Karnataka High Court
The Pr Commissioner Of Income Tax Cit(A) vs M/S Broadcom Communications on 29 June, 2018
Bench: Vineet Kothari, S.Sujatha
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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 29th DAY OF JUNE 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.37/2016
BETWEEN:
1. THE Pr. COMMISSIONER OF INCOME-TAX, CIT(A)
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BANGALORE-560095.
2. THE DEPUTY COMMISSIONER OF INCOME-TAX
CIRCLE-11(1), 2ND FLOOR
BMTC BUILDING, 80 FEET ROAD
KORMANGALA, BANGALORE-560 095.
...APPELLANTS
(By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. BROADCOM COMMUNICATIONS
TECHNOLOGIES PVT. LTD.,
1A, 4TH FLOOR, RMZ ECOSPACE
BELLANDUR VILLAGE
VARTHUR HOBLI, BANGALORE-560103
PAN: AACCB 8136B.
...RESPONDENT
(By Mr. SANDEEP HUILGOL, ADV.,)
THIS I.T.A IS FILED UNDER SECTION 260-A OF INCOME
TAX ACT 1961, PRAYING TO 1. FORMULATE THE SUBSTANTIAL
QUESTIONS OF LAW STATED ABOVE. 2. ALLOW THE APPEAL
Date of Judgment 29-06-2018 I.T.A.No.37/2016
The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
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AND SET ASIDE THE ORDER PASSED BY THE ITAT,
BENGALURU IN ITA No.1587/Bang/2012 DATED 26/06/2015
AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE
ORDER PASSED B THE DEPUTY COMMISSIONER OF INCOME
TAX, CIRCLE-11(2), BENGALURU & ETC.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY
Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants - Revenue Mr. Sandeep Huilgol, Adv. for Respondent - Assessee
1. The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, Bangalore Bench 'B', Bangalore, dated 26.06.2015 passed in IT(TP)A No.1587/Bang/2012 (M/s.Broadcom Communications Technologies Pvt. Ltd. vs. Dy. Commissioner of Income Tax) for A.Y.2008-09.
2. The proposed substantial questions of law framed in the Memorandum of appeal by the Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
3/15Appellants-Revenue are quoted below for ready reference:-
"(1) Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding i) Avani Cincom Technologies Ltd.; ii) Bodhtree Consulting Ltd.,; iii) Celestial Biolabs Ltd.,; iv) E-Zest Solutions Ltd.; v) Infosys Technologies Ltd.; vi) Kals Information Systems Ltd.; vii) Lucid Software Ltd.,; viii) Persistent Systems Ltd.; ix) Quintegra Solutions Ltd.; x) Softsol India Ltd., xi) Tata Elxsi Ltd (seg.), xii) Thirdware Solutions Ltd., and xiii) Wipro Ltd., from the list of comparables, holding that they are functionally different, without appreciating that the comparables satisfy all the qualitative and quantitative filters applied by the TPO and that selection of comparables in a case depends on assessee specific FAR analysis and by relying on various decisions of Tribunal and not deciding the selection of the comparables on the basis of specific facts brought on record by the TPO ?
(2) Whether the Tribunal, was right in facts and law in excluding the comparables without considering the assessee specific information collected under section 133(6) of the Act from the comparables, wherein clear facts were submitted Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
4/15to state that the comparables are all into software development services in one way or the other and all are functionally similar to that of the assessee?
(3) Whether the Tribunal was right in directing to exclude M/s. Celestial Biolabs Ltd., by placing reliance on other benches of Tribunal, without considering the assessee specific information collected under section 133(6) of the Act, based on which the TPO had concluded that it satisfies all the filters including employee cost filter ?
(4) Whether the Tribunal, was correct in facts and law in holding that M/s. Wipro Ltd., holds significant intangibles when its revenue does not comprise any sale by way of software products ?
(5) Whether the Tribunal was justified in fixing the RPT filter at 15% of total revenue and excluding Softsol India Ltd., as comparable, by superimposing the decisions of Tribunal in other cases, including those of other benches of Tribunal, without going into specific facts in the case of the assessee and without adducing the basis for arriving at the 15% cut off for RPT filter, in the case of assessee ?
Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
5/15(6) Whether, on the facts and circumstances of the case, the Tribunal was correct in not appreciating the facts that if any filter or criteria applied by the assessee for search of comparables is accepted or any filter or criteria applied by the TPO is relaxed, the entire accept / reject matrix changes resulting in a new comparable set including those companies which are neither taken by the assessee nor by the TPO in his final comparable set and which may not be finding place in the TP order under section 92CA?
Corporate Tax Issues - Deduction under section 10A - A.Y. 2008-09:
(7) Whether the Tribunal is justified in directing the assessing officer to recomputed the deduction under section 10A after reducing those expenses that were reduced only from export turnover, to reduce from the total turnover also, without appreciating that there is no provision in section 10A to the effect that such expenses should also be reduced from the total turnover, as clause (iv) of the Explanation to section 10A provides that such expenses have to be reduced only from the export turnover?"
Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.6/15
3. Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that the issues involved in substantial questions of law Nos. 3, 4 and 5 are covered by the substantial question of law No.1.
4. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to 'Transfer Pricing' and 'Transfer Pricing Adjustments' made by the concerned authorities below. We consider it appropriate to quote from the order of Tribunal rejecting the Application seeking a review before Tribunal as hereunder:-
Regarding substantial question of law No.1 -
M/s.Avani Cincom Technologies Ltd.
5.4.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that a co-ordinate Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
7/15bench of this Tribunal on the decision of the co- ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09 had held that this company be omitted from the set of comparables as it was functionally dis-similar from a company which only provides software development services to its AEs, like the assessee in the case on hand. At paras 7.6.1 and 7.6.2 of its order, the co-ordinate bench held as under:
xxxxxxxxxxxxxxxxxxxx 5.4.2. Following the above decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09, we direct the Assessing Officer/TPO to exclude this company, i.e., Avani Cincom Technologies Ltd. from the list of comparables in the case on hand.
M/s.Bodhtree Consulting Ltd., 6.3.1. We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements relied upon by the assessee. We find that this company; i.e. Bodhtree Consulting Ltd. has been excluded from the list of Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
8/15comparables fro providers software development services in the judicial decisions cited by the assessee (supra at para 6.1.2 of this order). The relevant portion at para 15 of the order in the case of NXP Semi-conductors India (P) Ltd. (supra) is extracted hereunder:-
xxxxxxxxxxxxxxxxxxxx 6.3.2. In view of the above mentioned decision of the co-ordinate bench of this Tribunal in the case of NXP Semi-conductors India P. Ltd.
(supra) for A.Y. 2008-09. We direct the Assessing Officer/TPO to omit this company from the set of comparables to be applied to the assessee.
M/s.Celestial Biolabs Ltd.
7.4.1. We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement relied on by the assessee. We find that a co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09 has held that this company be excluded from the list of comparables as it is functionally different from a provider of software development services to its AEs holding as under
Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.9/15
at paras 9.4.1. to 9.4.2 thereof which is extracted hereunder:-
xxxxxxxxxxxxxxxxxxxxx 7.4.2. Following the above decision of the co-ordinate bench of this Tribunal on the decision of the co-ordinate bench of this Tribunal in the case of 3DPLM Software Solutions Ltd. (supra) for A.Y. 2008-09, we direct the Assessing Officer/TPO to omit this company from the list of comparables in the case on hand".
For other comparable companies, the learned Tribunal has given the similar findings.
5. Regarding substantial question of law No.7- Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the substantial question of law No.7, as the issue regarding 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 Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
10/15Bench 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).
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, Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.11/15
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.
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 Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.12/15
the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well".
6. This Court in ITA No.536/2015 c/w ITA No.537/2015 delivered on 25.06.2018 (Prl.Commissioner of Income Tax & Anr. Vs. M/s.Softbrands India Pvt. Ltd.,) has held that in these type of findings of the learned Tribunal remained final fact findings of the learned Tribunal and are binding on the lower authorities of the Department as well as this Court and unless an established ex-facie perversity is found in the findings of the learned Tribunal, the appeal u/s.260A of the Act is not maintainable. We do not find any such perversity in the aforesaid findings.
7. The relevant portion of the aforesaid judgment is quoted below for ready reference:-
Conclusion:
55. A substantial quantum of international trade and transactions depends upon the fair and Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr.
Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
13/15quick 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 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 Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
14/15Section 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 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."
8. Having heard the learned counsels for the parties, 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 Date of Judgment 29-06-2018 I.T.A.No.37/2016 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.
15/15liable to be dismissed and it is dismissed accordingly.
No costs.
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JUDGE Sd/-
JUDGE Srl.