Karnataka High Court
The Pr Commissioner Of Income vs M/S Global E Business on 30 July, 2018
Bench: Vineet Kothari, S.Sujatha
1/12
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 30TH DAY OF JULY 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.195/2016
BETWEEN :
1. THE Pr. COMMISSIONER
OF INCOME-TAX,
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BANGALORE.
2. THE DEPUTY COMMISSIONER
OF INCOME-TAX,
CIRCLE-11(3), 2ND FLOOR,
BMTC BUILDING, 80 FEET ROAD
KORMANGALA
BANGALORE-560095. ...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND :
M/s. GLOBAL E BUSINESS
OPERATIONS PVT. LTD.,
KALYANI PLATINA, PHASE 2 BUILDING
SURVEY No.1, 6 & 24
KUNDALAHALLI VILLAGE
KR PURAM HOBLI
BANGALORE-560066. ...RESPONDENT
(BY SRI SANDEEP HUILGOL, ADV FOR
SRI T.SURYANARAYANA, ADV.)
Date of Judgment 30-07-2018, ITA No.195/2016
The Pr. Commissioner of Income-tax & Another Vs.
M/s. Global E Business Operations Pvt. Ltd.,
2/12
THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED 04/09/2015 PASSED IN ITA NO.1678/BANG/2012, FOR
THE ASSESSMENT YEAR 2008-2009, 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 ITA
NO.1678/BANG/2012 DATED: 04/09/2015, ANNEXURE-D AND
CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER
PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX,
CIRCLE-11(3), BENGALURU AND ETC.
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 'B', Bangalore, in IT[TP]A No.1678/Bang/2012 dated 04.09.2015, relating to the Assessment Year 2008-09.
2. The proposed substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
Date of Judgment 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 3/12 "1. Whether on the facts and in the circumstances of the case, the Tribunal has correctly allowed the software development expenses in foreign currency to exclude from computing export turnover under section 10A of the Act to arrive at the total turnover at allowable deduction under section 10A of the Act?
2. 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 the 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?
3. 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 Infratech Ltd., Spanco Ltd., Apex Knowledge when the said Date of Judgment 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 4/12 comparables are directly similar to assessee company activities and analyses?
4. 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?
5. Whether on the facts and circumstances of the case, the Tribunal is right in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and accordingly erred in excluding the comparables?"
Regarding Substantial Question of Law No.1:
3. 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).
4. 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 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 5/12 "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 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 6/12 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".
5. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned the findings as under:
Regarding Substantial Question of Law Nos.2 to 5:
"15. We have heard the submissions of both the parties. The ld. counsel for the assessee filed before us submissions on each of the Date of Judgment 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 7/12 companies that were considered as comparable by the TPO and has also explained as to why those companies cannot be considered as comparable. The ld. DR, on the other hand, relied on the order of the TPO and the directions of the DRP, wherein the DRP has given reasons as to why the objections of the assessee to adopt comparable proposed by the TPO should not accepted. We will deal with these objections while we take up the individual comparable companies for consideration.
(1) Accentia Technologies Ltd. (Seg.) "xxxxx"
17. We have considered the submissions of the ld. counsel for the assessee and are of the view that the ratio laid down by the Hyderabad Bench of the ITAT is squarely applicable to the present case also. It is clear that during the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable. We therefore hold that this company cannot be considered as a comparable.
(2) Acropetal Technologies Ltd. (Seg.) Date of Judgment 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 8/12 "xxxxx"
19. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No.15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this company is from providing Engineering Design Service and Information Technology Services. The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee. The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions. We therefore hold that this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO].
(4) Crossdomain Solutions Ltd.
"xxxxx"
Date of Judgment 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 9/12
25. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this company as a comparable, this company should be excluded from the list of comparables, accepting the plea of the Assessee. We hold accordingly.
(5) Eclerx Services Ltd.
"xxxxx"
27. We are of the view that in the light of the decision of the Hyderabad Bench referred to above, this company cannot be regarded as a comparable for the reason that it was functionally different."
6. Similarly, the Tribunal has considered and excluded the other comparables also.
7. 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 Date of Judgment 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 10/12 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 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 Date of Judgment 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 11/12 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.
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 Date of Judgment 30-07-2018, ITA No.195/2016 The Pr. Commissioner of Income-tax & Another Vs. M/s. Global E Business Operations Pvt. Ltd., 12/12 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. 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.
9. Hence, the Appeal filed by the Appellants-
Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/-
JUDGE Sd/-
JUDGE NC.