Karnataka High Court
Pr Commissioner Of Income Tax vs M/S Rambus Chip Technologies (India) on 31 July, 2018
Bench: Vineet Kothari, S.Sujatha
1/11
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 31st DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.56/2016
BETWEEN:
1. PR. COMMISSIONER OF INCOME TAX,
CENTRAL REVENUE BUILDINGS,
QUEENS ROAD,
BANGALORE-560001.
2. THE DEPUTY COMMISSIONER OF INCOME TAX,
CIRCLE-12(4), BANGALORE.
...APPELLANTS
(By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. RAMBUS CHIP TECHNOLOGIES (INDIA) PVT. LTD,
(Rambus India)
12TH FLOOR, TOWER C & D, IBC KNOWLEDGE PARK,
4/1, BANNERGATTA ROAD,
BANGALORE.
PAN: AACCR8522M.
...RESPONDENT
(By Mr. SANDEEP HUILGOL, ADV. FOR
Mr. T.SURYANARAYANA, ADV.,)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T. ACT
1961, PRAYING TO DECIDE THE FOREGOING QUESTION OF
LAW AND/OR SUCH OTHER QUESTIONS OF LAW AND / OR
SUCH QUESTIONS OF LAW AS MAY BE FORMULTED BY THE
HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE
Date of Judgment 31-07-2018 I.T.A.No.56/2016
Pr. Commissioner of Income Tax & Anr. Vs.
M/s. Rambus Chip Technologies (India) Pvt.Ltd.
2/11
APELLATE ORDER DATED 22/07/2015 PASSED BY THE ITAT,
'C' BENCH, BENGALURU, IN APPEAL PROCEEDINGS IN ITA
No.23/BANG/2015 FOR ASSESMENT YEAR 2009-10 ANNEXURE
A AS SOUGHT FOR IN THIS APPEAL & TO GRANT SUCH OTHER
RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS I.T.A. COMING ON FOR HEARING THIS DAY
S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Sanmathi E.I. Adv. for Appellants - Revenue Mr. Sandeep Huilgol and Mr. T.Suryanarayana, Advs. 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, 'B' Bench, Bangalore, dated 22.07.2015 passed in IT(TP)A No.23/Bang/2015 (M/s.Rambus Chip Technologies (India) Pvt.Ltd., vs. Deputy Commissioner of Income-tax) for A.Y.2009-10.
2. This appeal has been admitted on 20.09.2017 to consider the following substantial questions of law Date of Judgment 31-07-2018 I.T.A.No.56/2016 Pr. Commissioner of Income Tax & Anr. Vs. M/s. Rambus Chip Technologies (India) Pvt.Ltd. 3/11 framed by the learned counsel for the Appellants- Revenue:-
"1. Whether on the facts and circumstances of the case, the Tribunal is justified in setting aside the addition made by the assessing authority in respect of amount of income-tax of Rs.14,85,677/- paid by the assessee-company on behalf of an expatriate employee Mr. Prakash Bare when the tax payment on the salary was liability of the employee and not that of the assessee?
2. Whether on the facts and in the circumstances of the case, the Tribunal is right in excluding comparables such as Bodhtree Consulting Ltd, Tata Elxsi, Infosys Technologies Ltd, when the assessee itself had included the said companies in its TP study and the orders relied upon by the Tribunal have not reached finality?"
3. In so far as the first substantial question of law raised by the Revenue is concerned, the learned ITAT has given the findings, the relevant portion of which is quoted below for ready reference:-
Date of Judgment 31-07-2018 I.T.A.No.56/2016 Pr. Commissioner of Income Tax & Anr. Vs. M/s. Rambus Chip Technologies (India) Pvt.Ltd.4/11
"18. Having regard to the rival contentions and the material on record, we find that the Hon'ble Jharkhand High Court in the case of Tata Yadogawa Ltd. (cited supra) was considering the case of a company which has entered into a technical collaboration agreement with an Austrian company, ESW to acquire know-how for certain consideration in terms of which taxes, if any, on payment of consideration were also to be borne by the assessee therein. The assessee therein had applied for grant of permission u/s 195(2) to remit the said consideration without deduction of tax at source which was rejected by the AO and which travelled up to the Hon'ble High Court. The Hon'ble High Court at para.15 of its order has considered the liability of the assessee to pay income-tax on behalf of the payee and has held as under:
xxxxxxxxxxxxxx Further, the Special Bench of the Tribunal at Calcutta in the case of ABN Amro Bank (cited supra) was seized of similar issue i.e. whether tax and interest on the offshore remuneration paid by the assessee therein to its expatriate employee is allowable as business expenditure Date of Judgment 31-07-2018 I.T.A.No.56/2016 Pr. Commissioner of Income Tax & Anr. Vs. M/s. Rambus Chip Technologies (India) Pvt.Ltd.5/11
and at paras.23 to 34 of its order, the Tribunal has held as under:
xxxxxxxxxxxx
19. We find that in both the above decisions, it has been held that remuneration and the income-tax thereon paid on behalf of the employee therein, is an allowable expenditure u/s 37 of the Act. In view of the same, we allow the assessee's ground of appeal".
4. From the findings of the learned Tribunal, it is clear that on the Agreement between the Assessee and the Employee Mr.Prakash Bare, contemplates that the income tax liability on the salary to be paid to the employee Mr.Prakash Bare, shall be borne by the company and this contractual liability agreed upon by the assessee is liable for deduction u/s.37 of the Act. No prohibition in law is pointed out by the learned counsel for the Revenue to deduct the expenditure towards the contractual income tax liability paid by the assessee as an allowable expenditure u/s.37 of the Act.
Date of Judgment 31-07-2018 I.T.A.No.56/2016 Pr. Commissioner of Income Tax & Anr. Vs. M/s. Rambus Chip Technologies (India) Pvt.Ltd. 6/11
5. We are in respectful agreement with the findings of the High Court of Jharkhand in the case of Tata Yadogawa Ltd., vs. Commissioner of Income Tax reported in (2011) 335 ITR 53, which is quoted below for ready reference:-
" 12. On the facts of this case the obligation of the assessee under the agreement with ESW extended not merely to remitting the amount of two million DM to ESW, but also extended to payment of taxes which would include the income-tax as well as the R & D cess. It seems quite obvious that if the assessee had not paid the tax or the R & D cess, and had merely made payment of the two million DM to ESW, the latter would not be obliged to part with the know-how in view of the terms of the collaboration agreement. Therefore, payment of these taxes are as integral part of the 'consideration' as the payment of two million DM. In fact, the IT Department is itself treating not merely the amount of two million DM paid to ESW but also the R & D cess, as part of 'consideration'. In these circumstances we find no logical reason for not treating the income-tax paid by the assessee in terms of the collaboration agreement as part of Date of Judgment 31-07-2018 I.T.A.No.56/2016 Pr. Commissioner of Income Tax & Anr. Vs. M/s. Rambus Chip Technologies (India) Pvt.Ltd.7/11
the 'consideration' for acquisition of the know- how. We hold accordingly and answer the first question as above. A reference in this connection may be made to the decision of the Supreme Court in the case of McDowell & Co. Ltd., vs. CTO (1985) 47 CTR (SC) 126; (1985) 154 ITR 148 (SC) wherein it was held that excise duty was part of the 'consideration'. Another direct decision covering the question is by the Madras High Court in the case of CIT vs. Standard Polygraph Machines (P) Ltd. (2001) 171 CTR (Mad) 152 :
(2000) 243 ITR 788 (Mad).
13. Before leaving this issue we may say that the words "lump sum" as used before the word "consideration" in s.35AB, only exclude periodical or turnover based payments like royalty etc., and any one time payment for the know-how would fall within the expression "lump sum" if it is fixed and specified in the agreement, although it may be payable in instalments".
6. In view of the aforesaid, no substantial question of law arises for our consideration on this issue.
7. In so far as the second substantial question of law raised by the Revenue is concerned, the learned Date of Judgment 31-07-2018 I.T.A.No.56/2016 Pr. Commissioner of Income Tax & Anr. Vs. M/s. Rambus Chip Technologies (India) Pvt.Ltd. 8/11 ITAT in its Order dated 22.07.2015 has given the findings, the relevant portion of which is quoted below for ready reference:-
"We find that Tribunal in the case of M/s. Airbus India Operations Pvt. Ltd., (cited supra) has considered the comparability of Bodhtree Consulting Ltd., with the assessee therein, and at para 15 and 16 of its order held as under:
xxxxxxxxxx Respectfully following the decision of the Tribunal on similar set of facts, we direct the AO/TPO to exclude Bodhtree Consulting Ltd. from the final list of comparable companies".
8. 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 Date of Judgment 31-07-2018 I.T.A.No.56/2016 Pr. Commissioner of Income Tax & Anr. Vs. M/s. Rambus Chip Technologies (India) Pvt.Ltd. 9/11 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 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 Date of Judgment 31-07-2018 I.T.A.No.56/2016 Pr. Commissioner of Income Tax & Anr. Vs. M/s. Rambus Chip Technologies (India) Pvt.Ltd.10/11
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 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 31-07-2018 I.T.A.No.56/2016 Pr. Commissioner of Income Tax & Anr. Vs. M/s. Rambus Chip Technologies (India) Pvt.Ltd. 11/11
58. The appeals filed by the Revenue are therefore dismissed with no order as to costs."
9. 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.