Karnataka High Court
Sap Labs India Private Limited vs The Income Tax Officer on 9 July, 2018
Bench: Vineet Kothari, S.Sujatha
1/9
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.10/2011
Between:
SAP Labs India Private Limited
having its registered
Office at No.138,
Export Promotion Industrial Park,
Whitefield road, Whitefield,
Bangalore - 560 006.
...Appellant
[By Mr. P. Dinesh, Advocate (Absent)]
And:
The Income-tax Officer - Ward - 12(2),
14/3, 4th floor,
Rashtothana Bhavan (Opp. RBI)
Nrupathunga Road,
Bangalore - 560 001.
...Respondent
(By Mr. E.I.Sanmathi, Advocate)
This I.T.A. is filed under Section 260-A of Income Tax
Act 1961, praying to formulate substantial questions of law;
allow the appeal and set aside the order dated 30/08/2010
Date of Judgment 09-07-2018 I.T.A.No.10/2011
SAP Labs India Private Limited.
Vs. The Income-tax Officer-Ward -12(2)
2/9
of the Hon'ble ITAT, bearing ITA No.398/Bang/2008
(Annexure A), to the extent prayed for & grant such other
relief as deemed fit in the interest of justice & etc.
This I.T.A. coming on for Hearing, this day
Dr. Vineet Kothari J. delivered the following:-
JUDGMENT
Mr. P. Dinesh, Adv. for Appellant-Assessee (Absent) Mr. E.I Sanmathi. Adv. for Respondent - Revenue
1. This appeal has been filed by the Assessee - SAP Labs India Private Limited raising purported substantial questions of law arising from the Order of the learned Income Tax Appellate Tribunal Bangalore Bench "A", Annexure A dated 30/08/2010 in ITA No.398/Bang/2008 for AY 2003-04.
2. We have heard the learned counsel for the Respondent - Revenue, Mr, E.I. Sanmathi.
3. The appeal was admitted by the Co-ordinate Bench of this Court on 30-11-2011 with the following two Substantial Questions of law:-
1. Whether on the facts and circumstances of the case and the law the Date of Judgment 09-07-2018 I.T.A.No.10/2011 SAP Labs India Private Limited.
Vs. The Income-tax Officer-Ward -12(2) 3/9 finding of the Income Tax Appellate Tribunal that all the companies which have earned profit at less than 6% should be excluded for consideration of comparable companies, is contrary to the provisions of Sec. 8E for determination of income under special cases?
2. Whether the finding of the Income Tax Appellate Tribunal that payment of compensation of Rs.105 lakhs paid by the appellant is a capital expenditure is justified having regard to the facts and circumstances of the law?
4. As far as Question No.1 raised in the appeal is concerned, we do not find any substantial question of law arising in view of the recent judgment of this Court in I.T.A.No.536/2015 c/w. I.T.A.No.537/2015 (Pr. Commissioner of Income Tax, Bangalore and Another Vs. M/s. Softbrands India P.Ltd.,) rendered on 25-06-2018, wherein it is held that in these type of cases, unless an ex-facie perversity in the findings of the Date of Judgment 09-07-2018 I.T.A.No.10/2011 SAP Labs India Private Limited.
Vs. The Income-tax Officer-Ward -12(2) 4/9 learned Income Tax Appellate Tribunal is established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable.
The relevant portion of the said judgment dated 25/06/2018 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 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 Date of Judgment 09-07-2018 I.T.A.No.10/2011 SAP Labs India Private Limited.
Vs. The Income-tax Officer-Ward -12(2) 5/9 260-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.
57. 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 Date of Judgment 09-07-2018 I.T.A.No.10/2011 SAP Labs India Private Limited.
Vs. The Income-tax Officer-Ward -12(2) 6/9 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."
5. As far as Question No.2 is concerned, the relevant findings of the learned Tribunal in its Order dated 30/08/2010 are quoted below for ready reference:-
"103. We considered the matter in detail. It is true that the assessee has not acquired any tangible asset or an enduring benefit. But, we have to see that the assessee has freed itself from a binding contractual Date of Judgment 09-07-2018 I.T.A.No.10/2011 SAP Labs India Private Limited.
Vs. The Income-tax Officer-Ward -12(2) 7/9 liability. It has discharged its liability by making payment of compensation. Therefore, the question is whether the liability was created for the purpose of carrying on the business in the normal course or for the purpose of establishing the business itself. The assessee was contemplating the purchase of the property for establishing infrastructural facilities for business. Any expenditure incurred in that way would be in the nature of capital expenditure. The payment has not been made for running the business carried on by the assessee in the normal course. So it is not possible to hold that the payment was in the nature of revenue expenditure. While dealing with the transfer pricing issue, particularly while re- computing the profit margin attributable to assessee's business, we have held that the payment is an extraordinary item and has to be excluded from the expenditure side to work out the operating profit of the assessee. This payment is not an operational expenditure. It is a different matter that the assessee has not acquired any tangible asset or any enduring Date of Judgment 09-07-2018 I.T.A.No.10/2011 SAP Labs India Private Limited.
Vs. The Income-tax Officer-Ward -12(2) 8/9 benefit. It is not relevant how the assessee is going to account it; either as a capital loss or as part of the project cost itself. The fact is that the payment was made by the assessee company to discharge a capital liability and not a revenue liability.
104. Therefore, we hold that the lower authorities have rightly disallowed the payment of Rs.1.05 crores and denied the deduction to the assessee company. This issue is decided against the assessee."
6. We find that no substantial question of law would arise in this regard to Question No.2 also because the expenditure of `1.05 Crores paid by the Assessee Company to the other party for withdrawing from the Contract for purchase of Immovable Property i.e. land in question, on which the Appellant Assessee wanted to establish the infrastructural facilities for the business has been rightly held to be a 'Capital Expenditure' and Date of Judgment 09-07-2018 I.T.A.No.10/2011 SAP Labs India Private Limited.
Vs. The Income-tax Officer-Ward -12(2) 9/9 the same cannot be said to be a 'Revenue Expenditure' incurred in the ordinary course of business.
7. The findings of facts recorded by the learned Tribunal are based on cogent material and relevant evidence and therefore, in our opinion, they do not give rise to any substantial question of law.
8. The appeal of the Assessee is thus liable to be dismissed and accordingly, it is dismissed. No costs.
Copy of this Order may be sent to the Appellant - Assessee forthwith.
Sd/-
JUDGE Sd/-
JUDGE BMV*