Date Of Judgment 30-08-2018 I.t.a v. M/S. Tektronix (India) Pvt Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 30 DAY OF AUGUST 2018. PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA|I.T.A.No.284/2018 BETWEEN: 1.PR. COMMISSIONER OF INCOME TAX-/| BMTC COMPLEX, KORAMANGALA BANGALORE. 2.DBPUTY COMMISSIONER OF INCOME TAX CIRCLE - 12(4), BENGALURU. _ APPBLLANTS (By Mr. E.I. SANMATHI, ADV.) AND: M/S. TEKTRONIX (INDIA) PVT. LTD.(FORMERLY TEKTRONIX ENGINEERINGDEVELOPMENT (INDIA) P. LTDSY.NO.16, SALARPURIA PREMIASARJAPUR OUTER RING ROAD|KADUBEESANA HALLI, BENGALURU-9560 103PAN NO: AAACT /289E _ RBSPONDENT (By Mr. ANKUR PAI, ADV.) THIS L.T.A. IS FILED UNDER SEHKCIION J6O0O-A OF THEACT, 1961, PRAYING TO DECIDE THE FOREGOING QUESTIONOF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE. Date of Judgment 30-08-2018 I.T.A.No.284/2018Pr. Commissioner of Income JTax-/7 & Anr. VsM/s. Tektronix (India) Pvt Ltd., 2/9 RFORMULATBED BY THR HON’BLBE COURT AS DBBMED FIT ASET ASIDK JHE APPELLATK ORDER DATEL: 27-10-2017.PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO. IT(TP)A)No.293/BANG/2014 FOR A.Y.2009-10 VIDE ANNEXURE ‘A’ AS_SOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER|RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS ILT.A. COMING ON FOR ORDERS THIS DAY, |S. SUJATHAJT DRBLIVERBD THE FOLLOWING : JUDGMENT Mr. E.I. SanmathiAdv. for Appellants-RevenueMr. Ankur Pai. Adv. for Respondent -Assessee| The Appellants-Revenue have filed this appeal u/s.260Aof the Income Tax Act, 1961, raising purportedly certain substantial questions of law arisingfrom the order of the.ITAT ‘B’ Bench, Bangalore>.dated|27.10.2017passed in IT(TP)A No.293/Bang/2014for theA.Y.2009-1Q. 2 |The proposed substantial questions of lawframed1n the Memorandum|ot appealby the.Appellants-RevenueaTe€quotedbelowfor.readyreference: - Date of Judgment 30-08-2018 I.T.A.No.284/2018Pr. Commissioner of Income JTax-/7 & Anr. VsM/s. Tektronix (India) Pvt Ltd., 3/9 aWhetherOnlthe.factsandcircumstances of the case, the Tribunal|was right in law in excluding 2 companies:as comparables on functional dissimuarity|by following its earlier order?” | D2 Whether on the facts and in thecircumstances of the case, the Tribunal|was right in law in directing the assessingauthority/ TPO to consider foreign exchangegain/loss while determining Arm’s Length|Price?” 3.|The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the followingfindings:- | ;Regarding substantial question of law No.1: “Infosys Ltd: TI.It was submitted before us by the Ld.AR that Infosys Ltd is notfunctionally comparablewith the assessee as it is clear from the annualreport of the company that the company isearning revenue from software services andproducts. Our attention was drawn to page 924 4/9 D2 Whether on the facts and in thecircumstances of the case, the Tribunal|was right in law in directing the assessingauthority/ TPO to consider foreign exchangegain/loss while determining Arm’s Length|Price?” 3.|The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the followingfindings:- | ;Regarding substantial question of law No.1: “Infosys Ltd: TI.It was submitted before us by the Ld.AR that Infosys Ltd is notfunctionally comparablewith the assessee as it is clear from the annualreport of the company that the company isearning revenue from software services andproducts. Our attention was drawn to page 924 4/9 of the paper book where Infosys earned profitfrom software services and products, it earnedrevenue from licences of software products.Infosys spent huge amounts of 62 Cr on brand)building (page 928 of PB) and further hadsubstantial revenue from proprietary products(page 930) in the assessment year 2009-10. —Further at under the head Revenue Recognition, itis mentioned that the revenue is primarily derivedfrom software development and related servicesand licencing of software products. It is alsomentioned that Infosys Technologies is the ownerof various brands and is earning huge amount onaccount of the brand. If we compare the profile ofthe assessee with that of Infosys Ltd, it is clearthat the assessee is only a software serviceprovider and therefore the functions, assetsemployed and the risk undertaken by theassessee cannot be matched with the functionsundertaken by Infosys Ltd. Therefore, in ourview, Infosys Ltd is not comparable with theaASSCSSCECIn|VIEWthereof,We|deem|itappropriate to direction DRP to delete Infosys Ltd,from the list of comparable. Moreover the case ofthe assessee is covered by the decision of thecoordinate bench of the Tribunal in the case ofBroadcom Communications Technologies Private| Date of Judgment 30-08-2018 I.T.A.No.284/2018Pr. Commissioner of Income JTax-/7 & Anr. VsM/s. Tektronix (India) Pvt Ltd., 5/9 Ltd [IT(TPJA.145/Bang/2014. Following thedecision of the coordinate bench (supra), we directthe exclusion ofInfosys Ltd. Persistent Systems Ltd XXXX XXXX XXXX 15,We have heard the rival submissionsand perused the material on record. The recordShows that the assessee is into software services,whereas the comparable, namely Persistentsystems Ltd is into product development and isalso deriving income from product sales as wellas royalty. Besides that there is no segmentalinformation available to iron out the feature whichdistinguishes the assessee with the comparable. |In view thereof and also in view of the orderpassed by the coordinate bench for the sameassessment year in the matter of Fair Isaac Indiasoftware P. Ltd, IT(TP)A No 1776/B-2013 AND14/B/2014 wherein the coordinate bench had|deleted Persistent Systems Ltd from the list ofcomparables. In view of the above, we direct theexclusion of Persistent Systems Ltd and InfosysLtd. Date of Judgment 30-08-2018 I.T.A.No.284/2018Pr. Commissioner of Income JTax-/7 & Anr. VsM/s. Tektronix (India) Pvt Ltd., Regarding substantial question of law No.2: 16.Now, we are left with ground 5,which can be divided into two parts, one istreatment of the forex gain and the other isprovision for doubtful debts. Both the aboveitems were treated as non-operating in nature bythe DRP by upholding the order of the TPO. 1] Before us, the Ld. AR has only)insisted for treating the forex gain as operating innature and is required to be taken into accountfor computing the operating margin of theassessee and the comparable.” 4However, this Court in a recent judgment in > ITA No.536/2015 C/w ITA No.537/2015delivered on Date of Judgment 30-08-2018 I.T.A.No.284/2018Pr. Commissioner of Income JTax-/7 & Anr. VsM/s. Tektronix (India) Pvt Ltd., Regarding substantial question of law No.2: 16.Now, we are left with ground 5,which can be divided into two parts, one istreatment of the forex gain and the other isprovision for doubtful debts. Both the aboveitems were treated as non-operating in nature bythe DRP by upholding the order of the TPO. 1] Before us, the Ld. AR has only)insisted for treating the forex gain as operating innature and is required to be taken into accountfor computing the operating margin of theassessee and the comparable.” 4However, this Court in a recent judgment in > ITA No.536/2015 C/w ITA No.537/2015delivered on 25.06.2018 (Pri. Commissioner of Income Tax &Anr. Vs. M/s. Softbrands India Pvt. Ltd.,)1 has heldthat in these type of cases, unless anex-facleperversityin the findings of the learned Income Tax AppellateTribunal is established by the appellants, the appeal atthe instance ot an assessee or the Revenue under!Section 260-Aot the Act is not maintainable. Date of Judgment 30-08-2018 I.T.A.No.284/2018Pr. Commissioner of Income JTax-/7 & Anr. VsM/s. Tektronix (India) Pvt Ltd., The relevant portion of the said judgment is. quoted below for ready reference: §— Conclusion: oo. A substantial quantum of internationaltrade and transactions depends upon the fair andquick judicial dispensation in such cases. Had itbeen|aCaSeofsubstantialquestion.Of|interpretation of provisions of Double TaxationAvoidance Treaties (DIAA), interpretation ofprovisions of the Income Tax Act or OverridingEffectofthe TreatiesOVETthe|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 underSection 260-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 tenoras 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. Date of Judgment 30-08-2018 I.T.A.No.284/2018Pr. Commissioner of Income JTax-/7 & Anr. VsM/s. Tektronix (India) Pvt Ltd., 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 findings|offacts arrived at by the learned Tribunal is notat all a sufficient reason to invokeSection 260-Aof the Act before this Court. o8. The appeals filed by the Revenue are)therefore dismissed with no order as to costs.” Date of Judgment 30-08-2018 I.T.A.No.284/2018Pr. Commissioner of Income JTax-/7 & Anr. VsM/s. Tektronix (India) Pvt Ltd., 9/9 5Having heard the learned counsel for both the parties, we are therefore of the opinion that no substantial question of law arises in the present case. | The appeal filed by the Appellants-Revenue is liable to be dismissed and it is<-"*-"".<accordinglyNO|costs. Sd/-. JUDGE Sd/- JUDGE TL