ACIT vs. Clariant Chemicals (I) Ltd (ITAT Mumbai)

DATE: November 19, 2014 (Date of pronouncement)
DATE: December 3, 2014 (Date of publication)
AY: 2007-08
FILE: Click here to download the file in pdf format
S. 37(1): Non-compete fee to ex-MD is revenue expenditure

A payment has to be seen from the context of commercial and business expediency. If the outgoing expenditure is so inextricably linked or related to carrying on or conduct of the business, that is, it can be regarded as integral part of the profit earning process and not for any acquisition of asset or a right of permanent character and incurring of the expenditure is a condition for carrying on the business, then such an expenditure may be regarded as revenue expenditure. Here the agreement for payment of non-compete fee was only to protect the existing business for a temporary period to ward off completion so that assessee company can get stabilizing period without its long serving MD. Here no new assets of any enduring benefit has arisen to the assessee on such payment. If the advantage is not for longer period and not enduring in nature, then such a payment of non-compete fee is nothing but business expenditure which is on revenue account. On similar facts and circumstances, the Hon’ble Delhi High Court also in the case of Eicher Ltd. (supra), after discussing various case laws came to the conclusion that payment of non-compete fee for eliminating competition in the two wheeler business cannot be held that assessee has acquired capital asset of enduring nature.

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