{"id":5235,"date":"2012-07-20T09:11:59","date_gmt":"2012-07-20T09:11:59","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=5235"},"modified":"2012-07-20T09:11:59","modified_gmt":"2012-07-20T09:11:59","slug":"acit-vs-ge-plastics-india-ltd-itat-ahmedabad-non-compete-rights-are-an-intangible-asset-eligible-for-depreciation","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/acit-vs-ge-plastics-india-ltd-itat-ahmedabad-non-compete-rights-are-an-intangible-asset-eligible-for-depreciation\/","title":{"rendered":"ACIT vs. GE Plastics India Ltd (ITAT Ahmedabad)"},"content":{"rendered":"\n\n
Click here to download the judgement (GE_Plastics_non_compete_depreciation.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nNon-Compete rights are an \u201cintangible asset\u201d eligible for depreciation
\n<\/strong><\/p>\n

The assessee paid Rs. 4.55 crores to obtain a non-compete covenant<\/em> from another company for a period of 10 years and claimed that the expenditure had resulted in an \u201cintangible asset<\/em>\u201d u\/s 32(1)(ii) on which depreciation<\/em> was allowable. The AO rejected the claim though the CIT (A) allowed it. Before the Tribunal, the department relied on Srivatsan Surveyors (P) Ltd. vs. ITO<\/strong> 125 TTJ 286 (Chennai) where it was held that a non-compete right is a \u2018right in persona<\/em>\u2019 and not a \u2018right in rem<\/em>\u2019 and so depreciation was not allowable. HELD by the Tribunal dismissing the appeal: <\/p>\n

The AO\u2019s objection that a non-compete right is not an \u201cintangible asset<\/em>\u201d u\/s. 32(1)(ii) on the ground that (a) it is not \u201cany other business or commercial right of a similar nature<\/em>\u201d and (b) it is not capable of transfer like other intangible assets is not acceptable because (i) the right of absence of competition or the ‘non-compete right’ is an asset which is capable of being transferred<\/strong> and is of a similar nature<\/strong> as the other items referred to. This is shown by the fact that the right was transferred by the assessee at the time of its amalgamation and (ii) the expenditure resulted in the acquisition of an unrivaled and non-competed business territory for 10 years which brought advantages in the capital field. Though in Srivatsan Surveyors<\/strong> 125 TTJ 286 (Chennai), it was held that a restrictive covenant is a \u201cright in persona<\/strong>\u201d and not a \u201cright in rem<\/strong>\u201d, a contrary view<\/strong> was taken in ITO vs. Medicorp Technologies India Ltd<\/strong> 30 SOT 506 (Chennai). When two views<\/strong> are possible, the view favourable to the assessee<\/strong> should be followed held in CIT vs. Vegetable Products Ltd<\/strong>. 88 ITR 192 (SC).<\/p><\/blockquote>\n

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

The AO\u2019s objection that a non-compete right is not an \u201cintangible asset<\/em>\u201d u\/s. 32(1)(ii) on the ground that (a) it is not \u201cany other business or commercial right of a similar nature<\/em>\u201d and (b) it is not capable of transfer like other intangible assets is not acceptable because (i) the right of absence of competition or the ‘non-compete right’ is an asset which is capable of being transferred<\/strong> and is of a similar nature<\/strong> as the other items referred to. This is shown by the fact that the right was transferred by the assessee at the time of its amalgamation and (ii) the expenditure resulted in the acquisition of an unrivaled and non-competed business territory for 10 years which brought advantages in the capital field. Though in Srivatsan Surveyors<\/strong> 125 TTJ 286 (Chennai), it was held that a restrictive covenant is a \u201cright in persona\u201d and not a \u201cright in rem\u201d, a contrary view<\/strong> was taken in ITO vs. Medicorp Technologies India Ltd<\/strong> 30 SOT 506 (Chennai). When two views<\/strong> are possible, the view favourable to the assessee<\/strong> should be followed held in CIT vs. Vegetable Products Ltd<\/strong>. 88 ITR 192 (SC).<\/p>\n

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