The Pr. Commissioner of Income Tax CIT(A) and The Income Tax Officer Ward No.11(2) V. IPASS India Pvt. Ltd.

ITA/197/2016

AI Insights

The case involves an appeal by the Pr. Commissioner of Income Tax and the Income Tax Officer against M/s. IPASS India Pvt. Ltd. concerning the assessment year 2009-2010. The appeal was based on the exclusion of certain comparables by the ITAT and the classification of foreign exchange transactions as operating in nature. The Revenue challenged the ITAT's decision, which had followed previous Tribunal decisions that included foreign exchange gains/losses in operating revenues for calculating the operating margin. The High Court dismissed the appeal, agreeing with the ITAT's findings and citing precedents that supported the inclusion of such gains/losses as part of operating activities.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 816130 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-07-2018
• Assessment Year: misc
• Other Referred Cases: M/s.Cisco Systems India, Haworth (India) Pvt. Ltd., Triology E-Business Software India Pvt. Ltd., Amba Research India Pvt. Ltd., Sap Labs India (Pvt.) Ltd., Mindteck (India) Ltd., Softbrands India Pvt. Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: ARAVIND
• Keywords: Comparables; Foreign exchange transactions; Income tax appeal; Operating nature; Transfer pricing
• Section: 260-A; 10B(2)(d)

Judgement Text

" 1/10 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.197/2016 BETWEEN : 1. THE PR. COMMISSIONER OF INCOME TAX CIT(A), 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BANGALORE – 560 095 2. THE INCOME TAX OFFICER WARD NO.11(2) 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BANGALORE – 560 095 ... APPELLANTS (BY SRI.ARAVIND K. V., ADV.) AND M/S. IPASS INDIA PVT. LTD., UNIT 501, LEVEL V, NO.6, BRUNTON ROAD, BANGALORE - 560 001 ... RESPONDENT (SERVED) THIS INCOME TAX APPEAL UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:04/09/2015 PASSED IN ITA NO.1310/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010 ANNEXURE – D, PRAYING Date of Judgment 04-07-2018, ITA No.197/2016 The Pr. Commissioner of Income Tax & another Vs. M/s.Ipass India Pvt. Ltd., 2/10 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 ITA NO. 1310/BANG/2014 DATED:04/09/2015 ANNEXURE–D AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-11(2), BENGALURU. THIS APPEAL COMING ON FOR FINAL 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. 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.1310/Bang/2014 dated 04.09.2015, relating to the Assessment Year 2009-10. 2. This Appeal has been admitted on 24.10.2017 to consider following substantial questions of law formulated by the Revenue in the Memorandum of Appeal. Date of Judgment 04-07-2018, ITA No.197/2016 The Pr. Commissioner of Income Tax & another Vs. M/s.Ipass India Pvt. Ltd., 3/10 “1. Whether, on the facts and in the circumstances of the case, that the Tribunal is right in law in excluding M/s.Bodhtree Consulting Ltd., M/s.Infosys Ltd and M/s. Tata Elxy Ltd., even when the decision following by the Tribunal in the case of M/s.Cisco Systems India (ITA No.271/B/14) has not reached finality and TPO had adopted the said comparables as they satisfied all the qualitative and quantitative filters applied by the TPO?” 2. Whether, on the facts and in the circumstances of the case, that the Tribunal was right in law in holding that foreign exchange transactions are to be considered as operating in nature, when Rule 10B (2) (d) stipulates that the net profit margin realized by the taxpayer in the international transaction shall alone be computed for comparability analysis under transaction net margin method?” Date of Judgment 04-07-2018, ITA No.197/2016 The Pr. Commissioner of Income Tax & another Vs. M/s.Ipass India Pvt. Ltd., 4/10 3. Learned Counsel for the Appellants-Revenue does not press substantial question No.1. 4. Submission is taken on record. Regarding Substantial Question No.2: 5. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under: 19.0 The Grounds at S.Nos. 2 to 4:- Foreign Exchange Gain/Loss. 19.1 In these grounds, the Revenue assails the decision of the learned CIT (Appeals) in the impugned order in holding that foreign exchange gain/loss is operating in nature without appreciating that such gain/loss though attributable to the operating activity of the assessee is not derived from the operating activity but is only incidental to it. Revenue also assailed the decision of the learned CIT (Appeals) in following the decisions of the Delhi Bench of the ITAT in the case of Haworth (India) Pvt. Ltd. in 11 ITR (Trib) 757 Date of Judgment 04-07-2018, ITA No.197/2016 The Pr. Commissioner of Income Tax & another Vs. M/s.Ipass India Pvt. Ltd., 5/10 and of the co-ordinate bench of the ITAT, Bangalore in the case of Triology E-Business Software India Pvt. Ltd. in 23 ITR (Trib) 464. The learned Departmental Representative was heard in support of the grounds raised. 19.2 Per contra, the learned Authorised Representative for the assessee placed reliance on the decision of the learned CIT (Appeals) in the impugned order in holding that foreign exchange gain/loss is to be treated as part of operating activity for determining/ comparable companies. It was contended that this issue is covered in favour of the assessee by a catena of decisions of the various benches of the ITAT and the learned CIT (Appeals) had, inter alia, rightly followed and directed the Assessing Officer to follow the decisions of the co-ordinate bench of the ITAT, Bangalore Benches in the case of Triology E-Business Software India Pvt. Ltd. (supra). It was prayed, in the light of the above averments, that Revenue’s appeal on this issue be dismissed. Date of Judgment 04-07-2018, ITA No.197/2016 The Pr. Commissioner of Income Tax & another Vs. M/s.Ipass India Pvt. Ltd., 6/10 19.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited and placed reliance upon. We observe that it has not been disputed that the foreign exchange gain/loss has arisen as a consequence of the realization of the consideration for rendering software development services and therefore there is no reason for its exclusion from the operating revenues for the purpose of calculating the operating margin of the assessee. We find that this proposition has been upheld by a co-ordinate bench of this Tribunal in the case of Amba Research India Pvt. Ltd. In IT(TP) A No.1376/Bang/2014 dt.17.4.2015 wherein at para 5.7 thereof it has been held as under:- xxxxxxxxx Following the decision of the co-ordinate benches of this Tribunal in the case of Sap Labs India (Pvt.) Ltd. (supra), Triology E Business Software India Pvt. Ltd. (supra), Mindteck (India) Ltd. (supra) and Amba Date of Judgment 04-07-2018, ITA No.197/2016 The Pr. Commissioner of Income Tax & another Vs. M/s.Ipass India Pvt. Ltd., 7/10 Research India Pvt. Ltd. (supra), we hold that operating revenue should be computed byi including the foreign exchange gain/loss. Consequently, the grounds at S. Nos.2 to 4 raised by revenue are dismissed. 20. In the result, Revenue’s appeal for Assessment Year 2009-10 is dismissed. Order pronounced in the open Court 4th Sept. 2015.” 6. 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 ex 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: Date of Judgment 04-07-2018, ITA No.197/2016 The Pr. Commissioner of Income Tax & another Vs. M/s.Ipass India Pvt. Ltd., 8/10 “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 list of comparables have been rightly applied or not, do not in our considered Date of Judgment 04-07-2018, ITA No.197/2016 The Pr. Commissioner of Income Tax & another Vs. M/s.Ipass India Pvt. Ltd., 9/10 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 Date of Judgment 04-07-2018, ITA No.197/2016 The Pr. Commissioner of Income Tax & another Vs. M/s.Ipass India Pvt. Ltd., 10/10 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. 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. 8. Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs. A copy of this Order shall be sent to the Respondent-Assessee. Sd/- JUDGE Sd/- JUDGE AN/- "