Karnataka High Court
Pr. Commissioner Of Income Tax-5 vs M/S Nett App India Pvt Ltd on 28 June, 2018
Bench: Vineet Kothari, S.Sujatha
1/13
IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 28th DAY OF JUNE 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON'BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.514/2016
BETWEEN:
1. Pr. COMMISSIONER OF INCOME TAX-5
BMTC COMPLEX, KORMANGALA
BANGALORE.
2. THE DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-12(2), BENGALURU.
...APPELLANTS
(BY Mr. E.I. SANMATHI, ADV.)
AND:
M/S. NETT APP INDIA PVT LTD.,
3RD FLOOR, FAIRWINDS BLOCK
EGL SOFTWARE PARK
OFF. INTERMEDIATE RING ROAD
BANGALORE-560071
PAN: AABCN4063 A.
...RESPONDENT
(BY Mr. T. SURYANARAYANA, ADV.)
THIS I.T.A IS FILED U/S.260-A OF I.T. ACT, 1961 PRAYING
TO (1). DECIDE THE FOREGOING QUESTION OF LAW AND/OR
SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED
BY THE HON'BLE COURT AS DEEMED FIT. (2) TO SET ASIDE
THE APPELLATE ORDER DATED 11/5/2016 PASSED BY THE
ITAT, 'B' BENCH, BENGALURU, AS SOUGHT FOR, IN THE
Date of Judgment 28-06-2018 I.T.A.No.514/2016
Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd.,
2/13
RESPONDENT-ASSESSEE'S CASE, IN APPEAL PROCEEDINGS
No.IT(TP)A No.1614/Bang/2014 & ETC.
THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY
Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. E.I. Sanmathi, Adv. for Appellants - Revenue Mr. T. Suryanarayana, 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 11.05.2016 passed in IT(TP)A No.1614/Bang/2014 (M/s. Nett App India Pvt. Ltd., vs. Dy.Commissioner of Income Tax) for A.Y.2009-10.
2. The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:-
"(1) Whether on the facts and in the circumstances of the case, the Tribunal was right in directing the assessing authority to recomputed Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 3/13 the deduction under section 10-A by including the telecom expenses and traveling expenses incurred in foreign currency for providing technical services outside India in export turnover as well as from total turnover by relying upon the decision of this Hon'ble Court in the case of CIT vs. Tata Elaxy even though the said decision has not reached finality and no such computation is provided under IT Act?
(2) Whether on the facts and in the circumstances of the case, the Tribunal was right in excluding comparables such as Accentia Technologies Ltd, Cosmic Global Ltd and Eclerx Services as comparables by following its earlier decisions even though the said companies are functionally similar and the decisions relied upon by the Tribunal have not reached finality?
(3) Whether on the facts and in the circumstances of the case, the Tribunal was right in excluding comparables such as Tata Elaxy Ltd, Infosys Technologies Ltd, as comparables by following its earlier decisions even though the Transfer Pricing Officer has properly chosen the comparables since all the required tests are satisfied in the case of the assessee?
(4) Whether on the facts and in the circumstances of the case, the Tribunal was right Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 4/13 in directing the AO/TPO to give working capital adjustments after considering the adjustments of the assessee as well as after exclusion of the companies as directed by it by following the decisions in the case of M/s. Citrix Research and Development India Pvt. Ltd., even though the said decision has not reached finality?"
3. Regarding substantial question of law No.1:-
Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the 1st substantial question of law, as the issue regarding deduction of expenditure incurred for 'Export Turn Over' is also required to be deducted from 'Total Turn Over' for the purpose of computing the deduction u/s.10A of the Act, 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 the Hon'ble Supreme Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 5/13 Court in the case of Commissioner of Income-tax, Central - III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC).
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 Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 6/13 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 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".
Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 7/13
4. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised before it with regard to 'Transfer Pricing' and 'Transfer Pricing Adjustments' made by the concerned authorities below. We consider it appropriate to quote from the order of Tribunal rejecting the Application seeking a review before Tribunal as hereunder:-
Regarding substantial question of law No.2 -
M/s.Accentia Technologies Ltd., We find that the fact of merger and acquisition has not been disputed by the revenue and it has been reported by this company in the Annual Report. Therefore, in view of he findings of the co-ordinate bench of this Tribunal (supra), we direct the A.O./TPO to exclude this company from the list of comparables.
M/s.Cosmic Global Ltd., The Tribunal after considering the fact that this company is mainly in the business activity of medical transcription and consultancy services as Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 8/13 it is evident that this company has incurred substantial expenditure on translation charges which shows that the outsourcing business of this company is confined to the translation activity. Accordingly, by following the decisions of this Tribunal, we direct the Assessing Officer/TPO to exclude this company from the list of comparables. As regards the objection of the D.R. that this company was part of the T.P. Study, we are of the view that once this company is found to be functionally not comparable then the inclusion of the same by the assessee in the T.P. Analysis would not preclude the assessee from taking the objection of functional dis-similarity as held by the Special Bench in the case of CIT Vs. Quark Systems P. Ltd. [2010] 38 SOT 307 (Chd.) (SB) which has been upheld by the Hon'ble Punjab & Haryana High Court in 62 DTR 182. Accordingly, we do not accept the objection raised by the learned D.R. M/s.Eclerx Services Ltd., Thus it is clear from the finding of the Tribunal that the functional comparability of this company has been examined by the Special Bench in the case of Maersk Global Services reported in 147 ITD 83 and it was found that this company is mainly engaged in providing high end Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 9/13 services involving specialized knowledge and automation expertise in the field and therefore the same cannot be compared with a low end service provider company.
Regarding substantial question of law No. 3 -
M/s.Tata Elxsi Ltd., We find that the facts recorded and considered by the Tribunal are emerging from the Annual Report of this company and therefore this company cannot be considered as functionally comparable to that of software development services provided by the assessee to its AEs. Accordingly, we direct the Assessing Officer/TPO to exclude this company from the list of comparable.
M/s.Infosys Technology Ltd.
In view of the various decisions of this Tribunal as well as the decision of the Hon'ble Delhi High Court in the case of Agnity India Technology Ltd. (supra), we direct the Assessing Officer/TPO to exclude this company from the list of comparable.
Regarding substantial question of law No.4 -
13.3 We have heard the rival submissions as well as considered the relevant Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 10/13 material on record. We find that in Annexure-C to the order passed under Section 92CA of the Act, the TPO has worked out the working capital adjustment in respect of various comparable companies which is much higher than what was finally taken by the TPO at 1.71%. The co- ordinate bench of this Tribunal in the case of M/s.Citrix Research & Development India Pvt. Ltd. (supra) has observed in para 14 as under:
Xxxxxxxxx In view of the above facts and circumstances as well as the decision of the co- ordinate bench of this Tribunal in the case of M/s.Citrix Research & Development India Pvt. Ltd., (supra), we direct the Assessing Officer/TPO to give the working capital adjustment after considering the objections of the assessee as well as after exclusion of the companies as directed by us from the list of comparables".
5. This Court 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 findings of the learned Tribunal remained final Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 11/13 fact findings of the learned Tribunal and are binding on the lower authorities of the Department as well as this Court and unless an established ex-facie perversity is found in the findings of the learned Tribunal, the appeal u/s.260A of the Act is not maintainable. We do not find any such perversity in the aforesaid findings.
6. The relevant portion of the aforesaid 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 Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 12/13 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 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 Date of Judgment 28-06-2018 I.T.A.No.514/2016 Pr. Commissioner of Income Tax-5 & Anr.
Vs. M/s. Nett App India Pvt Ltd., 13/13 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."
7. 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.
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JUDGE Sd/-
JUDGE Srl.