Karnataka High Court
Pr. Commissioner Of Income Tax-7 vs M/S. Thomson Reuters India Services ... on 29 August, 2018
Bench: Vineet Kothari, S.Sujatha
1/15
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 29TH DAY OF AUGUST 2018
PRESENT
THE HON'BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON'BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.1039/2017
BETWEEN :
1. PR. COMMISSIONER
OF INCOME TAX-7
BMTC BUILDING, 5TH FLOOR
KORMANGALA, BANGALORE.
2. ADDITIONAL COMMISSIONER
OF INCOME TAX, RANGE-12
BANGALORE. ...APPELLANTS
(BY SRI SANMATHI.E.I., ADV.)
AND :
M/s. THOMSON REUTERS
INDIA SERVICES PVT. LTD.,
[FORMERLY KNOWN AS THOMSON
CORPORATION [INTERNATIONAL]
P. LTD.,] DIVYASHREE TECHNOLOGIES
36/2 & 124, YAMLUR VILLAGE
VARTHUR HOBLI, OFF HAL AIRPORT ROAD
BENGALURU-560047
PAN: AAACW1663L. ...RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SECTION
260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER
DATED 06.04.2017 PASSED IN IT[TP]A No.1206/BANG/2011,
FOR THE ASSESSMENT YEAR 2007-2008, PRAYING TO: DECIDE
Date of Judgment 29-08-2018, ITA No.1039/2017
Pr. Commissioner of Income Tax-7 & Another Vs.
M/s. Thomson Reuters India Services Pvt. Ltd.,
2/15
THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER
QUESTIONS OF LAW AS MAY BE FORMULATED BY THE
HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE
APPELLATE ORDER DATED 06.04.2017 PASSED BY THE
INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH, BANGALORE,
IN APPEAL PROCEEDINGS No.IT[TP]A No.1206/BANG/2011 FOR
ASSESSMENT YEAR 2007-2008, AS SOUGHT FOR IN THIS
APPEAL AND ETC.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY,
S. SUJATHA, J., DELIVERED THE FOLLOWING:
JUDGMENT
Mr. E.I.Sanmathi, Adv. for Appellants - Revenue.
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.1206/Bang/2011 dated 06.04.2017, relating to the Assessment Year 2007-08.
2. The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
"1. Whether on the facts and in the circumstances of the case, the Tribunal is right in Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 3/15 law in holding that M/s. Sankhya Infotech Ltd., Visual Soft Technologies Ltd., Melster Information Technologies Ltd., Exensys Software Solutions Ltd., Thirdware Solutions Ltd., Wipro BPO Solutions Ltd., Tata Elxsi Ltd., Flextronics Software Systems Ltd., Satyam Computer Services Ltd., and Infosys Technologies Ltd., cannot be taken as comparables on the basis of facts of a different case for different assessee without making any specific FAR analysis vis-à- vis the assessee - company in contrast to the fact that these comparable's satisfy all the qualitative and quantitative filters applied by the TPO?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to apply RPT filter of 15% by superimposing the decisions of Tribunal in other cases without going into specific facts of the taxpayer and without adducing the basis for arriving at the 15% cut off for RPT filter?
3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in rejecting few companies chosen by Transfer Pricing Officer as comparables on the basis of functional dissimilarity by following its earlier order which has not reached finality even Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 4/15 when the same satisfied qualitative and quantitative tests in the case of the assessee?
4. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the lease line charges and other expenses incurred in foreign currency for delivery of software are to be excluded both from total turnover as well as from export turnover for computation of deduction u/s.10A whereas such exclusion is permitted to arrive at export turnover only as per the definitions given in Sec.10A of the IT Act and total turnover has not been defined in the Section and by following the judgment of this Hon'ble Court in the case of CIT vs. Tata Elxsi Ltd., which has not become final since the same has not been accepted by the Department and SLPs filed by the revenue on this issue are pending before the Hon'ble Supreme Court?"
Regarding Substantial Question of Law No.4:
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).
Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 5/15
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:-
"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.
Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 6/15
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 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 Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 7/15 Respondent-Assessee, has returned the findings as under:
Regarding Substantial Question of Law Nos.1 & 3:
"08. Out of which, the assessee is seeking rejection of 17 comparables and inclusion of Megasoft Ltd . Out of those 17 comparables, 15 are sought to be rejected on the basis functional dissimilarity, one on the basis of the RPT filter and the last one, both on the basis of the employee filter & the RPT filter . Fourteen comparables at SI. Nos. 1, 2, 3, 5, 6, 8, 10, 12, 14, 18, 22, 24, 25, and 26 in the table, supra, are sought to be excluded on the basis of this Tribunal decision in Meritor LVS India (P.) Ltd. v. ACIT [(2015) 64 taxmann.com 136 (Bang-Trib.) and Ishir Infotech Ltd is being sought to be rejected as it is failing the TPO's own filter of 25% employee cost relying on this Tribunal's decision in Meritor LVS India (P.) Ltd. v. ACIT [(2015) 64 taxmann.com 136 (Bang-Trib.)] and also in view of its RPT exceeding 15% of sales as per this Tribunal decision in 24/7 Customer Com P Ltd v DCIT 2012, 28 taxmann.com 258 Bang.Trib. Quintegra Solutions Ltd is sought to berejected as a functionally dissimilar one based on this Tribunal's decision in NXP Semiconductors India Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 8/15 P. Ltd v ACIT [dated 14.11.2014 in IT(TP) A No.1174/Bang/2011]. Geometric Ltd (seg) & Ishir Infotech Ltd , supra, are being sought to be rejected as its RPT exceeds 15% as per this Hon'ble Tribunal's decision in 24/7 Customer Corn Private Ltd. V. DCIT[(2012) 28 taxmann.com 258 (Bang-Trib.)]. Let us examine them as under. The relevant portion from Meritor LVS India (P.) Ltd. v. ACIT [(2015) 64 taxmann.com 136 (Bang- Trib.), for AY.2007-08 is extracted as under :
"xxxxx"
09. Thus, this Tribunal in Meritor LVS India P. Ltd (supra), concluded as under :
"xxxxx"
10. The relevant portion from this Tribunal's decision in NXP Semiconductors India P. Ltd v ACIT [dated 14.11.2014 in IT(TP) A No.1174/Bang/2011], for AY.2007-08 is extracted as under :
"xxxxx"
11. The relevant portion from this Tribunal's decision in 24/7 Customer.com Private Ltd. V. Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 9/15 DCIT [(2012) 28 taxmann.com 258 (Bang-Trib.)], for AY.2004-05 is extracted as under :
"xxxxx"
12. From the above , it clear that this Tribunal has examined the above comparables elaborately, supra, in those decisions, following them we direct exclusion of Celestial Labs Ltd, E- Zest Solutions Ltd, Infosys Technologies Ltd, Kals Information Systems Ltde (seg), Lucid Software Ltd, Wipro Ltd (seg), Accel Transmatic Ltd (seg), Avani Cimcon Technologies Ltd, Flextronics Software Systems Ltd (seg), Helios& Matheson Information Technology Ltd, Ishir Infotech Ltd, Persistent Systems Ltd, Sasken Communication Technologies Ltd (Seg), Tata Elxsi Ltd (seg) , Thirdware Solutions Ltd and Quintegra Solutions Ltd as they are functionally different from the assessee. In so far as Megasoft Solutions Ltd is concerned, we direct the AO / TPO to rework its segmental results and consider its comparability only with regard to the software development services segment. The Assessing Officer/TPO is also directed to exclude after due verification those comparables from the list with related party transactions or controlled transactions in excess of 15% of total revenues. Ordered accordingly."
Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 10/15 Regarding Substantial Question of Law No.2:
"14. The next segment is on the receipts for ITE services at Rs.88,69,75,049/-. Out of 12 comparables selected by the assessee, the TPO accepted 4 comparables, namely, Cosmic Global ltd, Maple Esolutions Ltd, Transworks Information Services Ltd and Triton Corp Ltd and rejected the remaining eight comparables. The TPO's final set comprised of 27 comparables. Out of which, the assessee is seeking rejection of 13 comparables, 6 being functionally dissimilar, the RPT's exceed 15% on 4 comparables & three comparables may be remanded to the AO /TPO for fresh examination relying on this Tribunal's decision in the case of Pole to Win India P. Ltd v DCIT, IT(TP) A No 1053(Bang) 2011 dt 08.06.2016, (2016) 70 Taxmann.com318 (Bang.Trib) for ay 2007-08. Let us examine them by extracting the relevant portion as under:
"xxxxx"
15. From the above, it is clear that this Tribunal has examined and excluded the comparables Bodhtree Consultancy Ltd, e-clerx Services Ltd, Infosys Ltd, Mold-tek Technology Ltd. (Seg.), Vishal Information Technology Ltd and Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 11/15 Wipro Limited. Found that the comparables , Apollo Health Street Ltd, Asit C Mehta Financial Services Ltd, M/s. HCL Comnet Systems & Services Ltd and Informed Technologies India Ltd exceeded RPT at 15% and hence directed to excluded them. Set aside the issues in connection with comparables I-services India Pvt. Ltd, Accentia Technology Ltd. and Accurate Data Convertors Pvt. Ltd to the A.O/TPO with a direction to re-examine them in the light of their observations /directions, supra. Following the above decision, the assessee's plea is allowed in respect of the above 6+4 comparables on functional dissimilarity + RPT exceeding 15%. The issues in connection with the last 3 comparables are set aside for re-examination on the similar lines in which this Tribunal directed in the above case.
16. For this segment also, the AR pleaded that if the above 17 comparables are excluded , the arithmetic mean of the working capital adjusted margins of the remaining 14 comparables (16.56%) is within + or - 5% of the NCP margin of the assessee (12.07%), and hence its international transaction can be concluded as being at arm's length. Thus, the TP adjustment Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 12/15 made by the TPO towards the ITE services to its AE in a y 2007-08 is liable to be set aside. Therefore, the other grounds raised in the memorandum of appeal insofar as it relates to the ITE services are not pressed at this stage and hence they are not dealt with."
6. However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr.
-v- 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 Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 13/15 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 not, do not in our considered opinion, give rise to any substantial question of law.
Date of Judgment 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 14/15
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 29-08-2018, ITA No.1039/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Thomson Reuters India Services Pvt. Ltd., 15/15
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
7. Having heard the learned counsel appearing for the Appellants-Revenue, 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.
Copy of this Order be sent to the Respondent-
Assessee forthwith.
Sd/-
JUDGE Sd/-
JUDGE NC.