Karnataka High Court
The Commissioner Of Income Tax vs M/S Aris Global Software Pvt Ltd on 10 July, 2018
Bench: Vineet Kothari, S.Sujatha
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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 10TH DAY OF JULY 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.384/2013
BETWEEN :
1. THE COMMISSIONER OF INCOME TAX
C.R.BUILDING, QUEENS ROAD
BANGALORE
2. THE DEPUTY COMMISSIONER OF
INCOME TAX, CIRCLE-11(1),
RASHTROTHANA BHAVAN
NRUPATHUNGA ROAD
BANGALORE ...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND :
M/s ARIS GLOBAL SOFTWARE PVT. LTD.,
NO.19/2, 15TH CROSS
DOLLARS COLONY
J.P.NAGAR, 4TH PHASE
BANGALORE ...RESPONDENT
(BY SRI S.SHARATH, ADV. FOR SRI CHYTHANYA K.K., ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME
TAX ACT 1961, ARISING OUT OF ORDER DATED 28.03.2013
PASSED IN ITA NO.1037/BANG/2011, FOR THE ASSESSMENT
YEAR 2007-2008, ANNEXURE-D PRAYING TO: I. FORMULATE
THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II.
Date of Judgment 10-07-2018, ITA No.384/2013
The Commissioner of Income Tax & another Vs.
M/s Aris Global Software Pvt. Ltd.
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ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY
THE ITAT, BANGALORE IN ITA NO.1037/BANG/2011 DATED
28.03.2013 ANNEXURE-D AND CONFIRM THE ORDER PASSED
BY THE DISPUTE RESOLUTION PANEL, TRANSFER PRICING
OFFICER AND ASSESSMENT ORDER PASSED BY THE DEPUTY
COMMISSIONER OF INCOME TAX, CIRCLE-11(1), BANGALORE.
THIS APPEAL COMING ON FOR HEARING, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:
JUDGMENT
Mr. K.V.Aravind, Adv. for Appellants - Revenue. Mr. S.Sharath, Adv. for Mr. Chythanya K.K. - 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 ITA No.1037/Bang/2011 dated 28.03.2013, relating to the Assessment Year 2007-08.
2. The following substantial questions of law are framed by the Revenue in the Memorandum of Appeal.
Date of Judgment 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.
3/12"1. Whether on the facts and in the circumstances of the case and in law the Tribunal was right in super imposing the decisions of the other benches and the decision of the ITAT while rejecting the comparables (i) Accel Transmatic Limited, (ii) Avani Cimcon Technologies Limited,
(iii) Celestial Labs Limited, (iv) KALS Information Systems Limited and (v) Lucid Software Limited without appreciating the fact that selection of comparables in a case depends on assessee specific FAR analysis?
2. Whether on the facts and in the circumstances and of the case in law the Tribunal was justified in fixing the related party transaction filtered at 15% of the total revenue without going into the specific facts in the case of the Tax Payer and without adducing the basis for arriving at such cut-off at 15% and recorded a perverse finding?
3. Whether on the facts and in the circumstances of the case and in law the Tribunal was right in holding that foreign exchange loss/gain is operating in nature without appreciating the fact that such loss/gain, though attributable to the operating activity, is not Date of Judgment 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.4/12
derived from the operating activity and recorded a perverse finding?
4. Whether on the facts and in the circumstances of the case and in law the Tribunal was correct in rejecting M/s Lucid Software Limited as a comparable by placing reliance on the order in the case of the other assessee passed by the Mumbai ITAT without taking into consideration the finding recorded by the Transfer Pricing Officer for selecting as a comparable and recorded a perverse finding?
5. Whether on the facts and in the circumstances of the case and in law the Tribunal was right in directing that the segmental financials have to be considered as against the enterprise financials without appreciating the fact that at the enterprise level the comparable satisfied all the filters applied by the Transfer Pricing Officer and recorded a perverse finding?
6. Whether on the facts and in the circumstances of the case and in law the Tribunal was correct in directing exclusion of data link charges from export turnover and total turnover, when the provision does not refer to exclusion of Date of Judgment 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.
5/12the expenditure reduced from export turnover to reduce the same from total turnover?"
3. Learned Counsel for the Appellants-Revenue does not press substantial question No.5.
4. Submission is taken on record.
Regarding Substantial Question No.6:
5. 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 Hon'ble Supreme Court in the case of Commissioner of Income-tax, Central - III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC).
6. 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 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.6/12
"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 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.7/12
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".
Regarding Substantial Question Nos.1 & 4:
7. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under:
"13. As far as comparables at Sl.Nos.1, 2, 3 & 12 of the list of comparables chosen by the TPO are concerned, this Tribunal in the case of Trilogy E-Business Software India Pvt. Ltd. (supra) has taken a view that these companies Date of Judgment 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.8/12
are not comparable to the software service provider companies. The following are the relevant observations of the Tribunal in this regard:
xxxxx
14. In view of the aforesaid decision of the Tribunal, comparables at Sl.Nos.1, 2, 3 & 12 of the list of comparables chosen by the TPO have to be excluded for the purpose of comparison while determining the ALP of the impugned transaction in this appeal."
Regarding Substantial Question No.2:
"17. As far as companies at Sl.No.11 of the list of comparable chosen by the TPO are concerned, it is not in dispute that the related party transaction of these comparable companies was more than 15%. This Tribunal in the case of 24/7 Customer Com Pvt. Ltd. ITA No.227/Bang/2010 (supra), had held that where comparables have related party transaction which are in excess of 15% of its total receipts, then such companies cannot be chosen for the purpose of comparison. Following are the relevant observations of the Tribunal.
Date of Judgment 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.9/12
xxxxx
18. In view of the above, the aforesaid comparable should also be excluded for the purpose of comparison while determining the ALP of the international transaction in question."
Regarding Substantial Question No.3:
"32. With regard to the foreign exchange gain or loss suffered, decision of the Tribunal referred to by the learned counsel for the assessee hold the view that the same has to be treated as part of operating profits. Thus the operating expenses and the operating income as claimed by the assessee deserves to be accepted subject to verification with regard to change in work in progress by the AO as directed in the earlier paragraph of this order."
8. 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 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.
10/12ex 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 Date of Judgment 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.
11/12whether 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.
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 Date of Judgment 10-07-2018, ITA No.384/2013 The Commissioner of Income Tax & another Vs. M/s Aris Global Software Pvt. Ltd.
12/12satisfied 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."
9. 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.
10. Hence, the Appeal filed by the Appellants-
Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/-
JUDGE Sd/-
JUDGE AN/-