PANKAJ INDER WADHWA ,MUMBAI V. INCOME TAX OFFICER CIRCLE 1(3)(1), MUMBAI

ITA 1733/MUM/2025

AI Insights

The case revolves around the taxability of a receipt of INR 3,68,38,400 by Pankaj Inder Wadhwa from Nimblepace Packaging Pvt. Ltd. and Billerudkorsnas A.B. The Income Tax Officer treated this receipt as taxable income, viewing it as compensation for the termination of a business contract under section 28(ii)(e) and section 28(va)(a) of the Income-tax Act, 1961. However, Wadhwa contested this, arguing that the receipt was a capital receipt from a settlement agreement, not a taxable income. The Tribunal examined the nature of the receipt, the terms of the joint venture agreement, and the settlement agreement, ultimately deciding in favor of Wadhwa.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 360596 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2019-2020
• Other Referred Cases: CIT vs. Amar Dye Chem Ltd., ACIT vs. Jackie Shroff, Mumbai, Bhojison Infrastructure P. Ltd. vs. ITO, Ahmedabad, Chheda Housing Development Corpn. Vs. Addl. CIT, Mumbai, Shri Virednra Bhavanji Gala vs. PCIT, Kettlewell Bullen and Co. Ltd. vs. CIT, Geojit Investment Pvt. Ltd. vs. CIT, Rajeshkumar Shantilal Patel vs. ITO, Surat, CIT vs. Kumararani Smt. Meenakshi Achi
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJENDRA JOSHI
• Keywords: Rule of consistency; Capital receipt; Liquidation
• Section: 147; 263

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, V.P. AND SHRI BIJAYANANDA PRUSETH, AM ITA No. 1733/Mum/2025) (Assessment Years: 2019-20) Pankaj Inder Wadhwa, 8, Candy House Mandlik Road, Mumbai GPO, Mumbai-400001 Maharashtra, India Vs. Income Tax Officer, Circle 1(3)(1), Mumbai. PAN/GIR No. AABPW 0921B (Applicant) : (Respondent) Applicant by : Shri Vijay Mehta a/w Harsh Bafna Respondent by : Shri Rajendra Joshi (Sr. DR) Date of Hearing : 15.05.2025 Date of Pronouncement : 23.05.2025 O R D E R Per Saktijit Dey, VP: 1. This is an appeal by the assessee against the order dated 12.02.2025 passed by National Faceless Appeal Centre (NFAC), Delhi pertaining to Assessment Year (AYs) 2019-20. 2. The grounds raised by the assessee read as under: “1. The learned National Faceless Appeal Centre [hereinafter referred as 'learned CIT(A)') has erred in upholding the action of learned National Faceless Assessment Centre [hereinafter referred as \"learned AO'] in treating receipt of INR 3,68,38,400 from Nimblepace Packaging Private Limited and Others (collectively referred to as \"BK parties\") as taxable under section 28(ii)(e) and section 28(va) of the Income-tax Act, 1961 (hereinafter referred as 'Act']. 2 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer 2. The learned CIT(A) ought to have held that the amount of INR 3,68,38,400 received pursuant to settlement agreement filed before Hon'ble Delhi High Court is a capital receipt not chargeable to income tax.” 3. As could be seen from the grounds raised, the solitary dispute is with regard to nature of receipt of Rs.3,68,38,400/- whether revenue or capital. 4. Briefly, facts are, assessee is a resident individual. For the assessment year under dispute, the assessee had filed his return of income on 28.08.2019, declaring income of Rs.14,02,750/-. The assessee and other family members known as ‘Wadhwas’ were involved in the manufacturing and trading of packaging materials and were carrying on such business in India since the year 1960. For the purpose of such business, the Wadhwas used to import raw materials for use of export boxes in the corrugated packaging Industry. PACCESS, USA, a partnership registered in port land, Goregon, United States of America (USA) engaged in supply chain management and brokerage, paper medium LCC and other fiber board products wanted to explore the Indian market. Looking at the reputation and experience of Wadhwas in the corrugated package industries, PACCESS, USA desired to collaborate with Wadhwas to make their presence in India. Accordingly, PACCESS, USA and Wadhwas agreed to form a joint venture company under the laws of India with equals shareholding of 50% each. 5. In terms with the above, joint venture (JV) agreement was executed between the parties on 12.12.2000 laying down certain terms and conditions. The JV 3 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer company named as Paccess India carried on the business exclusively within the geographical territories of India and Sri Lanka. Subsequently, PACCESS, USA converted to a company called PACCESS LLC. However, it continued to be governed by the JV agreement. Subsequently, some time around end of 2011 and May 2012, PACCESS LLC hived off its packaging business into a separate Joint Venture Company, namely, Paccess Packaging LLC, wherein 30% of the equity was held by Billerudkorsnas A.B. a Swedish Company (hereinafter known as ‘B.K. Parties’). After the entry of the Swedish company, the Wadhwas found that in certain instances bypassing PACCESS, India, BK Parties were dealing directly with customers in India and Sri Lanka and were also advising the customers of PACCESS India to directly process order with them instead of Paccess India. Since the BK Parties continued its activity of directly dealing with customers in India and Sri Lanka overlooking PACCESS India, the Wadhwas sent a legal notice to the Swedish Company, pointing out that during the subsistence of the JV agreement, the Swedish company is bound by the terms of the JV agreement. In reply, BK Parties denied any obligation in terms with JV agreement by stating that it was not a party to the JV agreement. 6. It appears from facts and record, subsequently the Swedish Company purchased remaining 70% stake in PACCESS Packaging LLC and became the sole owner. Subsequently, in August, 2013, lawyers acting on behalf of 4 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer the liquidators of PACCESS LLC informed the Wadhwas and PACCESS India that PACCESS LCC has been wound up w.e.f. August, 2013 and the name of PACCESS LLC has been struck off from the records of the Registrar of Company (ROC) in the State of Delaware. Resultantly, the JV agreement with the assessee stood terminated. Sometime around mid of September, 2016 PACCESS India and Wadhwas discovered that two other entities, belonging to BK Parties, namely, Nimblepace Packaging Pvt. Ltd. and Billerudkorsnas India Pvt. Ltd. were trying to carry on the packaging business of PACCESS USA directly in India while giving an impression that PACCESS USA is conducting its packaging business in India under the brand ‘Billerud’. Having become conscious of such attempt on the part of the two entities the assessee in May 2017, filed a suit before the Hon’ble Delhi High Court, against the aforesaid two entities seeking the following relief: i. Decree of declaration and mandatory injunction that the JV agreement dated 12.12.2000 binds the declaration and therefore the defendants are not allowed to carry on any packaging business in India except through Paccess India. ii. Decree of permanent injunction restricting the aforesaid companies from carrying out any packaging business in India except in accordance with the JV agreement dated 12.12.2000. iii. Order for damages for breach of the terms of the JV agreement which shall be quantified post the rendition of the accounts of the defendants. 5 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer 7. Post filing of suit, to avoid litigation BK Parties expressed their willingness to discuss the issue with PACCESS India and Wadhwas for reaching an out of court settlement of the dispute. After discussion between the parties, a settlement agreement was executed on 29.08.2018 under certain terms and conditions and it was approved by the Hon’ble Delhi High Court by order dated 12.09.2018. The settlement agreement, inter alia, provided for payment of USD 1,600,000 to Paccess India and Wadhwas. In terms with the above, the assessee, in the year under consideration, received an amount of Rs.3,68,38,400. The assessee did not offer the amount as income by treating as capital receipt. The Assessing Officer (AO), however, did not accept assessee’s claim. He was of the view that the amount received is in the nature of compensation against termination of business contract, hence, is taxable u/s. 28(ii)(e) of the Act. Accordingly, he issued a show cause notice to the assessee. In response to the show cause notice, the assessee furnished a detailed submission justifying the stand of capital receipt. The assessee submitted that as the compensation was not for termination of any contract or modification of contract of business, the receipt would not fall within the ambit of Section 28(ii)(e) of the Act. Assessee’s plea, however, did not find favour with the AO. He observed that the amount received by the assessee was for not allowing the user of brand name PACCESS India by B.K. Parties. Hence, it is in relation with the business activity of the assessee. Thus, he held that the receipt is of revenue nature and will fall u/s 28(ii)(e). Without prejudice, the AO observed that the receipt would 6 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer otherwise be taxable u/s. 28(va)(a) of the Act as the assessee has given up his right to carry out any activity in relation to any business or profession. Thus, basis the aforesaid reasoning, the AO brought the amount of Rs.3,68,38,400/- to tax. Contesting the aforesaid addition, the assessee preferred an appeal before the First Appellate Authority. However, while deciding the appeal, learned First Appellate Authority concurred with the view expressed by the AO. 8. Before us, learned counsel appearing for the assessee submitted, the receipt cannot be treated as income u/s. 28(ii)(e) of the Act as it is not a compensation received either for termination of contract or modification of terms and conditions of contract relating to assessee’s business. He submitted, the JV agreement was with PACCESS USA and as per the terms of the JV agreement, it was automatically terminated on dissolution of PACCESS LLC in the year 2013. In this context, he drew our attention to couple of letters received from lawyers representing B.K. Parties. Learned counsel submitted, when the JV agreement with PACCESS USA was terminated in the year 2013, it cannot be said that the amount received from B.K. Parties in the year 2018 by virtue of the settlement agreement is in connection with either termination of the JV agreement or modification of the terms and conditions of the said agreement. 9. Drawing our attention to the copy of settlement agreement placed in the paper book as well as the JV agreement, he submitted that the parties from whom the assessee received compensation are not parties to the JV agreement. He submitted, in fact, 7 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer B.K. Parties with whom the assessee entered into settlement agreement have completely disowned the JV agreement and made it clear that they have nothing to do with the JV agreement as they are not parties to it. He submitted, in the aforesaid scenario it cannot be said that the amount received from B.K. Parties by virtue of settlement agreement executed in the year 2018 is on account of termination or modification in terms and conditions of the JV agreement executed in the year 2000, which automatically got terminated on dissolution of PACCESS USA. Thus, he submitted, the amount cannot be made taxable u/s. 28(ii)(e) of the Act. 10. Proceeding further, learned counsel submitted, the amount cannot be made taxable even u/s. 28(va)(a) of the Act. Drawing our attention to the said provision, he submitted, any amount which is received or receivable for not carrying out any activity in relation to any business or profession would be taxable. Drawing our attention to the terms and conditions of the settlement agreement, he submitted, there is nothing in them to even remotely suggest that the assessee has undertaken not to carry out any activity in relation to any business or profession. He submitted, on the contrary, the settlement agreement has given freedom to the assessee to carry on its business activity. Only thing it says is either of the parties would not interfere and create hindrance in the business activity of each other. He submitted, the settlement agreement was reached by the assessee giving up its ‘right to sue’. He submitted, ‘right to sue’ is not the business of the assessee. Therefore, the amount received cannot be treated as income u/s. 28(va)(a) of the Act. Learned counsel 8 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer submitted, similar payments received by other individual family members of the assessee were claimed as capital receipt in their respective returns of income. However, they were not brought to tax by the Department. He submitted, though, the returns were processed u/s. 143(1) of the Act, however, the assessments have not been reopened to tax the compensation received. He submitted, since assessee’s case stands on similar footing, applying the rule of consistency, Department cannot tax the amount at the hands of the assessee. He submitted, decisions relied upon by the Departmental Authorities are factually distinguishable hence will not apply to assessee’s case. While concluding, he relied upon the following decisions: i. CIT vs. Amar Dye Chem Ltd., [1994] 74 taxman 254 (Bom.) ii. ACIT vs. Jackie Shroff, Mumbai [2018] 97 taxmann.com 277 (Bom. Trib) iii. Bhojison Infrastructure P. Ltd. vs. ITO, Ahmedabad [2018] 99 taxmann.com 26 (Ahmedabad-Trib). iv. Chheda Housing Development Corpn. Vs. Addl. CIT, Mumbai [2019] 110 taxmann.com 56 (Mumbai-Trib). v. Shri Virednra Bhavanji Gala vs. PCIT in ITA No. 1654/Mum/2023. vi. Kettlewell Bullen and Co. Ltd. vs. CIT AIR 1965 SC 65. vii. Geojit Investment Pvt. Ltd. vs. CIT ITA No. 16 of 2019. viii. Rajeshkumar Shantilal Patel vs. ITO, Surat [2021] 127 taxmann.com 342 (Surat Trib). xi. CIT vs. Kumararani Smt. Meenakshi Achi [2007] 158 taxman 4 (Mad.) 9 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer 11. Learned DR strongly relied upon the observations of Departmental Authorities. 12. We have considered rival submissions and perused the materials on record. We have carefully applied our mind to various judicial precedents cited before us. The dispute between the parties lie in a very narrow compass - whether the receipt falls within the ambit of either Section 28(ii)(e) of the Act or Section 28(va)(a) of the Act. Apparently, both, the AO and learned First Appellate Authority have held that the receipts come within the ambit of either of the aforestated provisions. Whereas, the consistent stand of the assessee is, the receipts are of capital nature and do not satisfy conditions of the aforestated provisions. Keeping in perspective, the stated position of the parties, we venture to resolve the dispute. As far as the factual aspect of the issue is concerned, it is borne out of record that on 12.12.2000, the assessee, otherwise known as ‘Wadhwas’, entered into a JV Agreement with PACCESS USA to form a joint venture company in the name of PACCESS India Pvt. Ltd. 13. As per clause 2.3 of JV agreement the Joint Ventrue company was to carry out the following activity: “The Venture Company shall purchase and sell raw materials for use in paper production, all types of paper and paperboard, and all types of packaging. Additionally, the venture shall provide packaging design, procurement and logistic services, packaging needs for their export oriented units that are either owned or sub-contracted. The Venture shall also focus on cooperative development of Multi-National accounts when and where coordination with PACCESS Global Packaging Solutions U.S.A, Hong Kong or European based technical and marketing staff and/or account-specific imported raw material is required for a local packaging need. Upon the agreement of all parties, more potential 10 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer products and services may be further developed. Memorandum of Article would be drafted to include potential products.” 13.1. As per terms of the JV agreement, the Wadhwas and PACCESS USA each are owners of 50% of paid share capital in the JV company. 13.2. Clause 5.1 of the Joint Venture agreement provided that PACCESS USA shall have the responsibility for sourcing appropriate raw material for the Joint Venture from its international supply base. Whereas, Wadhwas shall have responsibility for sourcing appropriate raw materials from its domestic supply base. 13.3 Clause 5.2 provided that Wadhwas will use their current domestic relationships to assist in developing additional domestic brokerage sales where possible. 13.4 Clause 5.3 provided that PACCESS USA will expend its best efforts to develop multi-national accounts for the Joint Venture and to train it to meet the customers unique requirements. The Joint Venture will then work with the most appropriate local vendor which may or may not be Wadhwas. However, Wadhwas will provide relevant design and sale support service. 13.5 Clause 5.4 provided that Wadhwas shall assist the Joint Venture in all administrative, financial and governmental activities. 13.6 Clause 5.5 provided that PACCESS USA shall provide regional and global distribution as well as access to its Global Enterprise Resource Planning system and management of networking and after sale service. 13.7 Article – VI of the Agreement provided for management of PACCESS India. 11 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer 13.8. Article X of the JV Agreement provided that during the term of the agreement PACCESS India shall be the vehicle for all business in India of PACCESS, USA including all products. It also provided that during the term of the agreement Wadhwas will not participate separately in the sale of competing imported paper products. It further provided that any modification to the JV agreement shall not become effective without written consent from both parties. Article XII providing for termination of the JV Agreement reads as under: “ARTICLE-XII: TERMS OF THE AGREEMENT 12.1 This Agreement shall continue to be in force as long as either Party to this Agreement holds at least 26% of subscribed equity share capital of PACCESS, INDIA. This Agreement may be terminated: b) by mutual consent of the Parties hereto: c) in the event that the laws or regulations of India or of U.S.A. at any time be or become such that this Agreement cannot be continued, enforced or performed according to its terms subject to a reasonable notice period. d) In the event that any statutory or Government license or permission or registration is withdrawn, cancelled, or nullified causing the terms of this Agreement to be inoperative or unenforceable. e) Upon dissolution or liquidation of PACCESS, U.S.A.” 14. Thus, the Joint Venture Agreement clearly indicates that during the subsistence of the agreement PACCESS India had exclusive right to carry on the business in India. Whereas, Article XII of the agreement provides the eventualities in which the JV Agreement shall be terminated. One of the condition, on which, the JV Agreement 12 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer can be terminated is on account of dissolution or liquidation of PACCESS USA. From the factual discussion earlier made, which also forms part of the record of the Departmental Authorities, it is evident that the JV Agreement continued smoothly till the year 2012, even after PACCESS USA was converted into a company in the name and style of PACCESS LLC. Sometime around 2012, the Wadhwas were informed that PACCESS LLC hived off its packaging business into a separate Joint Venture Company, namely, PACCESS Packaging LLC wherein, 30% of the stake was held by a new entrant, namely, Billerudkorsnas A.B. a Swedish Company. Subsequently, the Swedish company acquired balance 70% stake in PACCESS Packaging LLC and become its sole owner. Sometime around August, 2013, the Wadhwas were further informed that PACCESS LLC has been wound up w.e.f. August, 2013 and its name has been struck off in the records of the Registrar of Companies in staTe of Delaware. Resultantly, the JV agreement creating PACCESS India stood terminated. In fact, the copy of certificate of cancellation issued by the Secretary of State of Delaware in respect of PACCESS LLC has been placed on record. These facts remain uncontroverted. 15. Keeping in view the factual context, we proceed to examine whether firstly the receipts can be treated as income under the head business and profession u/s. 28(ii)(e) of the Act. The said provision reads as under: “28. The following income shall be chargeable to income-tax under the head \"Profits and gains of business or profession\",— (ii) any compensation or other payment due to or received by- 13 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer (e) any person, by whatever name called, at or in connection with the termination or the modification of the terms and conditions, of any contract relating to his business…..” 16. As could be seen from the reading of the provision, any compensation or other payment can be treated as profits and gains of business or profession on fulfillment of two conditions. Firstly, such payment is in connection with the termination of any contract relating to his business. Secondly, payment is in relation to modification of terms and conditions of any contract relating to his business. 17. In the facts of the present appeal, admittedly, the JV agreement was between the ‘Wadhwas’ and PACCESS USA, a partnership firm which subsequently converted into a company, namely, PACCESS LLC. B.K. Parties were never part of the JV agreement, nor they substituted either PACCESS USA or PACCESS LLC in the JV Agreement. In fact, B.K. Parties have completely disowned the JV Agreement in various communications made by the lawyers on their behalf with Wadhwas. Further, the JV agreement automatically got terminated on dissolution of PACCESS LLC, formerly known as PACCESS USA, in the year 2013. Thereafter, Paccess India continued to carry on its business activities without any hindrance or interference and or claiming any compensation from Paccess USA/Paccess LLC on account of either termination of the agreement or modification in terms of the agreement. Long after when the assessee found that B.K. Parties were interfering in the business activities by contacting the customers in India to directly deal with them assessee and others belonging to Wadhwa Group filed a suit in the Hon’ble 14 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer Delhi High Court seeking certain relief. Upon filing of the suit B.K. Parties came forward to amicably settle the dispute through discussion and ultimately the settlement agreement between the parties was reached in 2018. In terms with the settlement agreement, the Wadhwas received certain payments. 18. Thus, as could be seen from the aforesaid facts, the payment received was not on account of termination of contract relating to any business carried on by the assessee or modification in terms with contract relating to any such business. This is so because, B.K. Parties were never part of the JV agreement nor the assessee received any compensation from PACCESS USA/ PACCESS LLC on account of termination of JV Agreement or modification in conditions of the JV Agreement. A reading of the JV Agreement would further reveal that in the event of any dispute arising in connection with the agreement or otherwise with regard to relationship by virtue of the terms of the JV agreement, it cannot be settled by compromise and the subject matter of dispute shall be submitted to arbitration according to the rules of international Chamber of Commerce. It further provided the seat of arbitration to be at Mumbai in India. There is nothing on record to suggest that either of the parties to the JV Agreement had invoked the arbitration clause in the JV Agreement at any point of time to resolve any dispute. In the aforesaid scenario, it cannot be said that the payment/compensation received by assessee is on termination of contract or modifications of terms and condition of the contract relating to the business of the assessee. It is another matter, that the assessee on his own did not 15 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer carry out any business activity. Thus, in our view, the payment would not fall within the ambit of Section 28(ii)(e) of the Act. 19. Having held so, it is necessary to examine whether the payment would fall within the ambit of Section 28(va)(a) of the Act, which is relevant for our purpose. The said provision reads as under:- “(va) any sum, whether received or receivable, in cash or kind, under an agreement for— (a) not carrying out any activity in relation to any business or profession; or 20. A reading of the provision reveals that the only condition on which the provision will get attracted is, if the payment made is under an agreement in terms of which the person receiving the payment undertakes not to carry out any activity in relation to any business or profession. A reading of the settlement agreement between the assessee group and B.K. Parties, a copy of which is placed in the paper book reveals the terms of settlement as under: “SETTLEMENT 2.1 The Parties agree that with effect from the date of this Agreement: (a) this Agreement is in full and final settlement of any and all Claims: (i) by Paccess India and/or any of the Wadhwas and/or any Affiliate of Paccess India or any of the Wadhwas against any of the BK Parties and/or any Affiliate of any BK Party; and 16 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer (ii) by any of the BK Parties against Paccess India and/or any of the Wadhwas and/or any Affiliate of Paccess India or any of the Wadhwas; (b) each Party irrevocably releases and covenants not to sue, or commence or continue any action, suit or proceeding whether by originating proceedings, counterclaim, arbitration or otherwise against, any other Party and/or its Affiliates in relation to any and all Claims; (c) each Party undertakes that it shall procure that none of its Affiliates shall sue, or commence or continue any action, suit or proceeding whether by originating proceedings, counterclaim, arbitration or otherwise against, any other Party and/or its Affiliates in relation to any and all Claims; (d) each Party confirms for the benefit of each other Party and its Affiliates that if any claim, action, suit or proceeding is brought in any jurisdiction relating to any Claim, this Agreement is intended to be a complete defence to it; and (c) each of Paccess India and the Wadhwas agrees not to, and shall procure that each of its Affiliates do not, take any step to interfere with, hinder or prevent the conduct or carrying on of any business (including, without limitation, business and transactions relating to the supply and sale of paper products and packaging materials and solutions or involving Micro Packaging Industries Pvt. Ltd.) by any of the BK Parties or any Affiliate of a BK Party in India, Sri Lanka or elsewhere; and (f) each of the BK Parties agrees not to, and shall procure that each of its Affiliates do not, take any step to interfere with, hinder or prevent: (i) the conduct or carrying on of any business by Paccess India or any of the Wadhwas or any of their Affiliates, in India, Sri Lanka or elsewhere, or (ii) the claiming or exercising of any right of ownership over any and all shares in Paccess India by any 17 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer person (other than a BK Party or an Affiliate of a BK Party). 2.2 For the avoidance of doubt, nothing in this Agreement prevents any Party from commencing proceedings to enforce their rights under this Agreement.” 21. A reading of the terms of settlement would show that the settlement is primarily intended not to exercise ‘the right to sue’. the terms of settlement further provide that neither of the parties to the settlement agreement shall take any steps to interfere with, hinder or prevent the conduct or carrying of any business, activity of each other in India, Sri Lanka or elsewhere. The terms of settlement further prevent B.K. parties from claiming or exercising any right over any and all shares of PACCESS India either by itself or its affiliates. The settlement agreement further provides that B.K. Parties shall not use PACCESS name in their business dealing in India, Sri Lanka and elsewhere. It further provides that B.K. Parties would not object to adoption of the name PACCESS by PACCESS India/Wadhwas or any of their affiliates India, Sri Lanka, Bangladesh, Bhutan and Nepal. Thus, the terms of settlement agreement between the Wadhwa group and B.K. parties clearly establish that neither of the parties have given up their right to carryout their business activity in the specified geographical territories. On the contrary, the terms of settlement agreement prevent either of the parties in interfering with and hindering the business activity of each other. 22. Thus, neither the terms of settlement agreement under which the assessee had received payment nor any other material on record suggest that the assessee had 18 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer entered into any agreement with B.K. Parties for not carrying out any activity in relation to any business or profession for which it has been compensated. On the contrary, the settlement agreement confer upon the parties unrestricted right to carry on business activities without interfering with each other. Thus, in our view, the payment received by the assessee would even come within the ambit of Section 28(va)(a) of the Act. 23. At this stage, it is necessary to observe, the Departmental Authorities have misconceived the facts, thereby, have misdirected themselves while coming to their respective conclusion. In fact, we find the finding of learned First Appellate Authority contradictory. While, in Paragraph 7.9 learned First Appellate Authority has given a finding that under the terms of settlement agreement the assessee has received the money/compensation for giving up his rights of business, in subsequent paragraphs he has contradicted himself by stating that the clauses of settlement agreement assures the assessee to carry on business in India and Sri Lanka without interference. Hence, the compensation received is as part of normal course of business. 24. Admittedly, B.K. Parties had no privity of contract with PACCESS India/Wadhwas in so far as JV Agreement is concerned. In fact, the assessee had not claimed any damages from PACCESS USA/PACCESS LLC, the party to the JV agreement. There is nothing in the JV Agreement even to suggest that any of the parties can claim compensation on termination of JV agreement. There is nothing on record to suggest 19 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer that at any point in time B.K. Parties were substituted in place of Paccess USA/Paccess LLC in the JV agreement. Therefore, the compensation does not flow from the JV Agreement. On the contrary, the compensation/payment arise out of the settlement agreement. The settlement agreement was basically reached by B.K. Parties to avoid the legal consequences arising out of the suit filed by the assessee in Delhi High Court to injunct the B.K. Parties from carrying on any business activity detrimental to the business activities carried out by the assessee. Therefore, the payment made was for not exercising the right to sue. This, in our view, would fall in the category of capital receipt. In any case of the matter, conditions of Section 28(ii)(e) and 28(va)(a) are not attracted to the receipts. 25. Pertinently, other individual family members had similar receipts and claimed them as capital in nature and not offered to tax. The details are as under: Sr. No. Name of the person Amount 1. Ms. Payal Wadhwa Rs.1.84 cr. 2. Ms. Nirmal Wadhwa Rs.3.68 cr 3. Mr. Sandeep Wadhwa25.1 Rs.1.84 cr 25.1 The return of income filed by those individuals have been accepted u/s. 143(1) of the Act and no remedial measures have been taken by the Departmental Authorities either under Section 147 or Section 263 of the Act to bring to tax such receipts. Therefore, a consistent view is required to be taken in the matter of taxability of the receipts in case of all the individual family members receiving such payment. Thus, on overall consideration of facts and materials 20 ITA No.1733 /Mum/2025 Pankaj Inder Wadhwa Vs. Income Tax Officer on record, we hold that the receipt is not taxable, AO is directed to delete the addition. 26. In the result, appeal is allowed. (Order pronounced in the open court on 23.05.2025) Sd/- Sd/- (BIJAYANANDA, PRUSETH) (SAKTIJIT DEY) Accountant Member Vice President Mumbai: Dated : 23.05.2025 Aks/- Copy of the Order forwarded to : 1. The Applicant 2. The Respondent 3. The CIT(A) 4. CIT - concerned 5. DR, ITAT, Mumbai 6. Guard File BY ORDER, (Dy./Asstt. Registrar) ITAT, Mumbai "