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Facts
The assessee is challenging the assessment order passed by the AO, which included transfer pricing adjustments, disallowance of depreciation on intangible assets, and denial of deduction under Section 80G. The AO's order was passed without giving full effect to the directions of the DRP and relied on decisions that were sub-judice.
Held
The Tribunal held that the AO had erred by not giving effect to the DRP's directions and by making additions contrary to established judicial precedents. The disallowance of depreciation on intangible assets and the addition on account of interest on deemed loan were quashed, and the deduction under Section 80G was allowed.
Key Issues
Whether the AO correctly passed the final assessment order in conformity with DRP directions and prior judicial precedents, especially regarding transfer pricing adjustments, depreciation on intangibles, and Section 80G deductions.
Sections Cited
143(3), 144C(13), 144B, 144C(5), 253, 153, 92CA, 32(1)(ii), 80G, 37, 135, 234D, 270A, 144C(10)
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Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRI PRABHASH SHANKAR
This appeal of the assessee is directed against the final assessment order passed by the Assessment Unit, Income-tax Department (for brevity the “Ld.AO”) under section 143(3) read with section 144C(13) read with section 144B of the Act (for brevity the “the Act”), date of order 18/06/2024 for A.Y. 2020-21.The said order was originated from the recommendation of the CIT (DRP-2), Mumbai-2 (for
2 ITA 4432/Mum/2024 WNS Global Service Private Limited brevity the “Ld.DRP”), date of order 03/05/2024 passed under section 144C(5) of the Act. 2. The assessee has taken the following grounds:- “
Based on the facts and the circumstances of the case, WNS Global Services Private Limited (hereinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal under Section 253 of the Income-tax Act, 1961 ('Act') against the order passed by the Assessment Unit, National Faceless Assessment Centre ('AO') dated
18. June 2024 ('Final Assessment order") in pursuance of the directions issued by Dispute Resolution Panel-2 (DRP), Mumbai dated
3. May 2024 (DRP Directions") on the following grounds which are independent and without prejudice to each other.
General Ground
On the facts and in the circumstances of the case and in law, the learned AO based on the directions of the Hon'ble DRP has erred in determining the total taxable income of the Appellant for Assessment Year ('AY") 2020-21 at Rs 332,27,26,586 instead of Rs 306,52,54,200 as returned by the Appellant for the subject AY under normal provisions of the Act.
Final assessment order barred by limitation.
2. On the facts and in the circumstances of the case and in law, the final assessment order dated 18 June 2024 passed by the Assessing Officer, having been passed beyond the limitation provided in terms of section 144C read with 153 of the Act, is time-barred, bad in law, void ab initio and is liable to be quashed.
Validity of final assessment order
On the facts and in the circumstances of the case and in law, the final assessment order dated 18 June 2024 passed by the Assessing Officer under section 144C(13) without giving effect to the binding directions of the Dispute Resolution Panel ("DRP') is bad in law and is liable to be quashed.
Transfer Pricing Grounds 3 ITA 4432/Mum/2024 WNS Global Service Private Limited
On the facts and in the circumstances of the case and in law, the learned AO erred in making a reference of the Appellant's case to the learned TPO and then making a transfer pricing adjustment of INR 11.26,24,233 to the income of the Appellant for AY 2020-21.
The learned AO/TPO has erred in incorporating a partial disallowance of depreciation (INR 4,30,31,547) in his order passed for the year under consideration based on an adjustment proposed to the value of business and commercial rights purchased by the Assessee from its Associated Enterprise ('AE') in AY 2011-12, contrary to the binding directions of the Hon'ble DRP and/or binding rulings of this Hon'ble Tribunal in the Appellant's own case.
6. On the facts and in the circumstances of the case and in law, the learned TPO/AO has erred computing notional interest of INR 6,95,92,686 basis the erroneous characterisation of its share purchase transaction as loan in the transfer pricing order for AY 2016-17 and AY 2017-18, contrary to the binding directions of the Hon'ble DRP and/or binding rulings of this Hon'ble Tribunal in the Appellant's own case.
Without prejudice, on the fact and in circumstances of the case and in law, the learned TPO/ AO has erred in recharacterizing the alleged excess share purchase consideration for purchase of equity shares in AY 2016-17 and AY 2017-18 as deemed loan and imputing notional interest on the same.
8. Without prejudice, on the facts and in the circumstances of the case and in law, the learned TPO/AO/ has grossly erred in disputing the commercial rationale of the transaction and in disregarding the actual transaction to allege that excess share purchase consideration is paid by the Appellant in AY 2016-17 and AY 2017- 18 by inflating the share price.
Non Transfer Pricing Grounds
9. On the fact and in circumstances of the case and in law. a) the learned AO has erred in disallowing depreciation amounting to Rs 12,42,89,747 on intangible assets acquired by the Appellant. b) without prejudice to above, with respect to the depreciation amounting to Rs.4,59,084 on intangible asset acquired from WNS UK, the learned AO has erred in law by not giving effect to the binding directions of the Hon'ble DRP and/or
4 ITA 4432/Mum/2024 WNS Global Service Private Limited being contrary to the binding rulings of this Hon'ble Tribunal in the Appellant's own case;
On the fact and in circumstances of the case and in law, the learned AO/Hon'ble DRP has erred in disallowing deduction under Section 80G of the Act amounting to Rs 2,05,58,406 a) without appreciating the fact that the Appellant has suo moto disallowed the expenditure of Rs. 8.48,62,928 incurred on CSR activity under Section 37 of the Act. b) without appreciating the fact that the deductions claimed under Section 80G of the Act pertained to eligible payments specified under section 80G of the Act c) without appreciating the fact that there is no bar on the Appellant to claim deduction under Section 80G of the Act in respect of eligible donations made towards CSR expenditure d) without appreciating the fact that the amount grouped under CSR contributions has been paid by the Appellant on voluntary basis, and hence the same is eligible to be claimed as deduction under Section 80G of the Act
11. On the fact and in circumstances of the case and in law, the learned AO has erred in levying interest amounting to Rs. 21,72,282 under Section 234D of the Act: 12. On the fact and in circumstances of the case and in law, the learned AO erred in initiating penalty proceedings under Section 270A of the Act.
The Appellant craves leave to add, alter, omit or substitute at any time before or at the time of the appeal, to enable accordance with law.”
The assessee, a company domiciled and incorporated in India, is engaged in providing a range of Business Process Management Services (BPMS), including back-office administration, data management, and contact center management services, primarily catering to clients in the travel, banking, financial services, and 5 ITA 4432/Mum/2024 WNS Global Service Private Limited insurance sectors. The assessee also has a branch office in Singapore under the name WNS Global Services Pvt. Ltd., Singapore. For the impugned assessment year, the assessee filed its return of income, and the case was selected for complete scrutiny under the Computer Assisted Scrutiny Selection (CASS). The assessee, being an IT-enabled service provider, delivers a diverse portfolio of outsourcing solutions to clients globally. Its services include back-office operations, data processing, and contact center management. During the course of assessment proceedings, a reference was made to the Ld. Transfer Pricing Officer (TPO) under section 92CA of the Act, after obtaining due approval from the competent authority, for determining the arm’s length price in respect of international transactions undertaken by the assessee. Pursuant to the reference, the TPO proposed an adjustment of Rs.11,26,24,233/- to the TP study reported by the assessee in its books for the impugned assessment year. The adjustment was based on the following components: Depreciation on business rights – Rs. 4,30,31,547/- Interest on deemed loan – Rs. 6,95,92,686/- Total Adjustment: Rs. 11,26,24,233/- Aggrieved by the proposed adjustment made in the draft assessment order issued under section 144C(1) of the Act, the assessee filed objections before the Ld. DRP under section 144C(2).The Ld.DRP, vide its directions issued under section 144C(5) dated 03/05/2024, adjudicated the objections raised by the assessee and considered the findings of the TPO. Subsequently, based on the directions of the DRP, the Ld. AO passed the final assessment order under section 144C(13) of the Act.
6 ITA 4432/Mum/2024 WNS Global Service Private Limited In the final assessment order, the Ld. AO made a transfer pricing adjustment under section 92CA amounting to Rs.11,26,24,233/-. In addition, disallowances were made as follows: Disallowance under section 80G: Rs. 2,05,58,406/- Disallowance of depreciation on intangible assets: Rs.12,42,89,747/- Being aggrieved by the final assessment order, the assessee has preferred an appeal before this Tribunal.
3. The Ld.AR argued and filed a paper book containing 392 pages which is kept on the record. The Ld.AR primarily argued the TP issue related to the jurisdiction of the Ld.AO in making addition by disobeying the direction of the DRP which contravening the provisions of section 144C(13) of the Act. In TP adjustment, the addition was made on two issues which are covered in ground nos 4 to 8. The argument is focused primarily on ground-wise which are as follows: - Ground no. 5 : Partial disallowance of depreciation 4. The assessee claimed depreciation on intangible assets like depreciation on business rights amount to Rs. 4,30,31,547/-. As per the Ld.AR, the DRP had made the direction relying on the order of the coordinate bench of ITAT-Mumbai in assessee’s own case in previous years and direction was made to allow the depreciation as per the Act, on business rights. The observation of the Ld.DRP is reproduced as below:- “8.3. Discussion and Directions of the Panel: 8.3.1 The Panel has considered the submissions of the assessee. It is found that this issue has been considered by the DRP in AY 2018-19. The relevant portion of the directions of the DRP for AY 2018-19 is as under:
7 ITA 4432/Mum/2024 WNS Global Service Private Limited "7.3.1 The Panel has considered the submissions of the assessee. It is found that this issue has been considered by the DRP in AY 2015-16 The Direction of the DRP for AY 2015-16, which were also followed in AY 2016-17 is as under: 6.2.11 Adverting to the merit of the disallowance proposed by the TPO, we find that the AO has disallowed the depreciation claimed amounting to Rs.52,04,37,398/- on the intangible assets acquired by the Assessee. An objection in respect of the same has specifically been raised before us vide Ground No. (5), which we are going to adjudicate later in this order. We find that the AO while considering the issue of depreciation has reduced Rs. 18,13,34,581/- from the overall amount of Rs. 52,04,37,398/- and accordingly, vide para 5.10 of the draft order, has proposed an addition of Rs. 33,71,68,243/-on account of disallowance of depreciation. We are in any case going to consider the whole amount of depreciation of Rs.52,04,37,398/- at the time of adjudicating ground No.(5) and, hence, the adjustment proposed by the TPO would also be required to be dealt with accordingly. Hence, dealing with the same separately at this juncture does not serve any meaningful purpose. We proceed accordingly. 7.3.2 However, the Hon'ble ITAT has passed an order dated 19.03.2020 for AY 2011-12 and AY 2012-13 and directed the AO to delete the adjustment to the value of the contract made by the learned TPO for AY 2011-12 and also consequent depreciation adjustment made by the learned TPO for AY 2012-13. We have noted that this disallowance is merely consequential to the adjustment made by the TPO in AY 2011-12. In view of the aforesaid, the AO is directed to compute the depreciation in accordance with the relevant provision of the Act." 8.3.2. The panel notes that this disallowance is merely consequential to the adjustment made by the TPO in AY 2011-12. In view of the aforesaid, the AO is directed to compute the depreciation in accordance with the relevant provision of the Act.” Considering the DRP’s order, the Ld.AO passed the final order with following observation which is reproduced as below:-
8 ITA 4432/Mum/2024 WNS Global Service Private Limited “Thus, the Ld. DRP has directed that the disallowance is consequential to the adjustment made by the TPO in AY 2011-12. The Hon'ble ITAT has passed an order dated 19.03.2020 for AY 2011- 12 and AY 2012-13 and directed to AO to delete the adjustment to the value of the contract made by the learned TPO for AY 2011-12 and also consequent depreciation adjustment made by the learned TPO for AY 2012-13. In this regard it is stated that the Department has not accepted the Hon'ble ITAT's decision and has filed further appeal to Hon'ble High Court. These appeals are pending for adjudication. Therefore, the adjustment made towards depreciation on business rights stands at Rs. 4,30,31,547/-.” Ground nos. 6 to 8: Notional interest on deemed loan 5. The Ld.AR in argument stated that during A.Ys. 2016-17 and 2017-18, the assessee acquired shares of WNS Global Services UK Ltd (in short, ‘WNS UK’) from its Associated Enterprise (AE). The assessee obtained a valuation report from third party independent valuation as per which the value of shares of WNS UK was determined using the two methods,viz.DCF method and CCM method by using 50% weightage to both the methods. In the TP assessment proceedings, in A.Y. 2016-17 and 2017-18, the TPO did not accept the price as per the valuation report as the Ld.TPO replaced the projections for DCF method with actual and arrived at revised value of shares. Further with respect to value for CCM for A.Y. 2016-17, the TPO reduced the value of CCM preposition of reduction in value as per DCF method basis actual. The assessee does not agree with the variations in value of shares proposed by the Ld.TPO for both the assessment years. Accordingly, assessee has filed appeal against the same before the ITAT for A.Ys 2016-17 and 2017-18. During the hearing before the Ld.DRP, the Ld.AR submitted that the adjustment made on account of valuation of shares and treatment as excess as deemed loan and charging of interest thereto was duly deleted in assessment years 2016-17 and 2017-18 by the orders of the ITAT dated 9 ITA 4432/Mum/2024 WNS Global Service Private Limited 23/07/2023. The relevant paragraph of the order of Ld. DRP is reproduced as below:- “9.3. Discussion and Directions of the Panel: 9.3.1. The Panel has considered the submissions of the assessee. It is found that this issue has been considered by the DRP in AY 2016-17. The directions of the DRP for AY 2016-17, which were also followed for the AY 2018-19, are as under. "As far as the grounds of objection nos. 10, 11 and 12 are concerned, the assessee is objecting to interest rate at LIBOR+ 600 basis points for the impugned excess payment. The assessee has pleaded before us existence APA for the period FYs 2013-14 to 2017-18, wherein it was agreed that the WNS India should earn an interest of 6 months LIBOR+100 basis points for delays in realisation of receivables. The assessing officer/ TPO should verify the claim regarding the APA agreed interest supra and if found correct, then compute the interest accordingly. The grounds of objection nos. 10, 11 and 12 are disposed off accordingly." 9.3.2. Further during the course of hearing, the applicant submitted that the adjustments made on account of valuation of shares and treatment of the excess as deemed loan and charging of interest thereof has been deleted for both the years A.Y 2016-17 and 2017-18 by the order of the ITAT dated 23/07/2023 for A.Y 2017-18 and 2018-19 and order dated 09/12/2022 for A.Y 2016-17. In view of the fact that the amounts have been deleted by the Hon'ble ITAT, adjustment in the current year on account of interest becomes consequential to the adjustment made by the TPO in AY 16-17 and 17-18. In view of the aforesaid, the AO is directed to give consequential effect to the aforesaid orders of Hon'ble ITAT. The ground of objection is disposed off accordingly.”
However, the Ld.AO had rejected the observations of the Ld. DRP ontheground that the issue is now pending before the Hon’ble jurisdictional High Court. So, the L.AO rejected the direction of the DRP and made the addition of interest on deemed loan. Ground no. 3 : Contravention of section 144C(13) 7. The Ld.AR argued that related to the two additions, viz. addition on account of business right and interest on deemed loan, the Ld.AO had not accepted the directions of the Ld.DRP, which contravened the provisions of section 144C(13) of 10 ITA 4432/Mum/2024 WNS Global Service Private Limited the Act. The same issues were duly agitated before the ITAT and the ITAT has taken a view in favour of the assessee resulting in rejection of the impugned assessment order on the issues. The Ld. AR respectfully relied on the order of the Hon’ble High Court of Karnataka in the case ofPCIT v.Flextronics Technologies (India) (P.) Ltd[2023] 148 taxmann.com 123 (Karnataka). The relevant paragraph is reproduced as below: - “7. The ITAT has recorded that impugned order is not in conformity with the provisions of section 144C of the IT Act and barred by time.
Shri. Dilip's contention is, the Assessing Officer has rightly passed the order within time. But it is relevant to note that the said order is not in conformity with section 144C of the IT Act. Hence, no exception can be taken to the impugned order passed by the ITAT. Hence, we proceed to pass the following: ORDER (1) Appeal is dismissed. (2) Questions of law answered in favour of assessee and against the Revenue. No costs.” Considering these, the relevant order of co-ordinate bench of ITAT, Mumbai in case of AZZ WSI B.V. v DCIT, International Taxation [2023] 151 taxmann.com 319 (Mumbai-trib)has been passed, wherein it has been held as follows: - “14. In the instant case, the reasoning for making the addition in the final assessment order by the ld. AO is by treating the assessee as a Fixed Place PE, which has already been nullified by the ld. DRP. The ld. AO in the final assessment order is bound to complete the assessment in conformity with the directions of the ld. DRP as per the provisions of section 144C(13) of the Act. In the instant case, the ld. AO had not framed the final assessment order in complete conformity with the directions of the ld. DRP, thereby violating the provisions of section 144C(13) of the Act. However, only the 11 ITA 4432/Mum/2024 WNS Global Service Private Limited determination of total income as directed by the ld. DRP had been complied with by the ld. AO in the final assessment order. This is a case of ld. AO completing the assessment by determining the total income as directed by the ld. DRP but did not follow the basis and reasoning of determination of income as directed by the ld. DRP. Hence we are in agreement with the ld. AR that once the basis of determination of total income itself is illegal due to violation of provisions of section 144C(10) and 144C(13) of the Act, the ultimate determination of total income in the final assessment order also becomes bad in law. Moreover, the ld. AO had not even bothered to rectify his order u/s 154 of the Act by conforming to the directions of ld. DRP which forms the basis of determination of total income.
15. In view of the aforesaid observations, we have no hesitation to hold that the final assessment order passed by the ld. AO, which is in appeal before us, is bad in law and accordingly the final assessment order framed is hereby quashed. In view of this decision, the other grounds raised
by the assessee on merits, need not be gone into, and they are left open.
16. In the result, the appeal of the assessee is allowed.”
8. We have heard the rival contention of both parties in the matter and perused the material on record. The undisputed facts on record, as brought out by the discussions above, is that the Ld. AO, as per law, was required to pass the final order of assessment dated 18/06/2024 for asst. year 2020-21 u/s 143(3) r.w.s 144C (13) r.w.s. 144B of the Act in conformity with the directions issued by the DRP u/s 144C(5) of the Act, which are binding on him as per section 144C(10) thereof and u/s 144C(13) of the Act. We find that instead of passing the final order of assessment as required by law, the Ld. AO passed the impugned final order of assessment which, as contended by the Ld. AR against the direction of the DRP related the issues depreciation on business right and interest on deemed loan. In view of the provisions of the Act and respectfully relied on the ruling of 12 ITA 4432/Mum/2024 WNS Global Service Private Limited the co-ordinate bench of ITAT, Mumbai in the case of AZZ WSI B.V. (supra) and the order of the Hon’ble High Court of Karnataka in case of Flextronics Technologies (India) (P.) Ltd (supra). We further follow the order of the co- ordinate bench of ITAT, Delhi Bench “I” in case of Bravura Solutions India LLP vs. Assessment Unit ITD in date of pronouncement 22/04/2025. The relevant paragraph 8 is reproduced as below:- “8. The ld AR before us prayed for grant of working capital adjustment to be applied on the comparable margin, which in either case, if granted, there would no need to separately impute interest on outstanding receivables as the same would get subsumed. Reliance in this regard was placed on the decision of the Hon'ble Delhi High Court in the case of Kusum Healthcare in dated 25.04.2017. We find that the ld DRP had also directed the ld TPO / AO to grant working capital adjustment to the assessee which has not been followed by the ld TPO. Hence, the order passed by the TPO had to be considered as not passed in consonance with the binding directions u/s 144C(10) of the Act of ld DRP. On this limited count itself, the order of ld TPO deserves to be quashed and is hereby quashed. Accordingly, original Ground Nos. 2 and 3 raised by the assessee are hereby allowed.” We find that the Ld. AO is required to pass the final assessment order in conformity with the DRP directions. In the present case, since the final assessment order passed by the Ld. AO is not in conformity with the DRP directions.In the present appeal, since the impugned assessment order passed by the Ld. AO related both the issues is not in conformity with the DRP directions, the addition in both the issues are bad in law. So, the Ground no. 3 of the assessee’s appeal is allowed. So, in our considered view and following the orders of the co-ordinate benches, we find that the addition made on the TP issue by the Ld.AO by ignoring the 13 ITA 4432/Mum/2024 WNS Global Service Private Limited direction of the Ld.DRP is in contravention of the provisions of section 144C(13) of the Act related to depreciation on business rights and adjustment on account of interest on deemed loan. Therefore, impugned additions on both the issues amount to Rs. 11,26,24,233/- are quashed. Accordingly, Ground nos.4 to 8 of assessee’s appeal are allowed. Ground no. 9: Depreciation on intangible assets.
The assessee claimed depreciation on various intangible assets comprising commercial rights, customer relationships, and non-compete fees. During the relevant assessment year, although there were no fresh transactions pertaining to these intangible assets, depreciation was claimed on the opening written down value (WDV). The assessee claimed depreciation on goodwill amounting to Rs.8,88,46,444/- acquired from Value Edge. In accordance with Section 32(1)(ii) of the Act, depreciation on trademarks and similar intangible assets is allowable, and notably, no disallowance was made under this head in earlier assessment years 2017–18 and 2018–19. Hence, no adverse inference was drawn at that stage.
The assessee claimed depreciation at the rate of 25% on the WDV, aggregating to Rs.26,69,41,957/- for intangible assets. Out of this, depreciation of Rs.9,96,20,663/- was allowed, while the balance amount of Rs.16,73,21,294/- was disallowed and added back to the assessee’s total income. The matter was referred to the Ld. DRP. In its directions issued under Section 144C(5), the Ld. DRP observed that the disallowance of Rs.4,30,31,547/- was duplicated by both the TPO and the AO. Consequently, the Ld. AO reduced this duplication from the total disallowance, thereby sustaining a net disallowance of Rs.12,42,89,747/-.
14 ITA 4432/Mum/2024 WNS Global Service Private Limited 10. During the course of hearing, the Ld. AR referred to the DRP’s observation as follows:
“10.5 The Assessee submits that it has classified such rights acquired by it as 'Intangible asset as defined in Explanation 3(b) to Section 32(1) of the Act and accordingly, the Assessee has claimed tax depreciation @ 25% on same on written down value basis amounting to Rs 16,73,21,294 for AY 2020-21 in terms of Section 32(1)(ii) of the Act. The details of depreciation are as follows: Parties Nature of Intangible Depreciation claimed for AY 2020-21(in Rs) WCIL Customer Contracts 12,30,43,150 WNS UK Customer Contracts 4,59,084 Value Edge Customer Contracts 57,83,203 Customer Relationships 1,55,26,953 Non-Compete fees 2,19,02,344 Denali Customer Contracts 5,05,560 Total 16,73,21,294
The DRP allowed depreciation of Rs.4,59,084/- in respect of WNS UK based on a binding decision of the co-ordinate bench of the ITAT, Mumbai. However, the remaining disallowance was upheld in accordance with its earlier rulings. The Ld. AR submitted that the issue is now squarely covered in favour of the assessee by the recent decision of the ITAT, Mumbai in the assessee’s own case bearing 2451/Mum/2022, pronounced on 26/07/2023, which was unavailable at the time the DRP passed its directions. In that decision, the coordinate bench of ITAT Mumbai in paragraphs 17 to 19 held that: “17. The ratio laid down by the Hon'ble Tribunal in the above order is that the contractual rights is a valuable commercial right and comes within the meaning of intangible asset as per section 32(1)(ii) r/w Explanation 3(b) of the Act. Applying the same ratio we hold that the depreciation claimed by the assessee on customer contracts acquired from WCIL, Value Edge and Denali are allowable.
15 ITA 4432/Mum/2024 WNS Global Service Private Limited
With regard to the depreciation claimed on capitalization of non-compete fee, we notice that the Pune Bench of the Tribunal in the case of Serum Institute of India Ltd (supra) has held that – 13. Therefore, the limited disputed for adjudication before us relates to if the capital expenditure by way of 'non compete fee' in question is an 'intangible asset' and if the same is depreciable asset for the benefits u/s 32 of the Act. There is no dispute on the capital nature of the impugned 'non compete fee' in view of the reported judgment of the Supreme Court in case of Guffic Chem (P.) Ltd. v. CIT [2011] 332 ITR 602/198 Taxman 78/10 taxmann.com 105, which is adopted in the judgment in the case of Hari Shankar Bhartia v. CIT [2011] 203 Taxman 6 (Mag.)/15 taxmann.com 113 (Cal.). In any case, both the parties accepted the fact that the said fee is capital in nature. On going through the facts, arguments, submissions, documents available before us and the orders of the revenue, we find the issue is squarely covered by the decision of the Chennai Bench of the ITAT in the case of Real Image Tech (P) Ltd (supra). It is our endeavor to make this order self contained and therefore, we reproduce the relevant HELD portions of the said decision and the same read as under. Held: When a businessman pays money to another businessman for restraining the other businessman from competing with the assessee, he gets a vested right which can be enforced under law and without that the other businessman can compete with the first businessman. When by payment of non-compete fee, the businessman gets his right what he is practically getting is kind of monopoly to run his business without bothering about the competition. It is just like separating big plant from other plants affecting the growth of the big plant. Generally, non-compete fee is paid for a definite period which in this case is five years. The idea is that by that time, the business would stand firmly on its own footing and can sustain later on. This clearly shows that the commercial right comes into existence whenever the assessee makes payment for noncompete fee. Now, the second question is whether such right can be termed as "or any other business or commercial rights of similar nature" for construing the same as "intangible asset". Here, the doctrine of ejusdem generis would come into operation. The term "or any other business or commercial rights of similar nature" has to be interpreted in such a way that it would have some similarities as other assets mentioned in cl. (b) of Expln. 3. The other assets mentioned are knowhow, patents, copyrights, trademarks, licenses, franchises, etc. In all these cases no physical asset comes into possession of the assessee What comes in is only a right to carry on the business smoothly and successfully and therefore even the right obtained by way of non-compete commercial rights of similar nature" because after obtaining non-compete right, the assessee can develop 16 ITA 4432/Mum/2024 WNS Global Service Private Limited and run his business without bothering about the competition. The right acquired by payment of non-compete fee is definitely intangible asset. Moreover, this right (asset) will evaporate over a period of time of five years in this case because after that the protection of non-competition will not be available to the assessee. This means, this right is subject to wear and tear by the passage of time, in the sense, that after the lapse of a definite period of five years, this asset will not be available to the assessee and, therefore, this asset must be held to be subject to depreciation. Assessee would be entitled to depreciation in respect of non-compete fee which is in the nature of intangible asset.
From the above, it is vivid that the, by payment of non-compete fee to another person to reduce the business or commercial competition for a period, the assessee acquires a right and it is a capital asset, which is a business or a commercial right as held by the above said decision of the Tribunal-Chennai Bench. Such rights are intangible ones, and they are covered by the provisions of clause (ii) of section 32(1) of the Act relating 'Depreciation'. The said provisions w e f 1.4.1999 read as follows. " 32. (1) In respect of depreciation of- (i).... (ii) know-how, patents, copyrights, trade marks, licenses, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st April, 1998……….
The said right is acquired undisputedly after the 1.4.1998 and there is no dispute on this fact. In such circumstances, without going into other aspects of the submission relating to segregating an asset from the 'block of assets' for purpose of denial of depreciation on such asset, which is of course is a settled proposition against the revenue, in our opinion, the assessee must win on this issue in view of the cited ratio in the case of Real Image Tech (P.) Ltd. (supra). Further, it is a settled issue that the non compete fee is intangible and depreciable asset as held by the cited supreme court's judgments, which are discussed in the preceding paragraphs. On both the counts, the arguments of the revenue are dismissed. Accordingly, the grounds raised
in the appeal of the assessee are decided in favour of the assessee.
19. In the above decision it is held that the payment made towards non-compete fee is an intangible depreciable asset. Respectfully following the above decision, we hold that the depreciation claimed on non-compete fee acquired from Value Edge should be allowed. Accordingly, this ground of the assessee is allowed.”
17 ITA 4432/Mum/2024 WNS Global Service Private Limited 12. Applying the above judicial principles, the Tribunal in the assessee’s own case categorically held that both customer contracts and non-compete rights acquired from Value Edge are eligible for depreciation under the Act.
13. The Ld. DR, however, argued and relied upon the findings of the revenue authorities. But unable to rebut any contrary judgment against the order of the Tribunal.
We have heard the rival submissions and perused the record. The issue of allowability of depreciation on intangible assets such as customer contracts, customer relationships, and non-compete fees stands conclusively covered in favour of the assessee by multiple decisions of the co-ordinate benches of the ITAT, Mumbai, rendered in the assessee’s own cases, as outlined below: of pronouncement 23/08/2022 CO No.52/Mum/2020 ITA 2393/Mum/2019 2473 & 2474/Mum/2021 12/10/2022 2438/Mum/2021 2257/Mum/2017 19/03/2020 1955/Mum/2016 1410/Mum/2017 18/01/2021 1459/Mum/2017 7378/Mum/2012 16/01/2019 396/Mum/2011 MA 261/Mum/2019 17/07/2019 1451/Mum/2012 19/02/2020 CO 44/Mum/2013 1259/Mum/2021 09/12/2022 2450 & 2451/Mum/2022 26/07/2023
18 ITA 4432/Mum/2024 WNS Global Service Private Limited In view of the consistent judicial findings of the ITAT, Mumbai in the assessee’s own cases, we hold that the depreciation claimed on intangible assets, namely customer contracts, customer relationships, and non-compete fees, is allowable under Section 32(1)(ii) of the Act. The impugned disallowance sustained by the Assessing Officer is hereby deleted. Accordingly, Ground no. 9 of the assessee’s appeal is allowed.
Ground no. 10 : Deduction under section 80G of the Act, instead of CSR expenses.
15. The details of the claim under section 80G of the Act are as follows: - Sr. Particulars Amount Percentage of Deduction amount No. (Rs.) contribution under section 80G eligible for (Rs.) deduction under section 80G of the Act 1 PalaviI Education Trust 56,20,329 50 28,10,165 2 Pratham Info Tech Foundation 3,20,32,375 50 1,60,16,188 3 Seva Sahyog Foundation 30,31,323 50 15,15,662 4 Suprabhat Mahila Mandal 4,32,783 50 2,16,392 Total 4,11,16,810 2,05,58,407 During the assessment year under consideration, as part of its Corporate Social Responsibility (CSR) initiatives, the assessee made donations aggregating to Rs.4,11,16,810/- to various charitable institutions. The assessee, in its return of income, disallowed the said amount under the CSR provisions. However, it simultaneously claimed a deduction of Rs.2,05,58,407/- under Section 80G of the Act, being 50% of the total donations made. The assessee duly filed copies of donation receipts with the revenue authorities, and all payments were made
19 ITA 4432/Mum/2024 WNS Global Service Private Limited through proper banking channels. Further, the tax auditor had verified the claim and reported it in the tax audit report in accordance with statutory requirements. Despite these compliances, the Ld. AO disallowed the deduction claimed under Section 80G and added the said amount back to the assessee’s total income. It is pertinent to note that the issue is squarely covered in favour of the assessee by the decision of the co-ordinate bench of the ITAT, Mumbai in the case of DCIT, Circle-1, Thane vs. Mahyco Monsanto Biotech (India) Pvt. Ltd. in pronounced on 29/11/2024. The relevant observations are contained in paragraphs 13 to 13.1 of the said order. “13. We have carefully considered all the relevant facts of the case.Rival submissions. The ld.DR has relied on orders of authorities below based on the amended provisions of section 37 and also section 135 of the Companies Act. We have also perused relevant provisions of the Act and legal position emerging from the cited decisions (supra).The CSR expenses which are required to be mandatorily incurred by the assessee-company as per section 135 of the Companies Act are not entitled to deduction under section 37(1) for assessment year 2015-16 by virtue of the fetter placed by Explanation 2 to section 37(1), which was inserted by the Finance (No. 2) Act, 2014. A plain reading of Explanation 2 to section 37(1) shows that any expenditure incurred towards CSR activities as referred to in section 135 of the Companies Act, 2013 shall not be allowed as 'business expenditure' and shall be deemed to have not been incurred for purpose of business. The embargo created by Explanation 2 inserted in section 37 by Finance (No. 2) Act, 2014 was to deny deduction for CSR expenses incurred by companies, as and by way of regular business expenditure while computing 'income under the head business'. 13.1. So, it can be clearly seen that this Explanation 2 to section 37(1) which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing 'business income' under Chapter IV-D. The said Explanation cannot be extended or imported to CSR contributions which are otherwise eligible for deduction
20 ITA 4432/Mum/2024 WNS Global Service Private Limited under any other provision or Chapter, so as to say donations made by charitable trust registered under section 80G.Parliament has expressed its intention clearly by bringing in restriction in respect of expenditure classified by an assessee company while claiming deduction under section 80G i.e. CSR expenditure related to Swachh Bharat Kosh and Clean Ganga Fund. And if the Parliament desired, it could have been made such kind of restriction or any restriction like in the case of donation to Swachh Bharat Kosh & Clean Ganga Fund. So, the assertion of the Assessing Officer is erroneous and therefore cannot be accepted. It can be safely inferred that when the Legislature in particular has provided for only the above referred two specific exceptions in section 80G, then it is the implied intent of the Legislature to permit deduction under section 80G in respect of CSR contributions made to funds/organizations referred to in all other sub-clauses of section 80G [other than (iiihk) and (iiihl)] of the Act.”
We heard the rival submission and perused the documents available in record. The provisions of section 80G of the Act permits deduction for the contributions made by an assessee to specified relief funds and charitable institutions except were CSR expenditure. Respectful reliance is placed on judicial precedents where it was held that CSR expenditure is eligible for deduction under section 80G of the Act subject to satisfaction of the conditions mentioned in the said section. We respectfully relied on the order of the coordinate bench of ITAT- Mumbai in Mahyco Monsanto Biotech (India) Pvt. Ltd(supra).In our considered view, we remand the matter to the file of the Ld. AO with direction to allow the deduction U/s 80G amount to Rs.2,05,58,407/- subject to fulfilment of requisite conditions. Accordingly, appeal of the assessee Ground no.10 is allowed for statistical purpose.