{"id":4096,"date":"2011-12-26T12:53:58","date_gmt":"2011-12-26T12:53:58","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=4096"},"modified":"2011-12-26T12:53:58","modified_gmt":"2011-12-26T12:53:58","slug":"pitney-bowes-india-pvt-ltd-vs-cit-delhi-high-court-amount-paid-for-non-compete-rights-while-acquiring-business-is-capital-expenditure","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/pitney-bowes-india-pvt-ltd-vs-cit-delhi-high-court-amount-paid-for-non-compete-rights-while-acquiring-business-is-capital-expenditure\/","title":{"rendered":"Pitney Bowes India Pvt Ltd vs. CIT (Delhi High Court)"},"content":{"rendered":"\n\n
Click here to download the judgement (pitney_non_compete_capital_expenditure.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nAmount paid for non-compete rights while acquiring business is capital expenditure
\n<\/strong><\/p>\n

The assessee acquired the mailing business of Kilburn Office as a going concern on a slump sale basis pursuant to a Business Transfer Agreement. The consideration for the transfer was Rs. 18.92 crores which included Rs. 5.94 Crores by way of non-compete fee for a period of 5 years<\/em>. In the accounts, the expenditure was treated as a capital payment<\/em> though a deduction was claimed in the computation u\/s 37(1). The AO disallowed the claim though the CIT (A) allowed it as deferred revenue expenditure. On appeal by the department, the Tribunal reversed the CIT (A) following Tecumesh India<\/a> <\/strong>132 TTJ 129 (Del) (SB) though it directed the AO to consider whether the payment was an \u201cintangible asset<\/em>\u201d for purposes of depreciation. On appeal by the assessee, HELD dismissing the appeal:<\/p>\n

In the books, the assessee treated the non-compete expenditure as capital in nature. Warding off competition in business even to a rival dealer will constitute capital expenditure. It is not necessary that the non-compete fee has to be paid to create monopoly rights<\/strong>. The non-compete agreement was to last for 5 years, which period is sufficient to give enduring benefit<\/strong><\/em> (Tecumesh India<\/a><\/strong> 132 TTJ 129 (Del) (SB) approved; Eicher Ltd<\/strong> 302 ITR 249 (Del) distinguished; Q whether depreciation is eligible left for determination by AO). <\/p><\/blockquote>\n

\nOn the taxability of non-compete rights pre s. 28(va) see Guffic Chem P. Ltd vs. CIT<\/a><\/strong> (SC)\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

In the books, the assessee treated the non-compete expenditure as capital in nature. Warding off competition in business even to a rival dealer will constitute capital expenditure. It is not necessary that the non-compete fee has to be paid to create monopoly rights<\/strong>. The non-compete agreement was to last for 5 years, which period is sufficient to give enduring benefit<\/strong><\/em> (Tecumesh India<\/a><\/strong> 132 TTJ 129 (Del) (SB) approved; Eicher Ltd<\/strong> 302 ITR 249 (Del) distinguished; Q whether depreciation is eligible left for determination by AO).<\/p>\n

Read more ›<\/a><\/div>\n

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