M/S. PRICEWATERHOUSE COOPERS PRIVATE LIMITED,KOLKATA vs. ACIT, CIRCLE - 2(2), KOLKATA, KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘A’ BENCH, KOLKATA (Before Sri J. Sudhakar Reddy, Hon’ble Accountant Member & Sri Aby T. Varkey, Hon’ble Judicial Member) ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited..................................………………….............Appellant Block-EP, Plot-Y-14 Salt Lake City Sector-V Kolkata – 700 091 [PAN : AABCP 9181 H] Vs. Asstt. Commissioner of Income Tax, Circle-2(2), Kolkata...........................………..…......Respondent Appearances by: Smt. C.S. Agarwal, Sr. Counsel & Smt. K.M. Gupta, Adv., appeared on behalf of the assessee. Shri Goulen Hangshing, CIT, D/R, appearing on behalf of the Revenue. Date of concluding the hearing : March 22nd, 2021 Date of pronouncing the order : April 21st, 2021 ORDER Per J. Sudhakar Reddy, AM :- This appeal filed by the assessee is directed against the order of the Learned Commissioner of Income Tax (Appeals) - 14, (hereinafter the “ld. CIT(A)”), passed u/s. 250 of the Income Tax Act, 1961 (the ‘Act’), dt. 29/12/2017, for the Assessment Year 2009-10. 2. The assessee is a company and is primarily engaged in the activity of providing management consultancy services and also accounting and business advisory services. It filed its return of income on 29/09/2009 declaring total income of Rs.22,42,11,130/-. The return was revised twice and in the second revised return of income, the assessee disclosed total income of Rs.22,64,57,400/-. The Assessing Officer passed an order u/s 143(3) of the Act on 21/03/2013, determining the total income of the assessee at Rs.155,42,46,330/- interalia disallowing the claim of the assessee of loss incurred on foreign exchange and making disallowance on depreciation on lease assets, disallowance of charges paid to PWC firms and making additions on account of disallowance of non- compete fee and non-refundable grant. 2.1. Aggrieved the assessee carried the matter in appeal without success. The ld. First Appellate Authority gave detailed reasons as to why he has agreed with the order of the Assessing Officer. 3. Further aggrieved, the assessee is in appeal before us.

2 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited 4. We have heard rival cont We have heard rival contentions. On careful consideration of the facts and entions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities circumstances of the case, perusal of the papers on record, orders of the authorities circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows: below as well as case law cited, we hold as follows:-

“The principles laid down by the Hon'ble Supreme Court are exactly identical to the facts of “The principles laid down by the Hon'ble Supreme Court are exactly identical to the facts of “The principles laid down by the Hon'ble Supreme Court are exactly identical to the facts of the instant case. Therefore the losses which are arising due to the foreign exchange the instant case. Therefore the losses which are arising due to the foreign exchange the instant case. Therefore the losses which are arising due to the foreign exchange fluctuation should be accounted for in the books of accounts and accordingly fluctuation should be accounted for in the books of accounts and accordingly fluctuation should be accounted for in the books of accounts and accordingly the assessee is eligible to claim the deduction of such losses. The argument of the Id. DR that the is eligible to claim the deduction of such losses. The argument of the Id. DR that the is eligible to claim the deduction of such losses. The argument of the Id. DR that the instruction issued by the CBDT has not been considered by the Hon'ble Apex Court because instruction issued by the CBDT has not been considered by the Hon'ble Apex Court because instruction issued by the CBDT has not been considered by the Hon'ble Apex Court because it came subsequent to the verdict of Hon'ble Apex Court is not ten it came subsequent to the verdict of Hon'ble Apex Court is not tenable. It is because the able. It is because the instructions issued by the CBDT are not binding on the courts and whether these are issued instructions issued by the CBDT are not binding on the courts and whether these are issued instructions issued by the CBDT are not binding on the courts and whether these are issued earlier or subsequently to the verdict do not matter. In view of the above we have no earlier or subsequently to the verdict do not matter. In view of the above we have no earlier or subsequently to the verdict do not matter. In view of the above we have no hesitation to reverse the order of authorities below. H hesitation to reverse the order of authorities below. Hence this ground of appeal of the ence this ground of appeal of the assessee is allowed.”

“25. Applying the above observations to the facts and circumstances of present “25. Applying the above observations to the facts and circumstances of present “25. Applying the above observations to the facts and circumstances of present case, We find that the claimed loss under consideration occurred to the assessee on case, We find that the claimed loss under consideration occurred to the assessee on case, We find that the claimed loss under consideration occurred to the assessee on account of five unexpired forex for account of five unexpired forex forward contracts i.e is a loss incurred on account ward contracts i.e is a loss incurred on account of revaluation of contract on last day of accounting period before date of maturity of revaluation of contract on last day of accounting period before date of maturity of revaluation of contract on last day of accounting period before date of maturity of forward contract. The Ld.CIT of forward contract. The Ld.CIT-A observed that the assessee has been following a A observed that the assessee has been following a consistent accounting policy for determin consistent accounting policy for determining loss under AS-11 and AS 11 and AS-30 as required under Companies Act and it is to be noted that the accounting standards required under Companies Act and it is to be noted that the accounting standards required under Companies Act and it is to be noted that the accounting standards were issued by the ICAI which has received judicial recognition. Accordingly the were issued by the ICAI which has received judicial recognition. Accordingly the were issued by the ICAI which has received judicial recognition. Accordingly the

3 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited assessee, the gain or loss on revaluation of the outstanding assessee, the gain or loss on revaluation of the outstanding contracts was booked contracts was booked in the P&L a/c as per the mandatory requirements of RBI guidelines. The Hon’ble in the P&L a/c as per the mandatory requirements of RBI guidelines. The Hon’ble in the P&L a/c as per the mandatory requirements of RBI guidelines. The Hon’ble Supreme Court in the case of Woodward Governor India (P) Ltd. (supra) has Supreme Court in the case of Woodward Governor India (P) Ltd. (supra) has Supreme Court in the case of Woodward Governor India (P) Ltd. (supra) has observed at p. 265 para 17 that the Central Government has made AS observed at p. 265 para 17 that the Central Government has made AS observed at p. 265 para 17 that the Central Government has made AS-11 mandatory. During the course of first appellate proceedings that the CIT During the course of first appellate proceedings that the CIT During the course of first appellate proceedings that the CIT-A noticed that the AO allowed the loss of Rs.85,70,425/ that the AO allowed the loss of Rs.85,70,425/- for 2010-11 which supports to show 11 which supports to show that the assessee has been following consistently accounting standards and the that the assessee has been following consistently accounting standards and the that the assessee has been following consistently accounting standards and the liability has been acc liability has been accrued for a pending obligation for every year i.e the difference rued for a pending obligation for every year i.e the difference was arising for more than one accounting period. was arising for more than one accounting period. 26. We, accordingly, hold that disallowance made by the AO treating the impugned 26. We, accordingly, hold that disallowance made by the AO treating the impugned 26. We, accordingly, hold that disallowance made by the AO treating the impugned amount of Rs. 54,23,955/ amount of Rs. 54,23,955/- for A.Y 2009-10 as contingent and notional loss is not tional loss is not justified and that the loss incurred to the assessee on account of five unexpired justified and that the loss incurred to the assessee on account of five unexpired justified and that the loss incurred to the assessee on account of five unexpired forex forward contracts on the last date of the accounting period i.e. before the forex forward contracts on the last date of the accounting period i.e. before the forex forward contracts on the last date of the accounting period i.e. before the date of maturity of the forward contract is not contingent and it is a ac date of maturity of the forward contract is not contingent and it is a ac date of maturity of the forward contract is not contingent and it is a actual loss, is allowable. Thus, respectfully following the observations made by the Special Bench allowable. Thus, respectfully following the observations made by the Special Bench allowable. Thus, respectfully following the observations made by the Special Bench supra, the ground no supra, the ground no -2 raised by the assessee Revenue fails and the order of CIT 2 raised by the assessee Revenue fails and the order of CIT-A is justified, consequently ground no is justified, consequently ground no-2 is dismissed.”

4 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited disallowed by the assessee. T . The disallowance should, in any case, be restricted to the he disallowance should, in any case, be restricted to the extent of exempt income of Rs. 99,000/ extent of exempt income of Rs. 99,000/- only and cannot exceed the said amount only and cannot exceed the said amount as held by the Hon’ble Delhi High Court Hon’ble Delhi High Court in the case of Joint Investments (P.) Ltd. vs. CIT Joint Investments (P.) Ltd. vs. CIT [(2015) 59 taxmann.com 295 (Delhi)] axmann.com 295 (Delhi)]. The Hon’ble High Court observed as under: he Hon’ble High Court observed as under: “9. In the present case, the AO has not firstly disclosed why the 9. In the present case, the AO has not firstly disclosed why the 9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440 as a disallowance under appellant/assessee's claim for attributing Rs. 2,97,440 as a disallowance under appellant/assessee's claim for attributing Rs. 2,97,440 as a disallowance under s. 14A had to be rejected. Taikisha Engg. I s. 14A had to be rejected. Taikisha Engg. India Ltd. (supra) says that the ndia Ltd. (supra) says that the jurisdiction to proceed further and determine amounts is derived after jurisdiction to proceed further and determine amounts is derived after jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or examination of the accounts and rejection if any of the assessee's claim or examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of t explanation. The second aspect is there appears to have been no scrutiny of t explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO accounts by the AO-an aspect which is completely unnoticed by the CIT(A) and an aspect which is completely unnoticed by the CIT(A) and the Tribunal. The third, and in the opinion of this Court, important anomaly the Tribunal. The third, and in the opinion of this Court, important anomaly the Tribunal. The third, and in the opinion of this Court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is which we cannot be unmindful is that whereas the entire tax exempt income is which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000, the dis Rs. 48,90,000, the disallowance ultimately directed works out to nearly 110 per allowance ultimately directed works out to nearly 110 per cent of that sum, i.e., Rs. 52,56,197. cent of that sum, i.e., Rs. 52,56,197. By no stretch of imagination can s. 14A or r. By no stretch of imagination can s. 14A or r. 8D be interpreted so as to mean that the entire tax exempt income is to be 8D be interpreted so as to mean that the entire tax exempt income is to be 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowanc disallowed. The window for disallowance is indicated in s. 14A, and is only to the e is indicated in s. 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax extent of disallowing expenditure "incurred by the assessee in relation to the tax extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely exempt income". This proportion or portion of the tax exempt income surely exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in t cannot swallow the entire amount as has happened in this case. his case.” (Emphasis ours) 12. Consistent with the view taken therein, we restrict the disallowance u/s 14A of Consistent with the view taken therein, we restrict the disallowance u/s 14A of Consistent with the view taken therein, we restrict the disallowance u/s 14A of the Act to the extent of exempt income earned the Act to the extent of exempt income earned by the assessee company by the assessee company during the year. The argument that the Assessing Officer has not recorded satisfaction before the The argument that the Assessing Officer has not recorded satisfaction before the The argument that the Assessing Officer has not recorded satisfaction before the invoking Rule 8D of the Income Tax Rules, 1962 (‘Rules’), is not factually correct. invoking Rule 8D of the Income Tax Rules, 1962 (‘Rules’), is not factually correct. invoking Rule 8D of the Income Tax Rules, 1962 (‘Rules’), is not factually correct. On a reading of the assessment order, we find that he Assessing Officer has recorded his reading of the assessment order, we find that he Assessing Officer has recorded his reading of the assessment order, we find that he Assessing Officer has recorded his satisfaction. In the result, ground of the assessee is allowed in part. In the result, ground of the assessee is allowed in part.

5 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited manufacture, marketing and distribution of ice cream and dairy based frozen products, marketing and distribution of ice cream and dairy based frozen products, marketing and distribution of ice cream and dairy based frozen products, made payment of non-compete fee compete fee, to two of its directors. The Hon’ble High Court held to two of its directors. The Hon’ble High Court held that the advantage of restraining individuals from engaging in competition was in field advantage of restraining individuals from engaging in competition was in field advantage of restraining individuals from engaging in competition was in field of facilitating assessee's own business and rendering it more profitable and there was tating assessee's own business and rendering it more profitable and there was tating assessee's own business and rendering it more profitable and there was no increase in fixed capital, no increase in fixed capital, and hence the payment in question was to be allowed as payment in question was to be allowed as revenue expenditure. The Hon’ble The Hon’ble Supreme Court later dismissed the SLP filed by the Supreme Court later dismissed the SLP filed by the Revenue against this judgment gainst this judgment in JCIT vs. Hatsun Agro Products Ltd. Hatsun Agro Products Ltd. [(2020) 114 taxmann.com 172]. b) In the case of In the case of CIT vs. Andhra Fuels (P.) Ltd [(2016) 240 Taxman 280 [(2016) 240 Taxman 280 (Andhra Pradesh)] non-competition agreement was entered into by competition agreement was entered into by the the assessee which is engaged in setting up power projects setting up power projects, to prevent rival company from establishing to prevent rival company from establishing power plant in the State, for a period of three years. I , for a period of three years. It was held that such restrictive t was held that such restrictive covenant eliminated competition in covenant eliminated competition in business only for a while and it was neither only for a while and it was neither permanent nor the advantage derived by advantage derived by assessee was enduring in nature and as such assessee was enduring in nature and as such the expenditure could not be held to be capital could not be held to be capital expenditure and same had to be allowed and same had to be allowed as revenue expenditure. c) The Hon’ble Madras High Court in the case of Hon’ble Madras High Court in the case of Carborandum Universal Ltd. Carborandum Universal Ltd. vs. JCIT [26 taxmann.com 268] JCIT [26 taxmann.com 268] on similar set of facts, held that the payment of non on similar set of facts, held that the payment of non- compete fees, made for protecting business interest is revenue expenditure. Relevant made for protecting business interest is revenue expenditure. Relevant made for protecting business interest is revenue expenditure. Relevant extracts of the judgment are reproduced below: extracts of the judgment are reproduced below:

“19. It is not denied by the Revenue that U. Mohanrao was the Chairman and 19. It is not denied by the Revenue that U. Mohanrao was the Chairman and 19. It is not denied by the Revenue that U. Mohanrao was the Chairman and Managing Director of some of the companies which got merged with the Managing Director of some of the companies which got merged with the Managing Director of some of the companies which got merged with the assessee company. The said U. Mohanrao had access to all information starting assessee company. The said U. Mohanrao had access to all information starting assessee company. The said U. Mohanrao had access to all information starting from manufacturing process, knowhow from manufacturing process, knowhow to the clientele and the products, to the clientele and the products, including the pricing of the products. By a process of amalgamation, the including the pricing of the products. By a process of amalgamation, the including the pricing of the products. By a process of amalgamation, the assessee had acquired the business of the amalgamating companies. However, assessee had acquired the business of the amalgamating companies. However, assessee had acquired the business of the amalgamating companies. However, for the fruitful exercise of its business as a business proposition, the for the fruitful exercise of its business as a business proposition, the for the fruitful exercise of its business as a business proposition, the assessee thought it fit to enter into a non thought it fit to enter into a non-compete agreement with a person who had the compete agreement with a person who had the knowledge of the entire operations, so as to get the full yield of the knowledge of the entire operations, so as to get the full yield of the knowledge of the entire operations, so as to get the full yield of the amalgamated company's business. In that context, rightly, the assessee took a amalgamated company's business. In that context, rightly, the assessee took a amalgamated company's business. In that context, rightly, the assessee took a commercial decisio commercial decision to pay non-compete fee to U. Mohanrao and going by the compete fee to U. Mohanrao and going by the decision of the Apex Court, particularly the decision in Coal Shipments (P.) Ltd.'s decision of the Apex Court, particularly the decision in Coal Shipments (P.) Ltd.'s decision of the Apex Court, particularly the decision in Coal Shipments (P.) Ltd.'s case (supra), that the payment was in respect of the performing of the business case (supra), that the payment was in respect of the performing of the business case (supra), that the payment was in respect of the performing of the business of the assessee, we have no hesitat of the assessee, we have no hesitation in holding that the expenditure is only on ion in holding that the expenditure is only on revenue account and not on capital account. In the circumstances, we accept the revenue account and not on capital account. In the circumstances, we accept the revenue account and not on capital account. In the circumstances, we accept the case of the assessee, set aside the order of the Tribunal and allow the Tax Case. case of the assessee, set aside the order of the Tribunal and allow the Tax Case. case of the assessee, set aside the order of the Tribunal and allow the Tax Case.” The Mumbai Tribunal in the case of Mumbai Tribunal in the case of DCIT vs. Intervet (India) Ltd. [ITA No. tervet (India) Ltd. [ITA No. 315/Hyd/2003, order dt. 19 October 2012] 19 October 2012], , on similar facts and following the ratio laid , , on similar facts and following the ratio laid by the Madras High Court in the case of by the Madras High Court in the case of Carborandum Universal Ltd. (supra) Carborandum Universal Ltd. (supra), has held

6 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited the payment of non-compete fee to be a compete fee to be an allowable revenue expenditure. The ITAT held venue expenditure. The ITAT held as follows:- “28. From the facts of the aforesaid case and also the ratio and decision given by 28. From the facts of the aforesaid case and also the ratio and decision given by 28. From the facts of the aforesaid case and also the ratio and decision given by the High Court, we find that the assessee’s case is squarely covered by the the High Court, we find that the assessee’s case is squarely covered by the the High Court, we find that the assessee’s case is squarely covered by the aforesaid decision. We, thus, hold that, in the pre aforesaid decision. We, thus, hold that, in the present case, the entire payment of sent case, the entire payment of Rs. ₹ 4,00,00,000 paid by the assessee to Dr. Vijay Datla and Dr. Renuka Datla, ₹ 4,00,00,000 paid by the assessee to Dr. Vijay Datla and Dr. Renuka Datla, ₹ 4,00,00,000 paid by the assessee to Dr. Vijay Datla and Dr. Renuka Datla, towards the non-compete fee is revenue expenditure. Once the payment has been compete fee is revenue expenditure. Once the payment has been compete fee is revenue expenditure. Once the payment has been made in this year, the entire expenditure is to be allowed. Accor made in this year, the entire expenditure is to be allowed. Accor made in this year, the entire expenditure is to be allowed. Accordingly, the finding of the Commissioner (Appeals) that it is a revenue expenditure is upheld. finding of the Commissioner (Appeals) that it is a revenue expenditure is upheld. finding of the Commissioner (Appeals) that it is a revenue expenditure is upheld. However, to the extent that the said expenditure is to be deferred for a period of However, to the extent that the said expenditure is to be deferred for a period of However, to the extent that the said expenditure is to be deferred for a period of five years cannot be sustained and is set aside. Consequently, the grounds rais five years cannot be sustained and is set aside. Consequently, the grounds rais five years cannot be sustained and is set aside. Consequently, the grounds raised by the assessee in its cross objection stands allowed, whereas, the grounds raised by the assessee in its cross objection stands allowed, whereas, the grounds raised by the assessee in its cross objection stands allowed, whereas, the grounds raised by the Revenue in its appeal, consequently, is dismissed.” by the Revenue in its appeal, consequently, is dismissed The Mumbai Tribunal has further observed as under: The Mumbai Tribunal has further observed as under: “19. The Hon'ble Supreme Court in CIT v/s Coal Shipments Pvt. Ltd., [1971] 82 ITR 19. The Hon'ble Supreme Court in CIT v/s Coal Shipments Pvt. Ltd., [1971] 82 ITR 19. The Hon'ble Supreme Court in CIT v/s Coal Shipments Pvt. Ltd., [1971] 82 ITR 902 (SC), has held that the period for which the restrictive covenant should be in 902 (SC), has held that the period for which the restrictive covenant should be in 902 (SC), has held that the period for which the restrictive covenant should be in operation to make it a revenue expenditure is a matter of judgment and such a operation to make it a revenue expenditure is a matter of judgment and such a operation to make it a revenue expenditure is a matter of judgment and such a judgment should be exercised having regard to the facts and circumstances of d be exercised having regard to the facts and circumstances of d be exercised having regard to the facts and circumstances of each individual case. If the restrictive covenant is for a indefinite period or for a each individual case. If the restrictive covenant is for a indefinite period or for a each individual case. If the restrictive covenant is for a indefinite period or for a very large portion, then technically, it can be said that the advantage is for very large portion, then technically, it can be said that the advantage is for very large portion, then technically, it can be said that the advantage is for enduring character and, henc enduring character and, hence, it can be termed as "Capital Expenditure". Now the e, it can be termed as "Capital Expenditure". Now the question is whether the restrictive convenient which is operative only for a period question is whether the restrictive convenient which is operative only for a period question is whether the restrictive convenient which is operative only for a period of five years can be said to be of enduring in nature. This aspect of the matter has of five years can be said to be of enduring in nature. This aspect of the matter has of five years can be said to be of enduring in nature. This aspect of the matter has been decided by the Madras High C been decided by the Madras High Court in CIT v/s Late G. Naidu & ORs., [1957] 165 ourt in CIT v/s Late G. Naidu & ORs., [1957] 165 ITR 63 (Mad.), wherein Their Lordships observed and held as under: ITR 63 (Mad.), wherein Their Lordships observed and held as under: ITR 63 (Mad.), wherein Their Lordships observed and held as under:

"Held, that so far as the cash compensation paid by the new partners "Held, that so far as the cash compensation paid by the new partners "Held, that so far as the cash compensation paid by the new partners referable to the assets and goodwill of the firm was concerned, the cash referable to the assets and goodwill of the firm was concerned, the cash referable to the assets and goodwill of the firm was concerned, the cash took the place of the assets of the partnership and the compensation took the place of the assets of the partnership and the compensation took the place of the assets of the partnership and the compensation paid for restrictive covenant not to carry on paid for restrictive covenant not to carry on similar business for a similar business for a period of five years was in the nature of a separate transaction period of five years was in the nature of a separate transaction period of five years was in the nature of a separate transaction unconnected with the business of the assets of the partnership. The unconnected with the business of the assets of the partnership. The unconnected with the business of the assets of the partnership. The Tribunal was right in its view that the total compensation paid by the Tribunal was right in its view that the total compensation paid by the Tribunal was right in its view that the total compensation paid by the firms to the old partners wa firms to the old partners was for (a) the share in the assets, (b) the s for (a) the share in the assets, (b) the share of the goodwill, and (c) for the restrictive covenant and that the share of the goodwill, and (c) for the restrictive covenant and that the share of the goodwill, and (c) for the restrictive covenant and that the part of the amount referable to the acquisition of the share in the assets part of the amount referable to the acquisition of the share in the assets part of the amount referable to the acquisition of the share in the assets and the share of the goodwill would be on capital account as it w and the share of the goodwill would be on capital account as it w and the share of the goodwill would be on capital account as it was in the nature of an initial outgoing and the payment towards the the nature of an initial outgoing and the payment towards the the nature of an initial outgoing and the payment towards the restrictive covenant was on revenue account and it would not amount restrictive covenant was on revenue account and it would not amount restrictive covenant was on revenue account and it would not amount to an acquisition of an advantage of an enduring nature. The Tribunal to an acquisition of an advantage of an enduring nature. The Tribunal to an acquisition of an advantage of an enduring nature. The Tribunal was also right in its view that the amount receive was also right in its view that the amount received by the recipients d by the recipients was not liable to tax either as income or capital gains. No question of was not liable to tax either as income or capital gains. No question of was not liable to tax either as income or capital gains. No question of any liability to penalty would also arise in the instant case, because the any liability to penalty would also arise in the instant case, because the any liability to penalty would also arise in the instant case, because the assesses were merely contending for a particular position contrary to assesses were merely contending for a particular position contrary to assesses were merely contending for a particular position contrary to

7 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited the view taken by t the view taken by the Income-tax Officer which would not call for any tax Officer which would not call for any penalty." In view of the aforesaid decision, it can be straight In view of the aforesaid decision, it can be straight-away held that if the restrictive away held that if the restrictive covenant given in the non covenant given in the non-compete agreements is for a period of five years, then it compete agreements is for a period of five years, then it is on the revenue accou is on the revenue account.” Similar propositions of law propositions of law has also been laid down by the Hon’ble Madras High has also been laid down by the Hon’ble Madras High Court in the case of Asianet Communications Ltd. CIT [(2018) 96 taxmann.com 399)] Asianet Communications Ltd. CIT [(2018) 96 taxmann.com 399)] Asianet Communications Ltd. CIT [(2018) 96 taxmann.com 399)] –

On similar facts, the Hon’ble Delhi High Court has observed as under: n similar facts, the Hon’ble Delhi High Court has observed as under: n similar facts, the Hon’ble Delhi High Court has observed as under:

“46. …… Any contractual term that imposes restraint on a contracting party ractual term that imposes restraint on a contracting party ractual term that imposes restraint on a contracting party from engaging in any business for a reasonable term must be backed by from engaging in any business for a reasonable term must be backed by from engaging in any business for a reasonable term must be backed by consideration. Therefore, the non consideration. Therefore, the non-compete compensation is but a consideration compete compensation is but a consideration paid to the party who is kept out of competing bu paid to the party who is kept out of competing business during the term of the siness during the term of the contract. 47. The non-compete compensation, from the stand point of the payee of such compete compensation, from the stand point of the payee of such compete compensation, from the stand point of the payee of such compensation, is so paid in anticipation that absence of a competition from the compensation, is so paid in anticipation that absence of a competition from the compensation, is so paid in anticipation that absence of a competition from the other party to the contract may secure a benefit to the part other party to the contract may secure a benefit to the part other party to the contract may secure a benefit to the party paying the compensation. There is no certainty that such benefit would accrue. In other There is no certainty that such benefit would accrue. In other There is no certainty that such benefit would accrue. In other words, inspite of the fact that a competitor is kept out of the competition, one words, inspite of the fact that a competitor is kept out of the competition, one words, inspite of the fact that a competitor is kept out of the competition, one may still suffer loss. may still suffer loss. If it were to be a capital expenditure whether or not, an If it were to be a capital expenditure whether or not, an assessee makes a business profit, the character and value of the capital assets assessee makes a business profit, the character and value of the capital assets assessee makes a business profit, the character and value of the capital assets will, subject to depreciation, remain unaltered. will, subject to depreciation, remain unaltered. 48. Thus, the facts clearly disclose that on account of the payment Thus, the facts clearly disclose that on account of the payment Thus, the facts clearly disclose that on account of the payment of non-compete fee, the assessee has not acquired any new business, profit making apparatus has fee, the assessee has not acquired any new business, profit making apparatus has fee, the assessee has not acquired any new business, profit making apparatus has remained the same, the assets used to run the business remained the same and remained the same, the assets used to run the business remained the same and remained the same, the assets used to run the business remained the same and there is no new business or no new source of income, which accrue to the assessee there is no new business or no new source of income, which accrue to the assessee there is no new business or no new source of income, which accrue to the assessee on account of the payment of non n account of the payment of non-compete fee…..”.

The same view has been taken by the Hon’ble Delhi High Court in the case of The same view has been taken by the Hon’ble Delhi High Court in the case of The same view has been taken by the Hon’ble Delhi High Court in the case of CIT vs. Eicher Ltd. [(2008) 302 ITR 249] vs. Eicher Ltd. [(2008) 302 ITR 249]. In the said case, the assessee (engaged in the . In the said case, the assessee (engaged in the business of manufacturing and marketing t business of manufacturing and marketing two wheelers) entered into a non wo wheelers) entered into a non-compete agreement with a third party which restrained the said third party from carrying out agreement with a third party which restrained the said third party from carrying out agreement with a third party which restrained the said third party from carrying out any business with regard to two any business with regard to two-wheelers. The assessee's claim of the said expenditure wheelers. The assessee's claim of the said expenditure as revenue expenditure was upheld by the Hon as revenue expenditure was upheld by the Hon'ble High Court which concurred with the 'ble High Court which concurred with the views of the Tribunal that the payment is to protect the assessee's business interests, its views of the Tribunal that the payment is to protect the assessee's business interests, its views of the Tribunal that the payment is to protect the assessee's business interests, its market position and profitability. No new asset is created thereby nor is the assessee's market position and profitability. No new asset is created thereby nor is the assessee's market position and profitability. No new asset is created thereby nor is the assessee's profit making apparatus expanded o profit making apparatus expanded or increased. The assessee does not suffer any loss or r increased. The assessee does not suffer any loss or diminution or erosion in its capital assets. The Court pointed out that the payment of diminution or erosion in its capital assets. The Court pointed out that the payment of diminution or erosion in its capital assets. The Court pointed out that the payment of

8 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited non-compete fees is merely to eliminate competition in the two- wheeler business, for a wheeler business, for a while. Though there were no while. Though there were no records to indicate the duration of the restrictive records to indicate the duration of the restrictive covenant, but it was neither permanent nor ephemeral. In that sense, the advantage was covenant, but it was neither permanent nor ephemeral. In that sense, the advantage was covenant, but it was neither permanent nor ephemeral. In that sense, the advantage was not of an enduring nature. T The Hon'ble Supreme Court dismissed the SLP filed by the he Hon'ble Supreme Court dismissed the SLP filed by the Department against the decision Department against the decision of the Hon'ble Delhi High Court (312 ITR(st.) 333 312 ITR(st.) 333). In view of the above discussion of the above discussion, if the non-compete payment does not result compete payment does not result in bringing into existence of any capital asset or an advantage which is of enduring nature, then into existence of any capital asset or an advantage which is of enduring nature, then into existence of any capital asset or an advantage which is of enduring nature, then such payment would be revenue in nature. such payment would be revenue in nature.

We find that these cases are distinguishable on facts We find that these cases are distinguishable on facts :-

Pitney Bowes (Supra) Pitney Bowes (Supra): In this case, the taxpayer had acquired going concern : In this case, the taxpayer had acquired going concern - on lumpsum consideration. Under the Business Transfer Agreement, there on lumpsum consideration. Under the Business Transfer Agreement, there on lumpsum consideration. Under the Business Transfer Agreement, there was no bifurcation of the consideration for non was no bifurcation of the consideration for non-compete and other tangible mpete and other tangible and intangible assets so acquired. Thus, the taxpayer had bifurcated the total and intangible assets so acquired. Thus, the taxpayer had bifurcated the total and intangible assets so acquired. Thus, the taxpayer had bifurcated the total consideration paid for acquisition of business based upon valuation done by consideration paid for acquisition of business based upon valuation done by consideration paid for acquisition of business based upon valuation done by the independent auditor. Based upon such valuation, the taxpayer claims the the independent auditor. Based upon such valuation, the taxpayer claims the the independent auditor. Based upon such valuation, the taxpayer claims the amount of non-compete, being revenue expenditure as quantified by the compete, being revenue expenditure as quantified by the compete, being revenue expenditure as quantified by the Independent Valuer as deductible expenditure. The ITAT/High Court denied Independent Valuer as deductible expenditure. The ITAT/High Court denied Independent Valuer as deductible expenditure. The ITAT/High Court denied the claim of such allowance on the ground that the amount in question being the claim of such allowance on the ground that the amount in question being the claim of such allowance on the ground that the amount in question being non-compete is part of purchase consi compete is part of purchase consideration of going concern business, deration of going concern business, thus, is to be treated as capital expenditure being consideration paid for thus, is to be treated as capital expenditure being consideration paid for thus, is to be treated as capital expenditure being consideration paid for acquisition of business. It is also relevant that the consideration of non acquisition of business. It is also relevant that the consideration of non acquisition of business. It is also relevant that the consideration of non- compete fee is paid to owner of such business and not the compete fee is paid to owner of such business and not the compete fee is paid to owner of such business and not the employees/directors of the company. Hence, the facts of the above case are rectors of the company. Hence, the facts of the above case are rectors of the company. Hence, the facts of the above case are clearly distinguishable. clearly distinguishable.

- Sharp Business System (Supra) Sharp Business System (Supra): In this case, L&T had sold its business to : In this case, L&T had sold its business to taxpayer under the agreement. In addition to the above, the taxpayer also taxpayer under the agreement. In addition to the above, the taxpayer also taxpayer under the agreement. In addition to the above, the taxpayer also paid separate consideration for non e consideration for non-compete fee to L&T under the same compete fee to L&T under the same

9 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited business transfer agreement. On account of the above, the ITAT held that the business transfer agreement. On account of the above, the ITAT held that the business transfer agreement. On account of the above, the ITAT held that the amount in question is part of acquisition of business and thus non amount in question is part of acquisition of business and thus non amount in question is part of acquisition of business and thus non-compete fee ought to be treated as capital expenditure fee ought to be treated as capital expenditure. As stated, in this case also, the . As stated, in this case also, the compensation of non compensation of non-compete is part of the business transfer agreement and compete is part of the business transfer agreement and is paid to shareholder of the company. is paid to shareholder of the company. Hence, the facts of the above case are Hence, the facts of the above case are clearly distinguishable. clearly distinguishable.

Tecumesh India (supra) Tecumesh India (supra): In this case also, the non-compete clause is part of compete clause is part of - the business transfer agreement, and such consideration was being paid to the business transfer agreement, and such consideration was being paid to the business transfer agreement, and such consideration was being paid to the shareholders. Hence, this case is also clearly distinguishable. the shareholders. Hence, this case is also clearly distinguishable. the shareholders. Hence, this case is also clearly distinguishable.

15.1. Hence reliance on above decisions by the ld. AO/CIT(A) is misplaced, a reliance on above decisions by the ld. AO/CIT(A) is misplaced, a reliance on above decisions by the ld. AO/CIT(A) is misplaced, as the above cases are clearly distinguishable on facts as we above cases are clearly distinguishable on facts as well as the point of law involved. T ll as the point of law involved. The cases relied upon by the assessee assessee above are squarely applicable on the facts of the above are squarely applicable on the facts of the assessee’s case, Thus, the payment in question is revenue in character and hence Thus, the payment in question is revenue in character and hence Thus, the payment in question is revenue in character and hence allowable as an expenditure. allowable as an expenditure. 16. In view of the above discussion In view of the above discussion, we delete the disallowance made on account of made on account of compete fee. 17. Ground Nos. 4 to 4.2 Ground Nos. 4 to 4.2: Disallowance of depreciation on leased assets of Disallowance of depreciation on leased assets of Rs. 4,36,03,330 and non- -grant of claim of principal portion of lease rentals grant of claim of principal portion of lease rentals amounting to Rs. 5,37,68,623/ amounting to Rs. 5,37,68,623/- 17.1. The issue is covered in favour The issue is covered in favour of the assessee by the order of the Hon’ble by the order of the Hon’ble Tribunal in appellant’s own case for Tribunal in appellant’s own case for AY 2003-04 in [ITA No. 1521/Kol/2013] [ITA No. 1521/Kol/2013], wherein the coordinate Bench of the Hon’ble Kolkata Tribunal dismissed the Revenue’s appeal the coordinate Bench of the Hon’ble Kolkata Tribunal dismissed the Revenue’s appeal the coordinate Bench of the Hon’ble Kolkata Tribunal dismissed the Revenue’s appeal and upheld the order of the CIT(A) by holding that the leas and upheld the order of the CIT(A) by holding that the lease rentals (net of interest e rentals (net of interest element) should be allowed as deduction. element) should be allowed as deduction. The Tribunal held as follows: The Tribunal held as follows:-

10 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited “4.4. The Ld DR stated the claim of lease rental was not made by the assessee in the 4.4. The Ld DR stated the claim of lease rental was not made by the assessee in the 4.4. The Ld DR stated the claim of lease rental was not made by the assessee in the return of income. He vehemently relied on the order of the ld return of income. He vehemently relied on the order of the ld AO. In response to AO. In response to this, the ld AR argued that the ld AO had allowed the lease premium in the next this, the ld AR argued that the ld AO had allowed the lease premium in the next this, the ld AR argued that the ld AO had allowed the lease premium in the next succeeding asst year 2004 succeeding asst year 2004-05 in section 143(3) proceedings for which he placed a 05 in section 143(3) proceedings for which he placed a copy of the assessment order dated 28.12.2006. copy of the assessment order dated 28.12.2006. 4.5. We have heard the rival 4.5. We have heard the rival submissions and perused the materials available on submissions and perused the materials available on record. In the facts and circumstances of the case, record. In the facts and circumstances of the case, we find that the ld CITA had we find that the ld CITA had rightly appreciated the alternative argument of the assessee that the lease rentals rightly appreciated the alternative argument of the assessee that the lease rentals rightly appreciated the alternative argument of the assessee that the lease rentals (net of interest element) would have to (net of interest element) would have to be allowed as deduction. be allowed as deduction. We find no infirmity in the order of the ld CITA in this regard. Accordingly, the ground no.1 infirmity in the order of the ld CITA in this regard. Accordingly, the ground no.1 infirmity in the order of the ld CITA in this regard. Accordingly, the ground no.1 raised by the revenue is dismissed. raised by the revenue is dismissed.” 17.2. The ld. D/R, could not controvert the submissions of the assessee that the issue is The ld. D/R, could not controvert the submissions of the assessee that the issue is The ld. D/R, could not controvert the submissions of the assessee that the issue is covered in its favour. Respectfully following the propositions of law laid down by the co n its favour. Respectfully following the propositions of law laid down by the co n its favour. Respectfully following the propositions of law laid down by the co- ordinate bench of the Tribunal in the assessee’s own case, referred above, we al ordinate bench of the Tribunal in the assessee’s own case, referred above, we al ordinate bench of the Tribunal in the assessee’s own case, referred above, we allow this ground of the assessee to the extent of claim of deduction of lease rentals. ground of the assessee to the extent of claim of deduction of lease rentals. ground of the assessee to the extent of claim of deduction of lease rentals.

18.1. The issue is also covered in favour of the assessee covered in favour of the assessee by the order of the the order of the Kolkata Bench of the ITAT in the appellant’s own case passed for in the appellant’s own case passed for Assessment Year 2012 Assessment Year 2012-13 order dated 12th September, 2018 September, 2018 in ITA No. 483/Kol/2017. On similar facts, the Hon’ble n similar facts, the Hon’ble Tribunal deleted the disallowance made by the AO on account of payment of Network Tribunal deleted the disallowance made by the AO on account of payment of Network Tribunal deleted the disallowance made by the AO on account of payment of Network Service Charges and held as under: Service Charges and held as under:

“The lower authorities seem to have disallowed the above payment mainly for the The lower authorities seem to have disallowed the above payment mainly for the The lower authorities seem to have disallowed the above payment mainly for the reason that the assessee could not establish the relevant business nexus / purpose reason that the assessee could not establish the relevant business nexus / purpose reason that the assessee could not establish the relevant business nexus / purpose and there was also a failure on its part in not deducting TDS thereupon. We have and there was also a failure on its part in not deducting TDS thereupon. We have and there was also a failure on its part in not deducting TDS thereupon. We have heard rival contentions reiterating both parties respective facts. There is no ontentions reiterating both parties respective facts. There is no ontentions reiterating both parties respective facts. There is no dispute in principle about the assessee’s firm service agreement with the payee M/s dispute in principle about the assessee’s firm service agreement with the payee M/s dispute in principle about the assessee’s firm service agreement with the payee M/s PWCD’s services as well as its role played as providing central services to the entire PWCD’s services as well as its role played as providing central services to the entire PWCD’s services as well as its role played as providing central services to the entire “PWC” group based o “PWC” group based on cost allocation method keeping in mind the nature of n cost allocation method keeping in mind the nature of services rendered benefits derived as per pages 117 to 261 of the paper book. The services rendered benefits derived as per pages 117 to 261 of the paper book. The services rendered benefits derived as per pages 117 to 261 of the paper book. The assessee has also prepared a list of services availed via the payee concerned in assessee has also prepared a list of services availed via the payee concerned in assessee has also prepared a list of services availed via the payee concerned in respect of all member firms of the gro respect of all member firms of the group involving sample cases of e up involving sample cases of e-learning and education, mandatory foundation programmes, training programmes alloys education, mandatory foundation programmes, training programmes alloys education, mandatory foundation programmes, training programmes alloys specific / technical programmes etc. All this has gone unrebutted from the Revenue specific / technical programmes etc. All this has gone unrebutted from the Revenue specific / technical programmes etc. All this has gone unrebutted from the Revenue side whose case is that there is no business link forthcom side whose case is that there is no business link forthcoming from the impugned ing from the impugned expenditure. We find no substance in Revenue’s instant stand. We make it clear expenditure. We find no substance in Revenue’s instant stand. We make it clear expenditure. We find no substance in Revenue’s instant stand. We make it clear that the assessee that the assessee- company is engaged in multi functional consultancy services as a company is engaged in multi functional consultancy services as a group entity of PWCDA organization based in Netherlands. Learned counse group entity of PWCDA organization based in Netherlands. Learned counse group entity of PWCDA organization based in Netherlands. Learned counsel has also filed before us relevant assessment records with regard to the payee entity also filed before us relevant assessment records with regard to the payee entity also filed before us relevant assessment records with regard to the payee entity

11 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited pertaining to the impugned assessment year itself accepting the returned income pertaining to the impugned assessment year itself accepting the returned income pertaining to the impugned assessment year itself accepting the returned income without making any addition. Necessary reference regarding Firm Services without making any addition. Necessary reference regarding Firm Services without making any addition. Necessary reference regarding Firm Services Agreement is als Agreement is also made to paper book pages 6304 and 6305. It emerges that this o made to paper book pages 6304 and 6305. It emerges that this Tribunal’s decision in DCIT vs. Ernst & Young (P) Ltd. 49 taxman.com 386 (Kol) Tribunal’s decision in DCIT vs. Ernst & Young (P) Ltd. 49 taxman.com 386 (Kol) Tribunal’s decision in DCIT vs. Ernst & Young (P) Ltd. 49 taxman.com 386 (Kol) also holds that no TDS is deductible in case of such firm services agreement also holds that no TDS is deductible in case of such firm services agreement also holds that no TDS is deductible in case of such firm services agreement payments not including any income com payments not including any income component but only reimbursement of expense ponent but only reimbursement of expense on cost allocation formula. We take into account all these facts as well as judicial on cost allocation formula. We take into account all these facts as well as judicial on cost allocation formula. We take into account all these facts as well as judicial precedents to delete impugned disallowance of Firm Services expenditure payment precedents to delete impugned disallowance of Firm Services expenditure payment precedents to delete impugned disallowance of Firm Services expenditure payment amounting to ₹150,046,130/ ₹150,046,130/-.” 19. The ld. D/R, could not controvert the submissions of the assessee that the issue is uld not controvert the submissions of the assessee that the issue is uld not controvert the submissions of the assessee that the issue is covered by this above referred order by this above referred order. Respectfully following the propositions of law laid . Respectfully following the propositions of law laid down by the co-ordinate bench of the Tribunal in the assessee’s own case, referred ordinate bench of the Tribunal in the assessee’s own case, referred ordinate bench of the Tribunal in the assessee’s own case, referred above, we allow this ground of the assessee. w this ground of the assessee.

12 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited 21. The receipt of the grant was duly disclosed in the notes to computation of receipt of the grant was duly disclosed in the notes to computation of receipt of the grant was duly disclosed in the notes to computation of income. Subsequently, in response to queries raised by the ld. AO in relation to the income. Subsequently, in response to queries raised by the ld. AO in relation to the income. Subsequently, in response to queries raised by the ld. AO in relation to the aforesaid grant, the assessee filed the relevant details and detailed submissions aforesaid grant, the assessee filed the relevant details and detailed submissions aforesaid grant, the assessee filed the relevant details and detailed submissions including relevant extracts of bank statement showing receipt of grant amount, copy of extracts of bank statement showing receipt of grant amount, copy of extracts of bank statement showing receipt of grant amount, copy of grant agreement, treatment accorded in the books of accounts, etc. grant agreement, treatment accorded in the books of accounts, etc.

“28. The following income shall be chargeable to income 28. The following income shall be chargeable to income-tax under the head tax under the head “Profits and gains of business or profession”, “Profits and gains of business or profession”, - …..

13 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited (iv) the value of any benefit or perquisite, whether convertible into money or not, (iv) the value of any benefit or perquisite, whether convertible into money or not, (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession;…… arising from business or the exercise of a profession;……”

i) CIT vs. Santogen Silk Mills Ltd. [(2015) 57 taxmann.com 208 (Bombay HC)] Santogen Silk Mills Ltd. [(2015) 57 taxmann.com 208 (Bombay HC)] Santogen Silk Mills Ltd. [(2015) 57 taxmann.com 208 (Bombay HC)] ii) CIT vs. Xylon Holdings (P.) Ltd. [(2012) 26 taxmann.com 333 (Bombay HC)] CIT vs. Xylon Holdings (P.) Ltd. [(2012) 26 taxmann.com 333 (Bombay HC)] CIT vs. Xylon Holdings (P.) Ltd. [(2012) 26 taxmann.com 333 (Bombay HC)] iii) Ravinder Singh vs. CIT [(1993) 71 Taxman 336 (Delhi HC] Ravinder Singh vs. CIT [(1993) 71 Taxman 336 (Delhi HC] iv) Mahindra & Mahindra Ltd. vs. CIT [(2003) 128 Taxman 394 (Bomba Mahindra & Mahindra Ltd. vs. CIT [(2003) 128 Taxman 394 (Bomba Mahindra & Mahindra Ltd. vs. CIT [(2003) 128 Taxman 394 (Bombay HC)] v) DCIT vs. Tosha International Ltd. [(2008) 116 TTJ 941 (Delhi Tribunal)] DCIT vs. Tosha International Ltd. [(2008) 116 TTJ 941 (Delhi Tribunal)] DCIT vs. Tosha International Ltd. [(2008) 116 TTJ 941 (Delhi Tribunal)]

14 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited foundation based on which the nature of the grant may be determined. foundation based on which the nature of the grant may be determined. foundation based on which the nature of the grant may be determined. The Hon’ble Supreme Court in the case of in the case of Sahney Steel (supra), reproduced hereunder uced hereunder :

“18. ……………………… If any subsidy is given, “18. ……………………… If any subsidy is given, the character of the subsidy in the the character of the subsidy in the hands of the recipient hands of the recipient - whether revenue or capital - will have to be will have to be determined by having regard to the purpose for which the subsidy is given. determined by having regard to the purpose for which the subsidy is given. determined by having regard to the purpose for which the subsidy is given. If it is given by way of assistance to the assessee in carrying on of his trade or it is given by way of assistance to the assessee in carrying on of his trade or it is given by way of assistance to the assessee in carrying on of his trade or business, it has to be treated as trading receipt. The source of the fund is quite business, it has to be treated as trading receipt. The source of the fund is quite business, it has to be treated as trading receipt. The source of the fund is quite immaterial. 19. For example, if the scheme was that the assessee will be given refund of: 19. For example, if the scheme was that the assessee will be given refund of: 19. For example, if the scheme was that the assessee will be given refund of: ales tax on purchase of machinery as well as on raw materials to enable the assessee to tax on purchase of machinery as well as on raw materials to enable the assessee to tax on purchase of machinery as well as on raw materials to enable the assessee to acquire new plants and machinery for further expansion of its manufacturing acquire new plants and machinery for further expansion of its manufacturing acquire new plants and machinery for further expansion of its manufacturing capacity in a backward area, the entire subsidy must be held to be a capital receipt capacity in a backward area, the entire subsidy must be held to be a capital receipt capacity in a backward area, the entire subsidy must be held to be a capital receipt in the hands of the assessee. It will not be open to the revenue to contend that the hands of the assessee. It will not be open to the revenue to contend that the hands of the assessee. It will not be open to the revenue to contend that the refund of sales tax paid on raw materials or finished products must be treated as refund of sales tax paid on raw materials or finished products must be treated as refund of sales tax paid on raw materials or finished products must be treated as the revenue receipt in the hands of the assessee. In both the cases, the Government the revenue receipt in the hands of the assessee. In both the cases, the Government the revenue receipt in the hands of the assessee. In both the cases, the Government is paying out of public funds to the assessee for a definite purpose. If the purpose is ut of public funds to the assessee for a definite purpose. If the purpose is ut of public funds to the assessee for a definite purpose. If the purpose is to help the assessee to set up its business or complete a project as in Seaham to help the assessee to set up its business or complete a project as in Seaham to help the assessee to set up its business or complete a project as in Seaham Harbour Dock Co.'s case (supra), the monies must be treated as to have been Harbour Dock Co.'s case (supra), the monies must be treated as to have been Harbour Dock Co.'s case (supra), the monies must be treated as to have been received for capital pur received for capital purpose. But if monies are given to the assessee for assisting pose. But if monies are given to the assessee for assisting him in carrying out the business operation and the money is given only after and him in carrying out the business operation and the money is given only after and him in carrying out the business operation and the money is given only after and conditional upon commencement of production, such subsidies must be treated as conditional upon commencement of production, such subsidies must be treated as conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the tr assistance for the purpose of the trade.” (Emphasis supplied) (Emphasis supplied)

The Hon’ble Supreme Court i The Hon’ble Supreme Court in CIT vs. Ponni Sugars & Chemicals Ltd. [(2008) 306 ITR n CIT vs. Ponni Sugars & Chemicals Ltd. [(2008) 306 ITR 392] (page nos. 784 to 789 of Case Law PB), it was held as under: 392] (page nos. 784 to 789 of Case Law PB), it was held as under:

“14. In our view, the controversy in hand can be resolved if we apply the test laid 14. In our view, the controversy in hand can be resolved if we apply the test laid 14. In our view, the controversy in hand can be resolved if we apply the test laid down in the judgment of this Court in the case of Sahney Steel & Press Works Ltd. down in the judgment of this Court in the case of Sahney Steel & Press Works Ltd. down in the judgment of this Court in the case of Sahney Steel & Press Works Ltd. (supra)……………… The importance of the judgment of this Court in Sahney Steel & (supra)……………… The importance of the judgment of this Court in Sahney Steel & (supra)……………… The importance of the judgment of this Court in Sahney Steel & Press Work’s Ltd.’s case (supra) lies in the fact that it has discussed and analysed td.’s case (supra) lies in the fact that it has discussed and analysed td.’s case (supra) lies in the fact that it has discussed and analysed the entire case law and it has laid down the basic test to be applied in judging the the entire case law and it has laid down the basic test to be applied in judging the the entire case law and it has laid down the basic test to be applied in judging the character of a subsidy. character of a subsidy. That test is that the character of the receipt in the That test is that the character of the receipt in the hands of the assessee hands of the assessee has to be determined with respect to the purpose for has to be determined with respect to the purpose for which the subsidy is given. which the subsidy is given. In other words, in such cases, one has to apply the In other words, in such cases, one has to apply the purpose test. The point of time at which the subsidy is paid is not relevant. The purpose test. The point of time at which the subsidy is paid is not relevant. The purpose test. The point of time at which the subsidy is paid is not relevant. The source is immaterial. The form of subsidy source is immaterial. The form of subsidy is immaterial. The main eligibility is immaterial. The main eligibility condition in the scheme with which we are concerned in this case is that the condition in the scheme with which we are concerned in this case is that the condition in the scheme with which we are concerned in this case is that the incentive must be utilized for repayment of loans taken by the assessee to set up incentive must be utilized for repayment of loans taken by the assessee to set up incentive must be utilized for repayment of loans taken by the assessee to set up new units or for substantial expansion of existing units. On new units or for substantial expansion of existing units. On this aspect there is no this aspect there is no dispute. If the object of the subsidy scheme was to enable the assessee to run the dispute. If the object of the subsidy scheme was to enable the assessee to run the dispute. If the object of the subsidy scheme was to enable the assessee to run the business more profitably then the receipt is on revenue account. On the other hand, business more profitably then the receipt is on revenue account. On the other hand, business more profitably then the receipt is on revenue account. On the other hand, if the object of the assistance under the subsidy scheme was to if the object of the assistance under the subsidy scheme was to enable the assessee enable the assessee

15 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited to set up a new unit or to expand the existing unit then the receipt of the subsidy to set up a new unit or to expand the existing unit then the receipt of the subsidy to set up a new unit or to expand the existing unit then the receipt of the subsidy was on capital account. Therefore, was on capital account. Therefore, it is the object for which the it is the object for which the subsidy/assistance is given which determines the nature of the incentive subsidy/assistance is given which determines the nature of the incentive subsidy/assistance is given which determines the nature of the incentive subsidy. The form of the mechanism through which the subsidy is given is form of the mechanism through which the subsidy is given is form of the mechanism through which the subsidy is given is irrelevant. ………………….. One more aspect needs to be mentioned. In Sahney Steel & Press Works Ltd.’s case One more aspect needs to be mentioned. In Sahney Steel & Press Works Ltd.’s case One more aspect needs to be mentioned. In Sahney Steel & Press Works Ltd.’s case (supra) this Court found that the assessee was free to use the money in its business (supra) this Court found that the assessee was free to use the money in its business (supra) this Court found that the assessee was free to use the money in its business entirely as it liked. It was not obliged to spend the money for a particular purpose. In as it liked. It was not obliged to spend the money for a particular purpose. In as it liked. It was not obliged to spend the money for a particular purpose. In the case of Seaham Harbour Dock Co. (supra) assessee was obliged to spend the money the case of Seaham Harbour Dock Co. (supra) assessee was obliged to spend the money the case of Seaham Harbour Dock Co. (supra) assessee was obliged to spend the money for extension of its docks. This aspect is very important. In the present case also, for extension of its docks. This aspect is very important. In the present case also, for extension of its docks. This aspect is very important. In the present case also, receipt of the subsidy was capital in nature as the assessee was obliged to utilize t of the subsidy was capital in nature as the assessee was obliged to utilize t of the subsidy was capital in nature as the assessee was obliged to utilize the subsidy only for repayment of term loans undertaken by the assessee for the subsidy only for repayment of term loans undertaken by the assessee for the subsidy only for repayment of term loans undertaken by the assessee for setting up new units/expansion of existing business. setting up new units/expansion of existing business.” (Emphasis supplied) (Emphasis supplied)

16 ITA No. 359/Kol/2018 Assessment Year: 2009-10 M/s. Pricewaterhouse Coopers Private Limited M/s. Pricewaterhouse Coopers Private Limited Act. This ground is dismissed . This ground is dismissed as it is consequential in nature. Hence disposed off as as it is consequential in nature. Hence disposed off as such.

Sd/- Sd/- J. Sudhakar Reddy] [Aby T. Varkey] [J. Sudhakar Reddy Judicial Member Accountant Member Accountant Member Dated: 21.04.2021 {SC SPS} Copy of the order forwarded to: 1. M/s. Pricewaterhouse Coopers Private Limited Coopers Private Limited Block-EP, Plot-Y-14 Salt Lake City Sector-V Kolkata – 700 091 2. Asstt. Commissioner of Income Tax, Circle Asstt. Commissioner of Income Tax, Circle-2(2), Kolkata 3. CIT(A)- 4. CIT- , 5. CIT(DR), Kolkata Benches, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.