THE PR. COMMISSIONER OF INCOME TAX, CIT(A) V. M/S. CITRIX R & D INDIA PVT LTD

ITA/533/2016

AI Insights

The case involves an appeal by the Pr. Commissioner of Income Tax and the Deputy Commissioner of Income-Tax against M/s. Citrix R & D India Pvt. Ltd. concerning the Income Tax Appellate Tribunal's decision on certain deductions under Section 10A of the Income Tax Act, 1961. The main issues revolved around the exclusion of certain expenses from the total turnover while computing deductions under Section 10A, the exclusion of certain comparables in transfer pricing, and the adjustment of working capital in transfer pricing. The High Court dismissed the appeal, aligning with precedents that such matters do not typically give rise to substantial questions of law under Section 260-A.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 761487 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-07-2018
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax, Central \\u2013 III vs. HCL Technologies Ltd., M/s.Tata Elxsi Ltd. vs. Asst.Commissioner of Income Tax, CIT vs. Tata Elxsi Ltd., CIT vs M/s Quark Systems Pvt.Ltd., CIT vs M/s Agnity India Technologies Pvt. Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MANASA ANANTHAN
• Assessee Lawyers: ARAVIND V
• Keywords: Comparables; Deduction; Export Turnover; Income tax appeal; Total Turnover; Transfer pricing; Working Capital Adjustment
• Section: 10A; 260-A

Judgement Text

" 1/13 IN THE HIGH COURT OF KARNATAKA, BENGALURU DATED THIS THE 4TH DAY OF JULY 2018 PRESENT THE HON’BLE DR.JUSTICE VINEET KOTHARI AND THE HON’BLE MRS.JUSTICE S.SUJATHA I.T.A. No.533/2016 BETWEEN : 1. THE PR. COMMISSIONER OF INCOME TAX, CIT(A) 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU - 560 095. 2. THE DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-11(2), PRESENT ADDRESS, CIRCLE-2(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095. ...APPELLANTS (BY SRI.ARAVIND K V., ADV.) AND M/S. CITRIX R & D INDIA PVT. LTD., PRESTIGE DYNASTY NO.33, ULSOOR ROAD, BENGALURU - 560 100 PAN:AABCN 3639C ... RESPONDENT (BY SMT :MANALA ANANTHAN, ADV.) Date of Judgment 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 2/13 THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:19/02/2016 PASSED IN IT(TP)A NO.1289/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010 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 IT(TP)A NO.1289/BANG/2014 DATED:19/02/2016 ANNEXURE - D AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BENGALURU AND ETC.,. THIS APPEAL COMING ON FOR HEARING, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING: J U D G M E N T Mr.K.V.ARAVIND, Adv. for Appellants – Revenue. Ms.MANASA ANANTHAN, 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, ‘B’ Bench, Bangalore, in IT [TP] A No.1289/Bang/2014 dated 19.02.2016 relating to the Assessment Year 2009-10. 2. Though this Appeal was admitted on 28.11.2017 to consider the substantial questions of law Date of Judgment 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 3/13 framed at paras VI(2) and VI(3) by the Revenue in the Memorandum of Appeal, learned counsel for the appellant submits that even substantial question No.1 also may be considered as it is covered by the decision of the Hon’ble Supreme Court in Commissioner of Income-tax, Central – III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC). The substantial questions of law as framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether on the facts and circumstances of the case, the Tribunal is correct in directing the assessing officer to exclude expenses incurred in foreign currency and other expenses that has been excluded from ETO, from the total turnover also and accordingly recomputed the deduction under section 10A without appreciating the fact that there is no provision in sec. 10A that such expenses should be reduced from the total turnover also as clause (iv) of the Explanation 2 to Sec. 10A Date of Judgment 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 4/13 provides that such expenses are to be reduced only from the export turnover?’ 2. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding comparables namely, Bodhtee Consulting Ltd, Tata Elxsi Ltd and Infosys Technology Ltd on the ground of functional dissimilarity even when Transfer Pricing Officer has rightly chosen the same considering its functions which are similar to assessee’s and has satisfied all the required tests and without doing an FAR analysis of the taxpayer with those other cases? 3. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing TPO to give working capital adjustment considering the comparables after exclusion of the three companies for the reason that the assessing authority cannot force an artificial limitation to the actual working capital adjustment ratio derived from the comparable companies.” Date of Judgment 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 5/13 Regarding Substantial Question No. 1: 3. The issue raised in the present appeal as to the 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 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:- Date of Judgment 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 6/13 “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 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 7/13 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”. 4. The learned Tribunal, after discussing the rival contentions of both the Appellant-Revenue and Respondent-Assessee, has returned a finding with regard to question Nos. 2 and 3 as under: 10. Vis-à-vis M/s Bodhtre Consulting Ltd, the observation of this Tribunal as it appeared at page No.26.1 of the order in the Date of Judgment 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 8/13 case of M/s Cisco Systems (Ind.) Pvt.Ltd. read as under; XXXXX 11. Observations of the Co-ordinate Bench with regard to M/s Tata Elxsi Ltd. as it appears at para-26.4 of the very same order is re-produced hereunder; XXXXX 12. Observation of the Co-ordinate Bench in the very same order with regard to the comparability of M/s Infosys Ltd appears at para-26.2 of the order which is re-produced hereunder; XXXXX 13. No doubt, in so far in the case of M/s Infosys Tech.Ltd. is concerned, it was one among the many companies chosen by the assessee itself. However, in view of the special Bench decision in the case of CIT Vs M/s Quark Systems Pvt.Ltd.,(2010) 38 SOT 0307, which was affirmed by the Hon’ble Punjab & Haryana High Court in (2011) 62 Date of Judgment 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 9/13 DTR 0182, assessee cannot be stopped from raising a plea for exclusion, especially when it had objected to the inclusion before the TPO and DRP. As mentioned at para-five above, assessee had objected to the inclusion of M/s Infosys Tech.Ltd. both before the TPO and DRP. In the normal course, in view of the judgment of the Hon’ble Punjab & Haryana High Court mentioned supra, the issue has to be remitted back to the TPO for considering its comparability. However, Hon’ble Delhi High Court in the case of CIT Vs M/s Agnity India Technologies Pvt. Ltd. (Supra) had affirmed an order of this Tribunal were M/s Infosys Technologies Ltd was directed to be excluded from the list of comparables considering the peculiar features of the said company. Hence, no purpose will be served in remitting the question of comparability of M/s Infosys Tech.Ltd back to the TPO/AO. In view of the above discussion, we direct exclusion of M/s Bodhtree Consulting Ltd., M/s Tata Elxsi Ltd.(Seg.) and M/s Infosys Tech.Ltd from the list of comparables. Ordered accordingly. Date of Judgment 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 10/13 14. Insofar adjustment of working capital is concerned, we are of the opinion, that the AO cannot force an artificial limitation to the actual working capital adjustment ratio derived from the comparable companies considered fro the arm’s length study. The restriction of working capital adjustment based on PLR of SBI will be appropriate since it is based on a presumption with all lending or credit are having uniform interest rates as decided by the SBI. We therefore, direct the AO to give working capital adjustment considering the comparable companies after exclusion of the three companies mentioned by us at para thirteen (supra).” 5. 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- M/s Softbrands India Pvt. Ltd.,) wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is Date of Judgment 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 11/13 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 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 12/13 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 04-07-2018, ITA No.533/2016 The Pr. Commissioner of Income Tax & another Vs. M/s. Citrix R & D India Pvt. Ltd., 13/13 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.” 6. 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. Hence, the Appeal filed by the Appellant-Revenue is liable to be dismissed and is accordingly dismissed. No costs. Sd/- JUDGE Sd/- JUDGE ln. "