PCIT Vs Abbott Healthcare Pvt. Ltd. (Bombay High Court)
Summary : The Bombay High Court dismissed the Revenue’s appeal against the Tribunal’s decision sustaining the treatment of non-compete fees paid by Abbott Healthcare Pvt. Ltd. as deferred revenue expenditure over eight years. The dispute concerned AY 2011–2012 and a payment of ₹5,13,54,60,000 to Piramal Healthcare Limited under a slump sale agreement. Under the business transfer agreement dated 21 May 2010, Piramal agreed not to engage in competing activities for eight years from 8 September 2010. Abbott initially treated the non-compete payment as an intangible asset and claimed depreciation of ₹128,38,65,000 at 25% in its return filed on 29 November 2011. The Assessing Officer rejected that claim in the assessment order dated 28 May 2015.
Before the CIT(A), Abbott sought allowance of depreciation and alternatively contended that the non-compete fee should be deducted as deferred revenue expenditure over the eight-year restriction period. By order dated 8 November 2017, the CIT(A) accepted the alternative claim. The Revenue challenged that treatment before the Tribunal, while Abbott raised an additional ground seeking depreciation. The Tribunal’s impugned order dated 6 January 2020 rejected the Revenue’s objection to the deferred revenue deduction. In its appeal under Section 260A, the Revenue relied on the Delhi High Court’s decision in Sharp Business System, which had treated non-compete expenditure as capital expenditure because the benefit operated in the capital field for a substantial period.
During the pendency of the appeal, the Supreme Court decided Sharp Business System Vs Commissioner of Income-tax, reported in (2026) 484 ITR 509 (SC), together with connected proceedings including Principal Commissioner of Income Tax Vs Piramal Glass Limited. The Supreme Court held that the non-compete payment made to L&T was allowable revenue expenditure under Section 37(1). Its reasoning explained that such payments may protect an existing business or enhance profitability by insulating the payer from competition. It set aside the Delhi High Court’s judgment and remanded the remaining connected appeals to their respective Tribunals for consideration in accordance with the ruling.
Relying on that development, Abbott sought confirmation of the original Tribunal order and continued to request amortisation over eight years. Its counsel also relied on Taparia Tools Ltd. Vs JCIT, Nasik, (2015) 372 ITR 605 (SC). The passages reproduced from that judgment recognise the ordinary rule that revenue expenditure is deductible in the year in which it is incurred, while discussing circumstances in which an assessee itself seeks to spread expenditure over subsequent years and the relevance of the matching concept. The Revenue accepted that the Supreme Court had held non-compete fees to be revenue expenditure but argued that Abbott’s request for deferred treatment should be reconsidered by the Tribunal on remand.
The High Court declined to remand the matter to the Tribunal. It held that the legal character of the non-compete fees stood settled by the Supreme Court and that the CIT(A)’s conclusion was consistent with that position. No substantive issue remained for the Tribunal to determine; the Assessing Officer only had to give consequential effect for the relevant assessment years. The Court accordingly sustained the eight-year deferred revenue treatment in the circumstances of the case. It also expressly clarified that, once Abbott had accepted such treatment, it could not claim depreciation on the same amounts, as that would be incongruous.
The Court also addressed subsequent Tribunal proceedings concerning Abbott’s previously unadjudicated additional depreciation ground. The source records that the Tribunal later accepted depreciation by following the Bombay High Court’s earlier decision in Pr. Commissioner of Income Tax-7 Vs Piramal Glass Ltd. Abbott submitted that the subsequent order had not been challenged, whereas the Court referred to a challenge in a companion appeal. It held that the later depreciation order would be of no consequence in view of the revenue-expenditure treatment flowing from the Supreme Court’s decision. Finding no substantive question of law requiring consideration, the High Court dismissed the Revenue’s appeal without costs and disposed of the pending interim application.
Cases Discussed
- Sharp Business System Vs Commissioner of Income-tax — (2026) 484 ITR 509 (SC); Civil Appeal No. 4072 of 2014; judgment dated 19 December 2025; Supreme Court of India. The controlling decision treating the non-compete payment as revenue expenditure under Section 37(1). The High Court applied it to reject the Revenue’s challenge and found no substantive issue requiring remand to the Tribunal.
- Principal Commissioner of Income Tax Vs Piramal Glass Limited — Supreme Court connected proceedings decided with Sharp Business System Vs Commissioner of Income-tax on 19 December 2025, arising from Bombay High Court Income Tax Appeal No. 556 of 2017, judgment dated 11 June 2019. The High Court referred to these connected Supreme Court proceedings when treating the legal position on non-compete fees as settled.
- Pr. Commissioner of Income Tax-7 Vs Piramal Glass Ltd. — Income Tax Appeal No. 556 of 2017; judgment dated 11 June 2019; Bombay High Court. The Tribunal relied on this earlier decision when subsequently allowing Abbott’s additional depreciation ground. The High Court held that the subsequent depreciation order would be of no consequence in light of the revenue-expenditure treatment.
- Taparia Tools Ltd. Vs JCIT, Nasik — (2015) 372 ITR 605 (SC); judgment dated 23 March 2015; Supreme Court of India. Relied upon by Abbott concerning revenue expenditure, spreading expenditure at the assessee’s request, the matching concept and the principle that accounting entries do not conclusively determine tax deductibility.
- Sharp Business System Vs Commissioner of Income-tax — Income Tax Appeal No. 492 of 2012; judgment dated 5 November 2012; Delhi High Court. The Revenue relied on its capital-expenditure conclusion. The Supreme Court subsequently set aside this judgment.
- United Commercial Bank Vs CIT — [1999] 240 ITR 355 / 106 Taxman 601 (SC). Cited within the reproduced passage from Taparia Tools for the proposition that entries in books are not determinative or conclusive of tax treatment.
- Tuticorin Alkali Chemicals & Fertilizers Ltd. Vs CIT — [1997] 227 ITR 172 / 93 Taxman 502 (SC). Appears in the reproduced Taparia Tools passage on determining tax treatment under the Act rather than conclusively by accounting entries.
- Sutlej Cotton Mills Ltd. Vs CIT — [1979] 116 ITR 1 (SC). Cited within the reproduced Taparia Tools passage concerning the non-conclusive nature of book entries.
- Kedarnath Jute Mfg. Co. Ltd. Vs CIT — [1971] 82 ITR 363 (SC). Cited within the reproduced Taparia Tools passage for the principle that the statutory provisions govern deductibility rather than the treatment in the books.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. This appeal under Section 260A of the Income Tax Act, 1961 is directed against the judgment and order dated 6 January 2020 passed by the Income Tax Appellate Tribunal Bench at Mumbai (for short ‘the Tribunal’), by which the Tribunal decided I.T.A.No.570/Mum/2018 filed by the respondent-assessee, as also the cross-appeal filed by the department against the assessee being I.T.A.No.711/Mum/2018. The appeal filed by the assessee challenging the order dated 8 November 2017 passed by the Commissioner of Income Tax (Appeals) [for short CIT(A)] has been allowed and the cross appeal which is filed by the department against the said order passed by the CIT(A) in relation to the question in issue, was dismissed. The Assessment Year is 2011-2012.
2. The primary bone of contention of the assessee, relevant to the present proceedings, is qua an amount of Rs.5,13,54,60,000/- paid by the assessee to Piramal Healthcare Limited, under the “slump sale agreement”, as non-compete fees, under the relevant condition that Piramal Healthcare Limited having agreed not to engage in competing activities for a period of eight years with effect from 8 September 2010, under the said business transfer agreement dated 21 May 2010.
3. On 29 November 2011 the return of income was filed by the assessee claiming depreciation on non-compete fees of Rs.128,38,65,000/- being an intangible asset eligible for depreciation at the rate of 25%. Such claim was disallowed by the Assessing Officer in the assessment order which came to be passed on 28 May 2015.
4. Being aggrieved by the orders passed by the Assessing Officer, the assessee approached the appellate authority namely CIT(A) challenging disallowance of depreciation on non-compete fees. Before the CIT(A) the assessee contended that the claim of the assessee in regard to depreciation as claimed on such amount, needs to be allowed. It was further contended that the non-compete fee should be allowed as deferred revenue expenditure deductible over a period of eight years.
5. The CIT(A) considering the rival contentions of the parties, by an order dated 8 November 2017 allowed the assessee to claim non-compete fees as ‘deferred revenue expenditure’, over a period of eight years being the period of non-compete agreed by Piramal Healthcare Pvt. Ltd. under the terms and conditions of business transfer agreement.
6. Being aggrieved by such orders passed by the CIT(A), the Revenue approached the Tribunal. In the Revenue’s appeal, it was inter alia contended that such amounts should not be treated as deferred revenue expenditure. On 5 April 2019 in the cross appeal field by the assessee it raised an additional ground that the assessee was eligible for depreciation on non-compete fees.
7. The Tribunal considering the rival contentions, has passed the order dated 6 January 2020 as impugned, whereby the Tribunal did not accept the contention as urged on behalf of the Revenue and dismissed the Revenue’s appeal. It is such order of the Tribunal which is subject matter of consideration in the present proceedings. The Revenue in the present appeal has raised the following question of law for consideration of this Court :
(i) Whether on the facts and circumstances of the case and in law, the ITAT erred in not appreciating that the decision of Delhi High Court in the case of Sharp Business System (ITA No.492/2012) is in favour of Department wherein, it was held that the non-compute fees paid by the taxpayer would not be allowed as revenue expenditure since the benefit accrued was in capital field for a substantial period of time?
8. We have heard learned Counsel for the parties. At the outset, we need to observe that in the intervening period i.e. when the present proceedings were pending, the Supreme Court had an occasion to consider a similar plea in regard to non-compete fees, whether would be required to be taken into consideration as revenue expenditure, in the case of Sharp Business System vs. Commissioner of Income-tax1 (ITA No.492/2012). The said proceedings were also considered alongwith the another proceedings in the case of ‘Principal Commissioner of Income Tax Vs. Piramal Glass Limited ’ arising from the judgment and order dated 11 June 2019 passed by this Court in Income Tax Appeal no.556 of 2017. (paragraph 10 of the judgment.).
9. The Supreme Court in paragraph 13 of its decision in Sharp Business System (supra) has noted the question which has arisen for consideration namely ‘whether the right which accrues to the assessee on account of the non-compete agreement can be said to be an ‘intangible asset’ qualifying for depreciation under Section 32 of the Act.’ The Supreme Court examining the provisions of Section 32(1)(ii) of the Income Tax Act as also other relevant provisions and taking a survey of the decisions, relevant to the issue, has held that the payment made by the appellant to L & T as non-compete fee is an allowable revenue expenditure under Section 37(1) of the Act. The conclusions as recorded by the Supreme Court are relevant, which read thus:
“25. Having adverted to the relevant case laws, we may now examine the nature and character of non-compete fee; whether payment of non-compete fee is revenue expenditure or capital expenditure. Non-compete fee is paid by one party to another to restrain the latter from competing with the payer in the same line of business. It may be by way of a written agreement or by an oral understanding. The restriction may be limited to a specified territory or otherwise; similarly, it can be for a specified period or otherwise. Purpose of non-compete payment is to give a head start to the business of the payer. It can also be for the purpose of protecting the business of the payer or for enhancing the profitability of the business of the payer by insulating the payer from competition.
.. … ..
29. That being the position, we are of the considered opinion that payment made by the appellant to L&T as non-compete fee is an allowable revenue expenditure under Section 37(1) of the Act.
30. Consequently, the impugned judgment-and-order of the Delhi High Court dated 05.11.2012 passed in Income Tax Appeal No. 492/2012 is hereby set aside. The question framed in paragraph 5 of this judgment is thus answered in favour of the assessee and against the revenue, Civil Appeal No. 4072/2014 is accordingly allowed.
31. In view of what we have held above, the supplementary question framed in paragraph 5.1 of this judgment has been rendered redundant. Therefore, consideration of the submissions made in this regard is not necessary,
32. As regards the remaining appeals, we are of the view that it would be appropriate if the matters are remanded back to the respective ITATs, all appeals/ cross-appeals filed are revived and heard afresh having regard to the ratio laid down in this judgment
33. Ordered accordingly.
34. Since the appeals/ cross-appeals before the ITATs have been revived, parties would be at liberty to raise additional ground(s) based on the present judgment.”
10. Thus, clearly in similar facts and circumstances, the Supreme Court has authoritatively held that the non-compete fee is an allowable revenue expenditure under Section 37(1) of the Act. In the present case, the Tribunal by the impugned order has confirmed the findings of the CIT(A) wherein has been directed the Assessing Officer to treat the non-compete fees as deferred revenue expenditure for a period of eight years.
11. Learned Counsel for the assessee has submitted that considering the authoritative decision rendered by the Supreme Court in Sharp Business System (supra), an Interim Application has been filed by the assessee to place on record such subsequent developments wherein the following prayers are made:
“a) Allow the Applicant to bring on record the subsequent developments as stated above.
b) Hold that the non-compete fee paid by the Applicant should be treated as revenue expenditure and the deduction for the same should be amortised over a period of eight years and, accordingly, dismiss the revenue’s appeal by confirming the original Tribunal order dated January 06, 2020.
c) Such other and further relief may be granted as this Hon’ble Court may deem fit and proper.”
12. He accordingly submits that considering the aforesaid clear position in law, the view which has been taken by the Tribunal in the impugned order, is required to be confirmed considering the decision of the Supreme Court in Sharp Business System vs. Commissioner of Income-tax (supra). Mr. Agarwal has placed reliance on the decision of the Supreme Court in Taparia Tools Ltd. vs. JCIT,Nasik2 to contend that it would be permissible for the Assessing Officer now to accept the claim of the assessee, that the expenditure be treated as deferred revenue expenditure, which in fact was the case of the assessee. According to him, even otherwise the finding of the Tribunal is binding on the Assessing Officer as held by the Tribunal. He placed reliance on the following observations of the Supreme Court in Taparia Tools Ltd. (supra) in such context:-
“17. Thus, the first thing which is to be noticed is that though the entire expenditure was incurred in that year, it was the assessee who wanted the spread over. The Court was conscious of the principle that normally revenue expenditure is to be allowed in the same year in which it is incurred, but at the instance of the assessee, who wanted spreading over, the Court agreed to allow the assessee that benefit when it was found that there was a continuing benefit to the business of the company over the entire period.
18. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of ‘Matching Concept’ is satisfied, which upto now has been restricted to the cases of debentures.
19. In the instant case, as noticed above, the assessee did not want spread over of this expenditure over a period of five years as in the return filed by it, it had claimed the entire interest paid upfront as deductible expenditure in the same year. In such a situation, when this course of action was permissible in law to the assessee as it was in consonance with the provisions of the Act which permit the assessee to claim the expenditure in the year in which it was incurred, merely because a different treatment was given in the books of account cannot be a factor which would deprive the assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See – Kedarnath Jute Mfg. Co Ltd. v. CIT [1971] 82 ITR 363 (SC); Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC); Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355/106 Taxman 601 (SC).”
13. Mr. Mohanty, learned Counsel for the Revenue, would submit that in Sharp Business System vs. Commissioner of Income-tax (supra), although the Supreme Court has laid down that the payment made by the appellant therein to L&T towards non-compete fee is an allowable revenue expenditure under Section 37(1) of the Act, the assessee’s contention/claim that the same be permitted to be treated as a deferred revenue expenditure would require consideration by the Tribunal. He would, therefore, submit that it would be appropriate to remand the proceedings to the Tribunal, so that an appropriate course of action can be adopted by the Tribunal in passing appropriate orders, considering the decision of the Supreme Court in Sharp Business System (supra).
14. Such contention as urged on behalf of the Revenue by Mr. Mohanty is opposed by Mr. Agarwal, learned Counsel appearing for the respondent-Assessee, in submitting that no useful purpose would be served in remanding the proceedings to the Tribunal, once the Supreme Court has settled the position in law, the payment of non-compete fees by the assessee, in the present case to Piramal Healthcare Limited, needs to be held as an allowable revenue expenditure under Section 37(1) of the Act. He would also submit that, considering the fact that the order passed by CIT(A), the subject matter of challenge before the Tribunal by the Revenue, had accepted the assessee’s plea that such amount be permitted to be treated as deferred revenue expenditure, no useful purpose would be served in remanding the proceedings. It is hence his contention that the position in law being no more res integra, remand to the Assessing Officer for such purpose would be a mere formality, as the Assessing Officer would only be required to undertake the consequential exercise, pursuant to which the appropriate effect of such deferred revenue expenditure can be taken into consideration.
15. We are not persuaded to fully accept Mr. Mohanty’s contention, as we find that the issue of law is no more res integra. The Supreme Court in Sharp Business System vs. Commissioner of Income-tax (supra) and Principal Commissioner of Income Tax Vs. Piramal Glass Limited (supra) has conclusively held that non-compete fees are required to be allowed as revenue expenditure under Section 37(1) of the IT Act. This was also the conclusion of CIT(A) in the present proceedings. Thus, what remains is only to give effect to the same by the Assessing Officer insofar as the relevant Assessment Years are concerned. To accept the contention of Mr. Mohanty, that the proceedings be remanded to the Tribunal, we do not find that there is any substantive issue which now would be required to be gone into or answered by the Tribunal on any remand, as the law as laid down by the Supreme Court is now available, which in fact, in our opinion, confirms the view taken by the CIT(A). In this view of the matter, we may also observe that once the assessee in the present case has accepted such amounts to be accounted as deferred revenue expenditure, the assessee cannot be allowed to claim depreciation on such amounts, as this would be incongruous.
16. Thus, for the aforesaid reasons, the present appeal is required to be dismissed observing that no substantive question of law arises for considering in view of the authoritative pronouncements by the Supreme Court in Sharp Business System vs. Commissioner of Income-tax (supra) and Principal Commissioner of Income Tax Vs. Piramal Glass Limited (supra).
17. Before parting we may also observe that the assessee had moved a Miscellaneous Application in the appeal in question, contending that additional ground raised by the assessee in its application dated 5 April 2019 had not been adjudicated. The Tribunal adjudicated such Miscellaneous Application No.229/Mum/2020 and passed an order dated 8 March 2026 whereby the order, to the extent it did not adjudicate the additional ground, is recalled and a consequential order was passed on 2 August 2022, whereby the additional ground as urged on behalf of the assessee was accepted and the assessee’s claim for depreciation on the non-compete fees paid by the assessee to Piramal Health Care Ltd. was accepted, following the decision of this Court in Pr. Commissioner of Income Tax-7 vs. Piramal Glass Ltd.3. It is the assessee’s contention that such order dated 2 August 2022 passed by the Tribunal has not been assailed by the Revenue. In our opinion, although the Tribunal has passed the order dated 2 August 2022 which is the subject matter of challenge in the companion appeal, be that as it may, the fact remains that the order dated 6 January 2022 would be required to be accepted in the context of the issue of non-compete fees which are now permitted to be allowed as revenue expenditure in view of the decision of the Supreme Court in Sharp Business System vs. Commissioner of Income-tax (supra). The order dated 2 August 2022 passed by the Tribunal, thus, would not be of any consequence.
18. Appeal dismissed. No costs.
19. Pending Interim Application would not survive. It is disposed of.
Notes
1 (2026)484 ITR 509 (SC)
2 (2015)372 ITR 605(SC)
3 Income Tax Appeal No.556 of 2017 dt. 11/06/2019
