Beacon Higher Education Services Pvt. Ltd Vs ACIT (ITAT Delhi)
Depreciation on non-compete fee allowed – Revenue-neutral approach accepted despite SC ruling treating it as revenue expenditure – ITAT Delhi
In Beacon Higher Education Services Pvt. Ltd. vs ACIT / DCIT (A.Ys. 2016-17 & 2017-18), the primary dispute related to depreciation claimed u/s 32 on non-compete/non-solicitation fee of ₹37 crore treated as an intangible asset. The AO and CIT(A) disallowed depreciation relying on Delhi High Court judgment in Sharp Business Systems, holding that non-compete fee is not an intangible asset eligible for depreciation.
Before the ITAT, the assessee argued that the Supreme Court in the same Sharp Business Systems case had held non-compete payments to be revenue expenditure u/s 37(1). However, since the assessee had historically treated the payment as capital and claimed depreciation over multiple years, it requested continuation of depreciation to maintain consistency and avoid reopening past assessments.
The Tribunal accepted this practical and revenue-neutral approach, holding that although the expenditure could have been claimed fully as revenue in earlier years, allowing depreciation over successive years was reasonable given the factual circumstances. Accordingly, depreciation of ₹2.92 crore was allowed for A.Y. 2016-17, and the Revenue’s appeal for A.Y. 2017-18 was dismissed on identical reasoning. Ground relating to brought-forward losses u/s 72A was not pressed and dismissed. The assessee’s appeal was partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
