Karnataka High Court
The Pr Commissioner Of Income Tax vs M/S Goldman Sachs Services Pvt.Ltd. on 26 July, 2018
Bench: Vineet Kothari, S.Sujatha
1/14
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 26th DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.200/2016
BETWEEN:
1. THE PR. COMMISSIONER OF INCOME-TAX
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BANGALORE-560 095.
2. THE DY. COMMISSIONER OF INCOME-TAX
CIRCLE-11(3), 2ND FLOOR
BMTC BUILDING, 80 FEET ROAD
KORMANGALA, BANGALORE-560 095.
...APPELLANTS
(By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. GOLDMAN SACHS SERVICES PVT. LTD.,
CRYSTAL DOWNS, EMBASSY GOLF LINKS
BUSINESS PARK
OFF INTERMEDIATE RING ROAD
BANGALORE-560 071
PAN: AAACG 2435N.
...RESPONDENT
(By Mr. SANDEEP HUILGOL, ADV.)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT
ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL
QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL
AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX
Date of Judgment 26-07-2018 I.T.A.No.200/2016
The Pr. Commissioner of Income Tax & Anr. Vs.
M/s. Goldman Sachs Services Pvt. Ltd.,
2/14
APPELLATE TRIBUNAL, BANGALORE IN ITA
No.1423/BANG/2010 DATED 07-09-2015, ANNEXURE-D AND
CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER
PASSED BY THE DY. COMMISSIONER OF INCOME TAX, CIRCLE-
11(3), BENGALURU & ETC.,
THIS I.T.A. COMING ON FOR HEARING THIS DAY,
S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Aravind K.V. 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 07.09.2015 passed in IT(TP)A No.1423/Bang/2010 (M/s.Goldman Sachs Services Pvt.
Ltd., vs. Dy. Commissioner of Income-tax) for A.Y.2006-
07.
2. This appeal has been admitted on 12.09.2017 to consider the following substantial questions of law framed by the learned counsel for the Appellants-
Revenue:-
Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 3/14 "1. Whether on the facts and in the circumstances of the case, the Tribunal erred in excluding comparables such as Kals Information Systems Ltd, Infosys Technologies Ltd, Tata Elxsi Ltd, Accel Transmatics Ltd and Megasoft Ltd when the comparables chosen by TPO satisfies all the required tests and rejecting comparables on a filter which was not applied by the assessee themselves and TPO had based comparables on quantitative filter when company was similar?
2. Whether on the facts and in the circumstances of the case, the Tribunal erred in excluding comparables such M/s. Maple e-
Solutions Ltd, Allsec Technologies Ltd, Datamatics Financial Services Ltd, Vishal Information Technologies Ltd, Asit C Mehta Financial Services Ltd, Goldstone Infrtech Ltd, Spanco Ltd, Apex Knowledge when the said comparables are directly similar to assessee company activities and analyses?
3. Whether on the facts and circumstances of the case, the Tribunal is right in directing the TPO to apply turnover filter without any evidence in support of correlation between turnover and the profitability?
4. Whether on the facts and circumstances of the case, the Tribunal is right in Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 4/14 holding that the size and turnover of the company are deciding factors for treating a company as a comparables and accordingly erred in excluding the comparables?."
3. In so far as the first substantial question of law raised by the Revenue is concerned, learned counsel for the Revenue submitted that the learned ITAT in its Order dated 07.09.2015 has given the findings, the relevant portion of which is quoted below for ready reference:-
COMPANIES IN THE TPO's LIST OF COMPARABLES WHICH ASSESSEE SEEKS EXCLUSION.
"7. The assessee has put forth submissions for exclusion of the following companies from the TPO's list of comparables :
xxxxxxxxxx In support of the assessee's contentions for exclusion of the above comparables, the learned Authorised Representative for the assessee placed reliance on the following decisions :-
(i) Ariba Technologies India (P) Ltd - IT(TP)A No.1179/Bang/2010.
(ii) CES Pvt. Ltd. -ITA No.1445/Hyd/2010.
Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 5/14
(iii) NTT Data FA Insurance Systems - IT(TP)A No.1311/Bang/2010.
(iv) Yahoo Software Development India Pvt.
Ltd. - ITA1129/Bang/2010.
(v) Agnity India Technologies Ltd. -
ITA No.1204/2011 (Delhi).
8.1 Accel Transmatics Ltd.
The assessee contends that this company is not a pure software development Service company but rather it is a product development company and has a different functional profile from the assessee who is providing only software development to its AEs. It is submitted that this company is engaged in business application products in the healthcare and education segments which operate the products 'Healthspace' and 'Podigy' respectively for which it received and would continue to receive royalty. It is also submitted that in the period under consideration, this company has ventured into the area of developing animation and gaming software and offers 2D, 3D animation, visual effects and gaming solution.
KALS Infosystems Ltd., xxxxxxxxxxxxxxx 8.5.1 We have heard the rival contentions and perused and carefully considered the Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 6/14 material on record, including the judicial pronouncements cited and placed reliance upon. We find that a coordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra) for Assessment Year 2006-07 has excluded both these companies from the list of comparables from companies in the business of software development services since both these companies are functionally different and at paras 11 to 13 of its order, the co-ordinate Bench has held as under :-
"11. Improper selection of comparables:
It was submitted by the learned counsel for the Assessee that the following 2 companies are not functionally comparable with that of the Assessee.
a) KALS Information Systems Limited
b) Accel Transmission Limited.
In this regard our attention was drawn to the decision of the Hon'ble ITAT Bangalore Bench in the case of Triology E-Business Software India Pvt.Ltd. (supra) wherein these companies were held to be not functionally comparable with that of a pure software developer like the Assessee.
11.3.2 Following the aforesaid decision of the co- ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. for Assessment Year 2006 -07 (supra), we hold and direct that this company, namely, Tata Elxsi Ltd. shall be excluded from the set of comparable Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 7/14 companies for the software development segment of the assessee.
For other comparable companies, the learned Tribunal has given the similar findings.
4. In so far as the substantial question of law Nos. 2, 3 and 4 raised by the Revenue are concerned, learned counsel for the Revenue submitted that the learned ITAT in its Order dated 07.09.2015 has given the findings, the relevant portion of which is quoted below for ready reference:-
" 13.4.1 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 the coordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra) after considering the comparability of the above five companies to companies rendering ITES to its AEs as in the assessee in the case on hand, has excluded them from the list of comparables holding a under at paras 24 and 25 of its order :-
Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 8/14 xxxxxxxxxxxxxxxxxx Vishal Information technologies Ltd.
xxxxxxxxxxx 9.2. After considering the rival contentions, we find considerable force in the contentions advanced by the learned counsel. There is no dispute with reference to the fact that most of the cost incurred by the company taken as comparable is outsourcing cost, as can be seen from the Annual report placed in the paper-book and ITAT, Mumbai in the case of Maersk Global Service Centre (supra) has analysed and rejected this company as comparable, due to the reason that it has outsourced a considerable portion of its business and it is functionally different. This factor was also approved by the DRP in assessees own case in the later year, as can be seen from the copy of the order placed on record, for assessment year 2008-09. In view of this, we direct the Assessing Officer to exclude this company from the list of comparables.
Goldstone Infratech Ltd xxxxxxxxxxxx 13.4.2 Following the decision of the coordinate bench of this Tribunal in the case of Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 9/14 Ariba Technologies India Pvt. Ltd. for Assessment Year 2006 - 07 (supra), we hold and direct that the following five companies be excluded from the set of comparable companies for the ITES segment of the assessee :-
i) Maple eSolutions Ltd.
ii) Datamatics Financial Services Ltd.
iii) Vishal Information Technologies Ltd.
iv) Asit C Mehta Financial Services Ltd.
v) Goldstone Infratech Ltd.
It is accordingly ordered.
14. Apex Knowledge Solutions Pvt. Ltd.
xxxxxxxxxxxxxxx 14.3.1 We have heard both parties and perused and carefully considered the material on record; including the judicial decision cited and relied upon by the assessee. We find that the co- ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd.(supra) has considered the comparability of this company, namely, Apex Knowledge Solution Pvt. Ltd. in the ITES Segment and held that it is not functionally comparable to ITES provider as it provides services such as e-publishing knowledge based services, etc. At paras 26 & 27 of its order, the co- ordinate bench has held as under :-
Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 10/14 xxxxxxxxxxxxxxxxxxxxxxxx 14.3.2 Following the aforesaid decision of the coordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra), for Assessment Year 2006-07, we hold and direct that this company, namely, Apex Knowledge Solutions Pvt. Ltd. be excluded from the list of comparables for the ITES segment of the assessee in the case on hand".
Allsec Technologies Ltd.
16.3.1 We have heard both parties and perused and carefully considered the material on record; including the judicial pronouncement cited by the assessee. We find that the ITAT, Hyderabad Bench in the case of CES Pvt. Ltd.(supra) has excluded these two companies from the set of comparables for the ITES segments holding as under at paras 14(4), 14(6) and 15 of its order :-
xxxxxxxxxxxxx 16.3.2 Following the aforesaid decision of the ITAT, Hyderabad Bench in the case of CES Pvt. Ltd. for Assessment Year 2006-07 (supra), for the factual reasons cited therein and also brought Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 11/14 before us, we hold and direct that these two companies namely, Spanco and Allsec Technologies Ltd. are to be excluded from the set of comparable companies for the ITES segment of the assessee".
5. However, this Court in a recent judgment 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 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:
" 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 Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 12/14 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 Section 260-A of the Act and thus the appeals Date of Judgment 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 13/14 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."
6. 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 26-07-2018 I.T.A.No.200/2016 The Pr. Commissioner of Income Tax & Anr. Vs. M/s. Goldman Sachs Services Pvt. Ltd., 14/14 liable to be dismissed and it is dismissed accordingly.
No costs.
Sd/-
JUDGE Sd/-
JUDGE Srl.