Date Of Judgment 29-08-2018, Ita v. M/S Misys Software Solutions India (P) Ltd., 2/10

IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 29 DAY OF AUGUST 2018. PRESENT THR HON’BLEK DR.JUSTICE VINBBT KOTHARI ANT) THR HON’BLE MRS.JUSTICEK S.SUJATHA I.T.A. No.204/2018 BETWEEN : 1.PR. COMMISSIONER OF INCOME TAX-4,| BMTC COMPLEX, KORAMANGALA, BANGALORE| «|THE DY. COMMISSIONER OF INCOME TAX| CIRCLE-12(1), BANGALORE. APPELLANTS > (BY SRI.E.IL.SANMATHI, ADV.) AND ; M/S.MISYS SOFTWARE SOLUTIONS INDIA (P) LTD.,|HAGLE RIDGE,BRMBASSY GOLF LINKSBUSINESS PARK,|OFF INTERMEDIATE RING ROAD,|DOMLUR, BANGALORE —- 560 071_ RESPONDENT THIS INCOME TAX APPEAL IS FILED UNDER SKC.260-A|OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:|27/09/2017 PASSED IN IT(TP)A NO.1071/BANG/2013, FOR THEASSESSMENT YEAR:2008-09 VIDE ANNEXURE - A, PRAYING TO:(1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR.SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATEDBY THR HON'BLE COURT AS DBEBMEBED FIT AND SKHT ASIDE Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 2/10 APPELLATE ORDER DATED:27/09/2017 PASSED BY THE.INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BENGALURU,|IN APPEAL PROCEEDINGS NO.JT(TP)A NO.1071/BANG/2013>FOR ASSESSMENT YBAR JOO8-09 VIDE ANNBXURE - A. THIS APPEAL COMING ON FOR ADMISSION, THIS DAY,S. SUATHA, J., DELIVERED THE FOLLOWING: JU DGMENT Mr. E.I.Sanmathi ,_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, BangaloreBench ‘A’, Bangalore, inIT[TP|A No.1071/Bang/2013dated|2'7.09.201>.(Deputy Commissioner of Income Tax)Vs.M/sMisyssoftwareSolutions(Indta)Put..Ltd.)relating to the Assessment Year|2008-09. ? The substantial questions of law framed inthe Memorandum of appeal by the Appellants-Revenueare quoted below for ready reference: “1. Whether the Tribunal, Bangalore, erred indirecting the A.O. to exclude of comparable Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 3/10 companies having RPI transactions more than)15% ignoring the TPO’s observation that the basisfor determining the threshold limit for eliminating|companies having RPI transactions more than)25% was through the determination of Indiancompanies with foreign shareholding greater than26% and therefore had its basis in the provisionsof the IT Act, 1961 and the accounting standardsAS-18?| 2. Whether, on the facts and in the circumstancesof the case, the Tribunal was right in excludingcertain comparable’s on the ground offunctionaldissimilarity in the field of software segment andITES segment even when the TPO has rightlychosen the same as the functions of the saidcompanies are similar to that of the assessee? 3. Whether on the facts and circumstances of thecase, the Tribunal is right in gwing relief toassessee in respect of computation of sectionIOA deduction by relying upon the decision of thisHon’ble Court in case of CIT V/s. Tata Elxsi whenthe said ruling has not reached finality? ~ Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 4/10 3. The learned counsel appearing for the Appellants. — Revenue, Mr. E.I. Sanmathi submitted that he does. not press the third Substantial Question of Law raisedby him in the present appeal. The same is placed onrecord. 4The learned Tribunal, after discussing the rivalcontentions of both the Appellants-Revenue and theRespondent-Assessee, has given the following findings:-| Regarding substantial questions of law Nos.1 & 2: Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 4/10 3. The learned counsel appearing for the Appellants. — Revenue, Mr. E.I. Sanmathi submitted that he does. not press the third Substantial Question of Law raisedby him in the present appeal. The same is placed onrecord. 4The learned Tribunal, after discussing the rivalcontentions of both the Appellants-Revenue and theRespondent-Assessee, has given the following findings:-| Regarding substantial questions of law Nos.1 & 2: 12. We have considered the rival submissions as|well as the relevant material on record. At the outset,we find that in the case of Telelogic India (Put) Ltd.Vs. DCIT (supra) the TPO selected an identical set of20 companies for determining the ALP of the saidassessee in software development services segmenttransactions. Thus when the TPO itself taken the’identical set of 20 companies as _ functionallcomparable to the said company namely TelelogicIndia (Put) Ltd. Vs. DCIT (supra) then the functionalprofile of the said company and the assessee beforeus are treated as identical by the TPO. The Tribunalwhile considering the functional comparability of allthese 13 companies has held in para 10 as under: XXXXXXXXXXXX Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 5/10 In view of the findings and decision of the co-ordinate Bench of this Tribunal on the functionalcomparability of these companies, we direct theTPO/A.O. to exclude 12 companies from the set ofcomparables.AS|regardsthefunctionalcomparability of Bodhtree Consulting Ltd., it isclearfrom the order of the Tribunal in the case ofTelelogic India (Put) Ltd. Vs. DCIT (supra), theTribunal has considered the objections of heassessee only on account of fluctuating profitmargin of the said company and therefore noother functional aspect was examined by theTribunal in the said case. Whereas in the case ofAutodesk India Pvt. Ltd. Vs. DCIT (surpa) anidentical issue of functional comparability wasconsidered by the Tribunal in paras 5.1 to 5.3 asunder: XXXXXXXXXXXXXKM Thus it 1s clear that in the sqid order the Tribunalhas examined the functional profile of the saidcompany and various segments from which thiscompany is generating revenue and finally cometo the conclusion that this company i1s_ nofunctionally comparablewith pure softwaredevelopment services provider like assessee.Accordingly following the said decision of the co- Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 6/10 ordinate Bench of this Tribunal and by takingnote of the fact that there is no difference in thefunctional profile of the company as we note fromthe segment-wise and product-wise performanceof the said company was given at page No.12 oftheAnnual reportforthe|Yearunderconsideration.Accordingly,|thisCOTTLDPA1S directedto|be|excludedfromthe Sef|ofcomparables. Hence we direct the TPO/A.O. toexclude all these 13 companies from the set ofcomparables as under: (i) AVanicin Cincom Technologies Ltd.(u) Bodhtree Consutling Limited(ut) Celestial Bio-labs Limited(w) e-Zest Solutions Limited (v) Infosys Limited(vi) Kals Information Systems Limited (Seg.) (vi) Persistent Systems Limited|(vit) Quintegra Solution Limited(ix) Tata Elxsi Limited (Seg.)(x) Thirdware Solution Limited(xt) Wipro Limited (Seg.)(xtt) Softsol India Limited(xt) Lucid Software Limited.” Oo. However, this Court in a recent judgment in. I.T.A. Nos.536/2015 c/w 537/2015delivered on. Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 7/10 25.06.2018 (Pri. Commissioner of Income Tax & Anr. -—v- M/s Softbrands India Pvt. Ltd,) has held) (i) AVanicin Cincom Technologies Ltd.(u) Bodhtree Consutling Limited(ut) Celestial Bio-labs Limited(w) e-Zest Solutions Limited (v) Infosys Limited(vi) Kals Information Systems Limited (Seg.) (vi) Persistent Systems Limited|(vit) Quintegra Solution Limited(ix) Tata Elxsi Limited (Seg.)(x) Thirdware Solution Limited(xt) Wipro Limited (Seg.)(xtt) Softsol India Limited(xt) Lucid Software Limited.” Oo. However, this Court in a recent judgment in. I.T.A. Nos.536/2015 c/w 537/2015delivered on. Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 7/10 25.06.2018 (Pri. Commissioner of Income Tax & Anr. -—v- M/s Softbrands India Pvt. Ltd,) has held) that in these type of cases, unless an ex-facieperversity in the findings of the learned Income TaxAppellate Tribunal is established by the appellant,the appeal at the instance of an assessee or theRevenue under Section YJ60-A of the Act 1s notmaintainable. The relevant portion of the said judgment isquoted 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|Treaties over the Domestic Legislations or the |questions like Treaty Shopping, Base Erosion Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 8/10 and 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 underSection260-4of 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, Filters 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|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. Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 9/10 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|7¢§ “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. 58. The appeals filed by the Revenueare therefore dismissed with no order as to|costs.” 6. 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-| Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd., 10/10 Revenue is liable to be dismissed and it is dismissed| accordingly. No costs. Copy of this order be sent to the Respondent- Assessee forthwith. | Psg” Sd/-. JUDGE| Sd/-.JUDGE|