Karnataka High Court
The Pr Commissioner Of Income Tax vs M/S Acusis Software India on 28 June, 2018
Bench: Vineet Kothari, S.Sujatha
1/18
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 28th DAY OF JUNE 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.304/2017
BETWEEN:
1. THE Pr. COMMISSIONER OF INCOME-TAX, CIT (A)
5TH FLOOR, BMTC BUILDING
6TH BLOCK, 80 FEET ROAD
KORAMANGALA, BENGALURU-560 095.
2. INCOME TAX OFFICER
WARD-11(1), PRESENT ADDRESS
WARD-1(1)(1), 7TH FLOOR
BMTC BUILDING, 6TH BLOCK
80 FEET ROAD, KORAMANGALA
BENGALURU-560095.
...APPELLANTS
(BY Mr. ARAVIND K.V. ADV.)
AND:
M/S. ACUSIS SOFTWARE INDIA PVT. LTD.,
No.17/2, DOLLAR CHAMBER
LALBAGH ROAD, BENGALURU-560027
PAN:AADCA2415P.
...RESPONDENT
(BY Mr. MALLAHARAO K, ADV.)
THIS I.T.A IS FILED UNDER SECTION 260-A OF THE
INCOME TAX ACT, 1961, PRAYING TO (i) FORMULATE THE
SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. (ii)
ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY
Date of Judgment 28-06-2018 I.T.A.No.304/2017
The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd.,
2/18
THE ITAT, BENGALURU IN IT(TP)A No.1232/Bang/2011 DATED
18.10/2016 AND CONFIRM THE ORDER OF THE DRP
CONFIRMING THE ORDER PASSED BY THE INCOME TAX
OFFICER, WARD-1(1)(1), BENGALUGU & ETC.
THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY
Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Aravind K.V. Adv. for Appellants - Revenue Mr. Mallaharao K, 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 'A', Bangalore, dated 29.11.2016 passed in IT(TP)A No.965/Bang/2014 (M/s.AXA Business Services Pvt.
Ltd., vs. Dy.Commissioner of Income Tax) for A.Y.2009-
10.
2. The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:-
Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 3/18 "1. Whether in the facts and circumstances of the case, the Tribunal is right in law in directing the assessing officer to re-
calculate the deduction allowable to the assessee under section 10A of the Act by reducing the total turnover also by the same amount by which export turnover was reduced by the assessing officer in respect of foreign currency expenses incurred towards technical services rendered outside India, without appreciating the fact that there is no provision in Section 10A that such expenses should be reduced from the total turnover also, as clause (iv) of the Explanation 2 to Section 10A provides that such expenses are to be reduced only from the export turnover?
2. Whether in the facts and circumstances of the case, the Tribunal is right in law in excluding comparables such as M/s. Bodhtree Consulting Ltd, M/s. Excelrx Services ltd and M/s. Moldtex Technologies Ltd on the ground of functional dissimilarity by following its earlier order in case of M/s. First Advantage Offshore Services Pvt. Ltd which has been challenged before this Hon'ble Court and even when the Transfer Pricing Officer has chosen the same after Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 4/18 applying all the required tests and considering the functions of the said companies?
3. Whether in the facts and circumstances of the case, the Tribunal is right in law in excluding comparables chosen by Transfer Pricing Officer namely, M/s. Infosys BPO Ltd, M/s. Wipro Ltd and M/s. HCL Comment Systems & Services Ltd ground that some comparables are having turnover in excess of 10 time of the turnover of the assessee-company by placing reliance on its earlier order in case of M/s. First Advantage Offshore Service Pvt. Ltd which has been challenged before this Hon'ble Court and even when the Transfer Pricing Officer has rightly chosen the same by applying all the required tests?
4. Whether in the facts and circumstances of the case, the Tribunal is right in law in excluding comparables namely, M/s. Vishal Information Technologies Ltd, M/s. Informed Technologies Ltd and M/s. Accentia Technologies Ltd by following its earlier order in case of M/s. First Advantage Offshore services Pvt. Ltd which has been challenged before this Hon'ble Court even when the Transfer Pricing Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 5/18 Officer has rightly chosen the same by applying all the required tests?"
3. Regarding substantial question of law No.1:-
Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the 1st substantial question of law, 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 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, Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 6/18 Central - III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC).
The relevant portion of the judgment of the Division Bench in the case of M/s.Tata Elxsi (supra), is quoted below for ready reference:-
"20. From the aforesaid provisions, it is clear that if a assessee wants to claim the benefit of Section 10A, firstly he must export articles or things or computer software. Secondly, the said export may be done directly by him or through other exporter after fulfilling the conditions mentioned therein. Thirdly, such an export should yield foreign exchange which should be brought into the country. If all these three conditions are fulfilled, then the object of enacting Section 10A is fulfilled and the assessee would be entitled to the benefit of exemption from payment of Income Tax Act on the profits and gains derived by the Undertaking from the export.
21. Clause 6.11 of Exim Policy dealing with entitlement for supplies from the DTA states that supplies from the DTA to EOU/EHTP/STP/BTP units will be regarded as 'deemed export', besides being eligible for Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 7/18 relevant entitlements under paragraph 6.12 of the Policy. They will also be eligible for the additional entitlements mentioned therein. What is of importance is when a supply is made from DTA to STP, it does not satisfy the requirements of export as defined under the Customs Act. However, for the purpose of Exim Policy, it is treated as 'deemed export'. Therefore, when Section 10A of the Act was introduced to give effect to the Exim Policy, the supplies made from one STP to another STP has to be treated as 'deemed export' because Clause 6.19 specifically provides for export through Status Holder. It provides that an EOU/EHTP/STP/BTP unit may export goods manufactured/software developed by it through other exporter or Status holder recognized under this policy or any other EOU/EHTP/STP/BTP unit. What follows from this provision is that to be eligible for exemption from payment of income tax, export should earn foreign exchange. It does not mean that the undertaking should personally export goods manufactured / software developed by it outside the country. It may export out of India by itself or export out of India through any other STP Unit. Once the goods Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 8/18 manufactured by the assessee is shown to have been exported out of India either by the assessee or by another STP Unit and foreign exchange is directly attributable to such export, then Section 10A of the Act is attracted and such exporter is entitled to benefit of deduction of such profits and gains derived from such export from payment of income tax. Therefore, the finding of the authorities that the assessee has not directly exported the computer software outside country and because it supplied the software to another STP unit, which though exported and foreign exchange received was not treated as an export and was held to be not entitled to the benefit is unsustainable in law. The substantial question of law is answered in favour of the assessee and against the revenue. The appeal is allowed. The impugned orders are set aside. The assessee is held to be entitled to deduction of such profits and gains derived from the export of the computer software. No costs".
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:-
Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 9/18 "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.
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 Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 10/18 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".
4. Regarding substantial question of Law No.2:-
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 Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 11/18 authorities below. We consider it appropriate to quote from the order of Tribunal rejecting the Application seeking a review before Tribunal as hereunder:-
"9. We have considered the rival submissions and we find some force in the submissions of the ld.AR of the assessee regarding exclusion of some of these four groups of companies consisting of 13 companies.
10. In the case of M/s First Advantage Offshore Services Pvt. Ltd. (Supra), in para-36 of this Tribunal order, the Tribunal was examining the issue regarding exclusion of three companies i.e. M/s Bodhtree Consulting Ltd., (Seg.), 2) M/s Eclerx Services Ltd., and 3) Mold Tek Technologies Ltd., (Seg.) and it was held by the Tribunal that these three companies are providing KPO services and therefore, cannot be considered as a comparable in a case where the assessee is providing BPO services. Respectfully following this Tribunal order, we direct the AO/TPO to exclude these three companies from the list of final comparables.
11. Regarding the second group of three companies i.e. 1) M/s Infosys BPO Ltd., 2) M/s Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 12/18 Wipro Ltd., (Seg.) and 3)HCL Comnet Systems & Services Ltd., (Seg.), we find that in the same Tribunal order rendered in the case of First Advantage Offshore Services Pvt. Ltd., (Supra) in para-29 of this Tribunal order, the Tribunal considered these three companies and held that these three companies should be excluded because the turnover of these three companies is more than Rs.200 Crores. Now, the Tribunal is adopting a different turnover filter i.e. those companies are excluded which have turnover less than 1/10th or more than 10 times of the assessee company's turnover. In the present case, these three companies are having turnover in excess of 10 times of the turnover of the assessee company and hence, we direct the AO/TPO to exclude these three companies also from the list of final comparables by applying this turnover filter.
12. Regarding third group consisting of five companies i.e. 1) M/s Vishal Information Technologies Ltd., ,2) Informed Technologies Ltd., 3) Accentia Technologies Ltd., (Seg.) 4) M/s Spanco Ltd., (Seg.) and 5) M/s Asit C Mehta Financial Services Ltd., We find that the exclusion of this group is being requested by Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 13/18 applying the employees' cost filter. In para-35 of the same Tribunal order rendered in the case of M/s First Advantage Offshore Services Pvt. Ltd., (Supra), the Tribunal had considered three companies out of these five companies in the present case, i.e. 1) M/s Vishal Information Technologies Ltd., 2) Informed Technologies Ltd., 3) Accentia Technologies Ltd.(Seg.) and it was held by the Tribunal in that case that these three companies are excluded because the companies were having employees' cost of less than 25%. Regarding the remaining two companies i.e. M/s Spanco Ltd., (Seg.) and M/s Asit C Mehta Financial Services Ltd., the issue was not before the Tribunal in that case and no evidence has been brought on record before us to show that these two companies are having employees' cost of less than 25% of turnover.
Hence, out of this group of five companies, we direct the AO/TPO to exclude three companies i.e. 1) M/s Vishal Information Technologies Ltd.,
2)M/s Informed Technologies Ltd., 3) Accentia Technologies Ltd.(Seg.).
13. Regarding the fourth group consisting of two companies i.e. M/s Maple E-Solutions Ltd., and M/s Triton Corp Ltd., we find that Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 14/18 reliance has been placed on the Tribunal order rendered in the case of M/s Capital IQ Information Systems (Ind.) Pvt. Ltd., (Supra) and our attention has been drawn to para-18 & 19 of this Tribunal order available on pages 519 - 520 of the paper book. As per these paras of the Tribunal order, it is seen that the Tribunal had followed another Tribunal order of the Delhi Bench of the Tribunal rendered in the case of ITO Vs CRM Services India Pvt. Ltd. in ITA No.4068(Del.)/2009 for assessment year 2004- 05 dated 30-11-2011 and it was held by the Tribunal that these companies are not good comparables. Respectfully following these Tribunal orders, we direct the AO/TPO in the present case also to exclude these two companies from the list of final comparables.
As per the above discussion, we have held that out of 28 comparables and against request of the assessee for exclusion of 13 comparables, 11 companies are to be excluded from the list of final comparables. The AO should work out the ALP on the basis of remaining 17 comparables and after allowing risk adjustment as well as the advantage of += 5% margin as per law, the AO should find out whether any TP adjustment Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 15/18 is required to be made and if it is required to be made, he should do so as per law after allowing sufficient opportunity of being heard to the assessee.
14. In the result, the appeal of the assessee stands partly allowed in the terms indicated above".
5. 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.
Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 16/18
6. 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 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 Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 17/18 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 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.
Date of Judgment 28-06-2018 I.T.A.No.304/2017 The Pr. Commissioner of Income-tax, CIT (A) & Anr.
Vs. M/s. Acusis Software India Pvt. Ltd., 18/18
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
7. Regarding substantial questions of law Nos.3 and 4:-
Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the substantial questions of law Nos. 3 and 4. His submission is recorded.
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 liable to be dismissed and it is dismissed accordingly.
No costs.
Sd/-
JUDGE Sd/-
JUDGE Srl.