Karnataka High Court
The Commissioner Of Income Tax vs M/S Te Connectivity India P Ltd., on 2 August, 2018
Bench: Vineet Kothari, S.Sujatha
1/16
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 2ND DAY OF AUGUST 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.21/2017
BETWEEN :
1. THE COMMISSIONER OF
INCOME-TAX, LTU,
JSS TOWERS, BSK III STAGE,
BENGALURU - 560 085.
2. THE COMMISSIONER OF
INCOME-TAX (APPEALS)
LTU, JSS TOWERS,
BSK III STAGE,
BENGALURU - 560 085. ...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND :
M/s. TE CONNECTIVITY INDIA P. LTD.,
(PREVIOUSLY KNOWN AS TYCO
ELECTRONICS CORPN. INDIA P. LTD.,)
TE PARK, 22B, DODDENAKUNDI
2ND PHASE, INDUSTRIAL AREA,
WHITEFILED ROAD,
BENGALURU - 560 048
PAN: AABCT 7374C. ...RESPONDENT
(BY SRI SANDEEP HUILGOL, ADV. FOR
SRI T.SURYANARAYANA, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
Date of Judgment 02-08-2018, ITA No.21/2017
The Commissioner of Income-tax & Another Vs.
M/s. TE Connectivity India P. Ltd.,
2/16
DATED 25/07/2016 PASSED IN IT[TP]A No.1603/BANG/2013,
FOR THE ASSESSMENT YEAR 2005-2006, ANNEXURE-D,
PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS
OF LAW STATED ABOVE. 2. ALLOW THE APPEAL AND SET
ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN
IT[TP]A No.1603/BANG/2013 DATED 25/07/2016, ANNEXURE-D
AND CONFIRM THE ORDER OF THE APPELLATE
COMMISSIONER CONFIRMING THE ORDER PASSED BY THE
COMMISSIONER OF INCOME TAX (APPEALS), LTU, BENGALURU.
THIS APPEAL COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:
JUDGMENT
Mr. K.V.Aravind, Adv. for Appellants - Revenue. Mr. Sandeep Huilgol, Adv. for Mr. T.Suryanarayana, 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, Bangalore Bench 'A', Bangalore, in IT[TP]A No.1603/Bang/2013 dated 25.07.2016, relating to the Assessment Year 2005-06.
2. The appeal has been admitted on 13.12.2017 to consider the following substantial questions of law:
Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 3/16 "1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in adopting 15% as RPT Filter by following its earlier decisions which have not reached finality even though the TPO rightly held that 25% RPT filter is to be considered as fair by drawing an analogy from the provisions of Section 92 A[2] and Section 40[A][2][b] of the Act?
2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding comparables namely Extensys Software Solutions Ltd., Sankhya Infotech Ltd., Foursoft Ltd., Thirdware Solutions Ltd., Geometric Software Solutions Company Ltd., Tata Elxsi Ltd., Visual Soft Technologies Ltd., Flextronics Ltd., Satyam Computers Services Limited and Infosys Technologies Limited from the list of Comparables for computing Arm's Length Price of International Transaction of the Assessee with its associated enterprises even though the TPO has rightly chosen the same by applying all the required tests?"
3. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 4/16 Respondent-Assessee, has returned the findings as under:
Regarding Substantial Question of Law Nos.1 & 2:
"25. We have perused the orders and heard the rival contentions. It is true that out of the many companies which assessee is seeking exclusion, Bodhtree Consulting Ltd, Geometric Software Solutions Co. Ltd, Satyam Computer Services Ltd, and Infosys Technlogies Ltd, were in assessee's own list of comparables. However assessee had contended before the CIT (A) that Geometric Software Solutions Co. Ltd, had diversified operations consisting of software products and services. In so far as Satyam Computer Services Ltd, assessee had contended before the CIT (A) that its financials were unreliable. In so far as Infosys Technologies Ltd, assessee had contended before the CIT (A) that its turnover was far in excess of that of the assessee which had a turnover was only Rs.6.97 crores in the software development segment. Once assessee had taken grounds seeking exclusion of certain companies before the CIT (A) in our opinion, even if such companies appeared in the TP study of the assessee itself, CIT (A) having adjudicated and decided on such ground Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 5/16 against the assessee, assessee cannot be precluded from seeking exclusion of such companies before the Tribunal. However, in so far as Bodhtree Consulting Ltd, is concerned, not only was the said company in the list of assessee, but we find that assessee had not contested its inclusion before the TPO or before the CIT (A). However, in view of the decision of the Special Bench in the case of Quark Systems Ltd, (supra), assessee again cannot be precluded from seeking exclusion of a comparable, though it was a part of its own comparables, since TP is an evolving area. Said decision of the Special Bench was confirmed by the Hon'ble Punjab & Haryana High Court in (2011) 62 DTR 182. Nevertheless since comparability of the said company was not before any of the lower authorities, we are of the opinion that this has to be looked into afresh by the AO / TPO. It is true that coordinate bench in the case of Symbol Technologies India P. Ltd, (supra) had held that Bodhtree Consulting Ltd, had RPT of more than 15% and was required to be excluded. However as mentioned above, the grounds seeking exclusion of M/s. Bodhtree Consulting Ltd was not raised before TPO or CIT (A). Hence in our opinion, the issue requires a fresh look by the AO / TPO. We set aside the Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 6/16 order of CIT (A) and remit the issue of comparability of Bodhtree Consulting Ltd, to the AO / TPO for consideration afresh in accordance with law.
26. Now we will try to resolve the grounds raised by the assessee seeking exclusion of various other companies in the list considered by the TPO, including M/s. Geometric Software Solutions Ltd, Satyam Computer Services Ltd and Infosys Technologies Ltd.
27. Taking up the case of M/s. Extensys Software Solutions Ltd, annual report of the said company has been placed before us at paper book page 747. It does mention that there was an amalgamation of that company with one M/s.
Holool India Ltd, with effect from 01.04.2004. In the notes to accounts, placed at paper book page 767, it is clearly mentioned that amalgamation was come into effect from 31.03.2004. Thus the profits of the said company could have been skewed because of the amalgamation factor. In the case of Symbol Technologies India P. Ltd, (supra), this Tribunal had held as under at para 14 of its order, which is reproduced hereunder :
"xxxxx"
Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 7/16 Accordingly we direct exclusion of Extensys Software Solutions Ltd.
28. Coming to the case of Sankhya Infotech Ltd, argument of the assessee is that it was engaged in the business of software products and services training and hence functionally different. Comparability of Sankhya Infotech Ltd, in the software development segment was an issue which came up before this Tribunal in the case of Net Devices India P. Ltd, (supra). Said decision was also for the very same assessment year. This Tribunal had held as under at para 18.1.1 of its order dt.25.05.2014 :
"xxxxx"
Accordingly we direct exclusion of Sankhya Infotech Ltd, from the list of comparables.
29. Coming to M/s. Foursoft Ltd, argument of assessee is that this company was functionally different and had been catering to enterprise solutions and software products. It is also stated by the assessee that RPT of the said company exceeded 15%. Comparability of Foursoft Ltd, was an issue which came up before the coordinate bench of this Tribunal in Symbol Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 8/16 Technologies India p. Ltd, (supra), within the very same segment. It was held as under by the Tribunal at para 22 of its order dt.27.03.2015:
"xxxxx"
Following the above, we direct exclusion of Foursoft Ltd, from the list of comparables.
30. Coming to Thirdware Solutions Ltd, claim of the assessee is that this was also a functionally different company engaged in the sale of software designs, software products and software development, and no segmental results were available. We find that comparability of Thirdware Solutions Ltd, was an issue which came up before the coordinate bench in the case of Net Devices India P. Ltd, (supra). In its order dt.25.05.2016, it was held as under at para 9.1 of the order :
"xxxxx"
Following the above decision, we direct exclusion of Thirdware Solutions Ltd, from the list of comparables.
31. Coming to Geometric Software Solutions Co. Ltd, case of the assessee is that its RPT exceeded 15% and was doing software product Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 9/16 work also. We find that the issue of comparability of Geometric Software Solutions Co. Ltd, had come up before this Tribunal in the case of Net Devices India P. Ltd, (supra). It was held as under
in its order dt.25.05.2016 :
"xxxxx"
Tribunal had given a finding that 15% RPT filter was proper threshold in the case of Net Devices India P. Ltd, (supra). Further in the case before us comparables on the segment relating to international transactions undertaken by the assessee were easily available. Assessee itself had selected 93 cases in its TP study. Thus the tolerance of RPT can be restricted to the minimum level of 15%. Therefore exclusions directed by the Tribunal in the case of Net Devices India P. Ltd, (supra) based on RPT filter of 15% can be applied here also. Accordingly we direct exclusion of Geometric Software Solutions Ltd, from the list of comparables.
32. Coming to Tata Elxsi Ltd,(seg), in the case of Net Devices India p. Ltd, (supra), it was held as under at para 18.4.3 of order dt.25.05.2016 :
"xxxxx"
Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 10/16 Accordingly we direct exclusion of Tata Elxsi Ltd, (seg) from the list of comparables.
33. Coming to Visual Soft Technologies Ltd, (seg), claim of assessee is that the said company was a product company and Delhi bench in the case of ITO v. Colt Technology Services India p. Ltd, [ITA.6091/Del/2011, dt.23.10.2012] had directed its exclusion in the software development segment. What was held by the coordinate bench in the case of Colt Technology Services India p. Ltd (supra) is reproduced hereunder :
"xxxxx"
Delhi bench decision mentioned supra was also in relation to the software development segment. In the said case, CIT (A) himself had directed exclusion of the said company finding it to be not a routine software development service provider. Nothing was brought before us by Ld. DR for taking a different view, though the annual report of the company placed by assessee at paper book page 1210 does not clearly indicate whether the said company was into software products segment only. Judicial discipline requires us to follow the decision of a coordinate Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 11/16 bench unless it has taken a view which is not a possible one. In the circumstances we direct exclusion of Visual soft Technologies Ltd, (seg) from the list of comparables.
34. Coming to Flextronics Ltd, (seg), we find that comparability of the said company was an issue which came up before the coordinate bench in the case of Net Devices India P. Ltd, (supra). It was held by the coordinate bench as under in its order dt.25.05.2016 :
"xxxxx"
Accordingly we direct exclusion of Flextronics Ltd, (seg) from the list of comparables.
35. Vis-a-vis, Satyam Computer Services Ltd, comparability of this company was an issue which came up before this Tribunal in the case of Net Devices India p. Ltd, (supra). This Tribunal has held as under in its order dt.25.05.2016 :
"xxxxx"
Following the above, we direct exclusion of Satyam Computer Services Ltd, from the list of comparables.
Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 12/16
36. Coming to the issue of comparability of Infosys Technologies Ltd, Hon'ble Delhi High Court in the case of Agnity India Technologies P. Ltd, (supra) has held that due to the huge revenues, ownership of intangibles and proprietary brand of the said company, it would not be a proper comparable. We find that this Tribunal in a number of cases including that of Symbol Technologies India P. Ltd, (supra) held Infosys Technologies Ltd, not to be a good comparable. Accordingly we direct the exclusion of Infosys Technologies Ltd, from the list of comparables.
37. In view of the discussions at para 27 to 36 above, we direct the AO / TPO to exclude Extensys Software Solutions Ltd, Sankhya Infotech Ltd, Foursoft Ltd, Thirdware Solutions Ltd, Geometric Software Solutions Co. Ltd, Tata Elxsi Ltd, (seg), Visual Soft Technologies Ltd (seg), Flextronics Ltd (seg), Sathyam Computer Services Ltd, and Infosys Technologies Ltd, from the list of comparables for computing arms length price of international transactions of the assessee with its AE."
Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 13/16
4. 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/s.
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 in Tax Havens (like in the case of Vodafone Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 14/16 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.
Date of Judgment 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 15/16
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 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. 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 02-08-2018, ITA No.21/2017 The Commissioner of Income-tax & Another Vs. M/s. TE Connectivity India P. Ltd., 16/16
6. Hence, the Appeal filed by the Appellants-
Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/-
JUDGE Sd/-
JUDGE NC.