Karnataka High Court
The Commissioner Of Income Tax vs M/S Cisco Systems (India) Pvt Ltd on 9 July, 2018
Bench: Vineet Kothari, S.Sujatha
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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 9TH DAY OF JULY 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.23/2012
BETWEEN :
1. THE COMMISSIONER OF INCOME TAX
C.R.BUILDINGS, QUEENS ROAD
BANGALORE
2. THE DY. COMMISSIONER OF INCOME TAX
CIRCLE-11(2), C.R.BUILDING
QUEENS ROAD, BANGALORE ...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND :
M/s CISCO SYSTEMS (INDIA) PVT. LTD.,
DIVYASHREE CHAMBERS, B WING
NO.11, "O" SHAUGHNESSEY ROAD
OFF LANGFORD ROAD
BANGALORE-560025 ...RESPONDENT
(BY SMT.D.SUJATHA, ADV. FOR SRI K.MALLAHA RAO, ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME
TAX ACT 1961, ARISING OUT OF ORDER DATED 30.08.2011
PASSED IN ITA NO.1410/BANG/2010, FOR THE ASSESSMENT
YEAR 2006-2007 ANNEXURE-C, PRAYING TO: I. FORMULATE
THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II.
ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY
THE ITAT, BANGALORE IN ITA NO.1410/BANG/2010 DATED
Date of Judgment 09-07-2018, ITA No.23/2012
The Commissioner of Income Tax & another Vs.
M/s Cisco Systems (India) Pvt. Ltd.
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30.08.2011 ANNEXURE-C AND CONFIRM THE ORDER OF THE
APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED
BY THE DEPUTY COMMISSIONER OF INCOME TAX,
CIRCLE-11(2), BANGALORE.
THIS APPEAL COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:
JUDGMENT
Mr. K.V.Aravind, Adv. for Appellants - Revenue. Mrs. D.Sujatha, Adv. for Mr. K.Mallaha Rao, Adv. for Respondent - Assessee.
This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, 'B' Bench, Bangalore, in IT [TP] A No.1410/Bang/2010 dated 30.08.2011 relating to the Assessment Year 2006-07.
2. This appeal has been admitted on 12.09.2012 to consider the following substantial questions of law framed by the Revenue in the Memorandum of Appeal:
"1. Whether the Tribunal was correct in holding that the freight and insurance expenses are required to be reduced from the total turnover also in the absence of any provisions to this effect in section 10B of the Act?
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2. Whether the Tribunal was correct in holding that the Resale Price Method (RPM) as adopted by the TPO is not applicable in the case of the assessee on the ground that the purchase and transactions are with the same associated enterprise and that TNMM is the right method to be adopted ?
3. Whether the Tribunal was correct in holding that the tax-payer is not a trader merely because it has no right to fix the resale price and that the assessee is performing functions akin to those of C & F agents ?
4. Whether the Tribunal was correct in holding that the comparables adopted by the TPO are to be rejected while upholding one of the comparables of the TPO whereas there is no significant difference between the other 3 comparables of the TPO and this company in terms of functions performed assets owned and risk undertaken ?
5. Whether the Tribunal was correct in holding that the benefit of 5% range as provided under the erstwhile proviso to Section 92C(2) of the Act is to be granted to the assessee ?"
Date of Judgment 09-07-2018, ITA No.23/2012 The Commissioner of Income Tax & another Vs. M/s Cisco Systems (India) Pvt. Ltd.
4/123. Learned counsel for the appellants does not press substantial question No.3. Submission is taken on record.
Regarding Substantial Question No. 1:
4. The issue raised in the present appeal as to the deduction of expenditure incurred for 'Export Turn Over' is also required to be deducted from 'Total Turn Over' for the purpose of computing the deduction u/s.10A of the Act, the controversy is no longer res integra and is covered by the decision of the Division Bench of this Court in the case of M/s.Tata Elxsi Ltd., vs. Asst.Commissioner of Income Tax, decided on 20.10.2015 since reported in (2015) 127 DTR 0327 (Kar), which has been affirmed by the Hon'ble Supreme Court in the case of Commissioner of Income-tax, Central - III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC).
Date of Judgment 09-07-2018, ITA No.23/2012 The Commissioner of Income Tax & another Vs. M/s Cisco Systems (India) Pvt. Ltd.
5/12The relevant portion of the judgment of the Hon'ble Supreme Court in the case of HCL Technologies Ltd. (supra), is quoted below for ready reference:-
"17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from 'export turnover' must also be excluded from 'total turnover', since one of the components of 'total turnover' is export turnover. Any other interpretation would run counter to the legislative intent and would be impermissible.
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18. XXXXXX
19. In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
20. Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well".
5. The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue and Respondent-Assessee, has returned a finding as under:
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Regarding substantial question No.2:
"7.4. The other methods provided are cost of plus method which is applicable to the transactions relating to manufacture and sale of goods and Profit Split Method which is applicable mainly in international transactions involving transfer of unique intangibles or in multiple international transactions which are so inter- related that they cannot be evaluated separately for the purpose of determining the ALP of any one transaction. These two methods cannot be made applicable to the facts before use. The only remaining method is the Transaction net margin method (TNMM) by which the net profit margin realized by an enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise and is compared to net profit margin realized by an unrelated enterprise from an uncontrolled transaction or a number of such transactions and the adjustments for the difference is made. The assessee has adopted the transactional net margin method, as the most appropriate method as seen above. We have already found that the Date of Judgment 09-07-2018, ITA No.23/2012 The Commissioner of Income Tax & another Vs. M/s Cisco Systems (India) Pvt. Ltd.8/12
other methods prescribed by Rules are not applicable to the facts of the case before and therefore, the TNMM method is the most appropriate method for computing the ALP relating to the international transactions of the assessee with its associated enterprise."
Regarding substantial question No.4:
"7.1. Having heard both the parties and having considered the rival contentions, we find that the determination of ALP of the international transaction between the assessee and the AE in USA as regards the 'product replacement service' is before us. It is not in dispute that the international transaction with the associated enterprises has to be scrutinized to verify, if the same is at ALP. The dispute before us is with regard to be method of computing the ALP and also the comparables selected by the TPO. We, therefore, first proceed to decide the correct method of computing the ALP."
Date of Judgment 09-07-2018, ITA No.23/2012 The Commissioner of Income Tax & another Vs. M/s Cisco Systems (India) Pvt. Ltd.
9/126. The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 (Prl.
Commissioner of Income Tax & Anr. -v- M/s Softbrands India Pvt. Ltd.,) wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference:
"Conclusion:
55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares Date of Judgment 09-07-2018, ITA No.23/2012 The Commissioner of Income Tax & another Vs. M/s Cisco Systems (India) Pvt. Ltd.10/12
in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing 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 considered opinion, give rise to any substantial question of law.
56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
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11/1257. We make it clear that the same yardsticks and parameters will have to be applied, even if 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 'Arm's Length Price' in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court.
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
7. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of law arises for consideration in the present case.
Date of Judgment 09-07-2018, ITA No.23/2012 The Commissioner of Income Tax & another Vs. M/s Cisco Systems (India) Pvt. Ltd.
12/12Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed.
No costs.
Sd/-
JUDGE Sd/-
JUDGE ln.