Karnataka High Court
The Pr. Commissioner Of Income-Tax vs M/S. Aris Global Software Pvt. Ltd., on 13 August, 2018
Bench: Vineet Kothari, S.Sujatha
1/13
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 13TH DAY OF AUGUST 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.994/2017
BETWEEN:
1. THE PR. COMMISSIONER OF INCOME-TAX
5TH FLOOR, BMTC BUILDING,
80 FEET ROAD,
KORAMANGALA,
BENGALURU - 560 095.
2. THE INCOME-TAX OFFICER
WARD-11(1), PRESENT ADDRESS,
ACIT, C-1(1)(1),
2ND FLOOR, BMTC BUILDING,
80 FEET ROAD, KORAMANGALA,
BENGALURU - 560 095. ... APPELLANTS
(BY SRI.ARAVIND K V, ADV.)
AND:
M/S. ARIS GLOBAL SOFTWARE PVT. LTD.,
NO.19/2, 15TH CROSS, DOLLARS COLONY,
J. P. NAGAR, 4TH PHASE,
BENGALURU - 560 078,
PAN: AAECA 7218F ... RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A
OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED:28/04/2017 PASSED IN IT(TP)A NO.94/BANG/2014, FOR
Date of Judgment 13-8-2018, ITA No.994 /2017
The Pr. Commissioner of income-tax & Another Vs.
M/s. Aris Global Software Pvt. Ltd.,
2/13
THE ASSESSMENT YEAR 2009-2010 VIDE ANNEXURE - D.
PRAYING TO: 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. 94/BANG/2014
DATED:28/04/2017 VIDE ANNEXURE - D AND CONFIRM THE
ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE
ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1),
BENGALURU.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants - Revenue This Appeal is filed by the Revenue purportedly raising the substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, 'A' Bench, Bangalore, in IT [TP]A No.94/Bang/2014 dated 28.04.2017, relating to the Assessment Year 2009-10.
2. The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 3/13 "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparables on the basis of functional dissimilarity by following its earlier judgments which has not reached finality and even when the Transfer Pricing Officer has considered the comparables on the basis of qualitative and quantitative filters?
2. Whether on the facts and in the circumstances of the case, Tribunal is right in law in setting aside the recomputation of 10A deduction made by assessing authority by following the judgment of this Hon'ble High Court in the case of CIT V/s.
Tata Elxi even though the said decision has not reached finality and the assessing authority recomputed the 10A deduction as per the provisions of the Act?"
3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under:
Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 4/13 Regarding Substantial Question of Law No.2:
4. The issue is covered by the decision of 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).
5. The 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 Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 5/13 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.
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 Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 6/13 are satisfied that such deduction shall be allowed from the total turnover in same proportion as well".
Regarding Substantial Question of law No.1:
"17. We have considered the rival submissions and we find that this Tribunal is applying turnover filter as per which any comparable company whose turnover is either less than 1/10th of the turnover of the tested party or more than 10 times of the turnover of the tested party, are to be excluded from the list of final comparables by applying this turnover filter. Accordingly, we direct the AO/TPO to exclude these 5 companies from the list of final comparables viz., 91) KALS Information Systems Ltd. (2) Zylog Systems Ltd. (3) Mindtree Ltd. (Seg.) (4) Larsen & Toubro Infotech (5) Infosys Ltd.
18. Regarding remaining 4 companies i.e., Bodhtree Consulting Ltd., Tata Elxsi Ltd. (Seg), Sasken Communication Technologies Ltd. and Persistent Systems Ltd. and it is the argument of the ld. AR of assessee that these companies should be excluded on account of functional dissimilarity. Reliance has been placed on the Tribunal's order rendered in the case of ARM Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 7/13 Embedded Technologies P. Ltd. V. DCIT, TS-466-
ITAT- 2015 (Bang)-TP (copy available on pages 573 to 591 of PB) in support of the request for exclusion of Bodhtree Consulting Ltd. For exclusion of Tata Elxsi Ltd. also, reliance has been placed on the same Tribunal's order. For exclusion of Sasken Communication Technologies Ltd., reliance has been placed on the Tribunal's order rendered in the case of DCT v. Planet Online Pvt. Ltd. as reported in 56 taxmann.com 202(Hyd). For exclusion of Persistent System Ltd., reliance has been placed on the Tribunal's order rendered in the case of Infinera India Pvt. Ltd. v. ITO as reported in TS-476-ITAT-2016 (Bang) TP.
19. Regarding exclusion of Bodhtree Consulting Ltd., we find that as per Tribunal's order rendered in the case of ARM Embedded Technologies P. Ltd. (supra) and CISCO Systems (India) Private Ltd. v. DCIT, TS-246-ITAT- 2014(Bang)-TP, this company is functionally different. Those two companies i.e., ARM Embedded Technologies P. Ltd. (supra) and CISCO Systems (India) Private Ltd. were also engaged in providing software development services and therefore the facts being similar, Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 8/13 respectfully following those two Tribunal order have direct the AO/TPO that in the present case also, this company i.e., Bodhtree Consulting Ltd. should be excluded from the list of final comparable.
20. In respect of exclusion of Tata Elxsi Ltd., reliance has been placed on the Tribunal's order rendered in the case of Infinera India Pvt. Ltd. (supra), copy available on pages 592 to 611 of PB. We find that this Tribunal order is also of the same assessment year and in this Tribunal order also, the Tribunal had considered the decision rendered in the case of CISCO Systems (India) Private Ltd. (supra) and held that this company is functionally different.
21. We have already seen that in the case of CISCO Systems (India) Private Ltd. (supra), the assessee company was engaged in rendering software development services and therefore, respectfully following this Tribunal's order, we hold that in the present case also, this company i.e., Tata Elxsi Ltd. should be excluded from the list of final comparables for the reason that this company is not functionally similar to the present assessee company.
Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 9/13
22. Regarding exclusion of Sasken Communication Technologies Ltd., reliance has been placed on the Tribunal order rendered in the case of DCT v. Planet Online Pvt. ltd. (supra), copy available on pages 612 to 638 of PB. As per Para 2 of this Tribunal order, that company was engaged in providing software development services to its AE and therefore, the functional profile of that assessee and the present assessee is similar. It was held by the Tribunal in that case in para 10.10 that the entire annual report of that company has not been placed before the Tribunal and therefore, the Tribunal found itself not in a position to give a conclusive finding in this regard and the Tribunal restored back the matter to AO/TPO for a fresh decision. Similarly, in the present case also, we restore this matter back to AO/TPO for a fresh decision.
23. Regarding exclusion of Persistent Systems Ltd., reliance has been placed on the Tribunal order rendered in the case of Infinera India Pvt. Ltd. (supra), copy available on pages 592 to 611 of PB. As per this Tribunal order, it is seen that the Tribunal followed another Tribunal order rendered in the case of Unisys India Pvt.
Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 10/13 Ltd. in IT (TP)A No.67(Bang)/2015 and it was held that this company i.e., Persistent systems Ltd. is in product designing services and is also providing software product development and therefore, the same cannot be a good comparable with the company which is providing only software development services to its AE. Respectfully following this Tribunal order, we hold that in the present case also, Persistent Systems Ltd. is not a good comparable and therefore, the same should be excluded from the list of final comparables."
6. However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr.
-v- M/s Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the 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 is quoted below for ready reference:
Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 11/13 "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 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 Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 12/13 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 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 Date of Judgment 13-8-2018, ITA No.994 /2017 The Pr. Commissioner of income-tax & Another Vs. M/s. Aris Global Software Pvt. Ltd., 13/13 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. Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of the opinion 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.
Sd/-
JUDGE Sd/-
JUDGE AN/-