ltd., management fees and global sale and marketingactivity fees as part of the operating cost andallocating the same in the ration of the turnover ofthe other international transactions when eachtransaction is different and should be analyzedseparatelyandwithoutappreciating thatduplication of services and benefit analysis isvery important to bench mark the transaction intransfer pricing?” 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: “d We have heard the learned D.R. as'well as learned A.R. and considered the relevantmaterial on record. We find that the assessee hascarried out multiple and diversified internationaltransactionsindifferent segments.Theinternational transactions of the assessee involvecharges for raw material and components, salesand manufacturing goods, reimbursement ofExpenses,paymenttowards|royalty andmanagement fees, charges of capital equipment,payment of intra-goods services, charges ofmaterial,commissionincome, renderingof Date of Judgment 28-08-2018, ITA No.941/2017 The Commissioner of Income-tax & Another Vs. M/s. Yokogawa India Ltd., 4/8 3.The learned Tribunal, after discussing therival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings asunder: “d We have heard the learned D.R. as'well as learned A.R. and considered the relevantmaterial on record. We find that the assessee hascarried out multiple and diversified internationaltransactionsindifferent segments.Theinternational transactions of the assessee involvecharges for raw material and components, salesand manufacturing goods, reimbursement ofExpenses,paymenttowards|royalty andmanagement fees, charges of capital equipment,payment of intra-goods services, charges ofmaterial,commissionincome, renderingof Date of Judgment 28-08-2018, ITA No.941/2017 The Commissioner of Income-tax & Another Vs. M/s. Yokogawa India Ltd., 4/8 software services, reimbursement of expensesand Global Sale and Marketing Activity Fees. TheTPO has accepted all other transactions exceptthe international transactions regarding Globalsale and Marketing Activity Fees. It is pertinent tonote that the international transactions of theassessee are comprising of revenue receipt fromthe AE as well as revenue payment to the AE.Therefore in these facts and circumstances of thecase, we find that when the other internationaltransactions regarding revenue receipt from theAE are tested under the TNMM analysis then thetransaction of fee payment by the assesseetowards the services rendered by the AE shouldnot be separately tested but all the internationaltransactions having receipt from the AE andpayment to the AE shall be clubbed together andthen has to be analysed under TNMM. We furthernote that the DRP has directed the TPO todetermine the ALP in respect of the Global SaleandMarketingActivityFeesinsteadofconsidering the ALP at NIL. Therefore in principlewe do not find any error or illegality in thedirections of the DRP however having regard tothe peculiar facts and circumstances of the casewherein the assessee is having multiple anddiversified international transactions involving Date of Judgment 28-08-2018, ITA No.941/2017 The Commissioner of Income-tax & Another Vs. M/s. Yokogawa India Ltd., 5/8 receipt as well as payment, we are of theconsidered view that the payment in respect ofmanagement fees as well as Global Sale andMarketing Actwity Fees shall be considered asoperating cost and has to allocated in the ratio ofturnover of the other international transactionsand then the ALP of the other internationaltransactions has to be determined under TNMManalysis. Hence we set aside the entire issue ofdetermination of ALP and TP Adjustment to therecord of the TPO/A.O. for carrying out freshexercise of determination of ALP in respect ofinternational transactions by considering thepayment in respect of management fees andGlobal Sale and Marketing Activity Fees as partof the operating cost and allocating the same inthe ratio of the turnover of the other internationaltransactions. 4However, this Court in a recent judgment inI.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" Date of Judgment 28-08-2018, ITA No.941/2017 The Commissioner of Income-tax & Another Vs. M/s. Yokogawa India Ltd., 6/8 established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A otthe Act is not maintainable. The relevant portion of the said judgment isquoted below for ready reference: “Conclusion: 4However, this Court in a recent judgment inI.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" Date of Judgment 28-08-2018, ITA No.941/2017 The Commissioner of Income-tax & Another Vs. M/s. Yokogawa India Ltd., 6/8 established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A otthe Act is not maintainable. The relevant portion of the said judgment isquoted below for ready reference: “Conclusion: 038. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|OmCaASeofsubstantialquestionof|interpretation of provisions of Double TaxationAvoidance Treaties (DTAA), interpretation ofprovisions of the Income Tax Act or OverridingEffectoftheTreatiesOVECTthe|Domestic.Legislations or _ the questions like TreatyShopping, Base Erosion and Profit Shifting(BEPS), Transfer of Shares in Tax Havens (like inthe case of Vodafone etc.), if based on relevantfacts, such substantial questions of law couldbe raised before the High Court underSection260-A|of the Act, the Courts could haveembarked upon such exercise of framing and)answering such substantial question of law. Onthe other hand, the appeals of the present tenor Date of Judgment 28-08-2018, ITA No.941/2017 The Commissioner of Income-tax & Another Vs. M/s. Yokogawa India Ltd., as to whether the comparables have been rightlypicked up or not, Filters for arriving at the correctlist of comparables have been rightly applied ornot, do not in our considered opinion, give rise toany substantial question of law. 56. We are therefore of the consideredopinion 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 requirements ofSection 260-A.of the Act and thus the appealsfiled by the Revenue are found to be devoid ofmerit 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 theAssessees, because, there may be cases where)the Tribunal giving its own reasons and findingshas found certain comparables to be goodcomparables to arrive at an‘Arm’s LengthPrice“ in the case of the assessees with whichthe assessees may not be satisfied and have filedsuch appeals before this Court. Therefore weclarify that mere dissatisfaction with the findingsoffacts arrived at by the learned Tribunal is not at all a sufficient reason to invokeSection 260-Aof the Act before this Court. o8. The appeals filed by the Revenue aretherefore dismissed with no order as to costs.” 5.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. NC. Sd/-.JUDGE| Sd/-.JUDGE|