Non compete fee can not be used to lower tax of a company

[bpagrawal]

Non compete fee can not be used to lower tax of a company
In response, learned counsel for the Revenue contended that in order to determine whether a non-competing fee is an expenditure that confers capital advantage, one of the important considerations has to be whether the advantage is short-term or enures for a sufficiently long period. In this regard, particular emphasis was placed upon the decision in Coal Shipments P. Ltd. (supra) to the effect that a transient or a ephemeral benefit would not amount to a capital expenditure. Built on this, learned counsel emphasized that the assessee‟s own stand was that the non-competing fee was paid to stay-off competition by its erstwhile partner L&T for seven years. From a common sense or commercial angle, there can be no doubt that such payment did not merely facilitate conduct of business but in fact ensured that the assessee‟s market position and customer base was not threatened by competition from its erstwhile partner. This undoubtedly amounted to capital expenditure and had to be treated as suchthe Supreme Court had cautioned that if an advantage accrues in a short span of time or is "epheramal", it cannot be considered a capital benefit qualifying as a capital expenditure. Necessarily, therefore, the Court has to adopt a fact-based approach and apply settled proposition.
//http://www.lawweb.in/2013/01/non-compete-fee-can-not-be-used-to.html