Case Law Details
India Meditronic (P) Ltd Vs ACIT (ITAT Mumbai)
Conclusion: Non-compete fee was allowable as capital expenditure and depreciation could be claimed on the same.
Held: Assessee entered into exclusive distribution agreement with Medtech Devices Limited (MDL) for distribution of assessee’s products in India, which accounted for approximately 40% of the total revenue of the assessee in that year. However, the distribution agreement was terminated on account of MDL constraints in investing the required resources to expand its own business in line with assessee’s expectations. Consequently, a non-compete agreement was entered in by assessee with the three Directors of MDL and in terms of the said agreement, assessee paid a sum of USD 1 million equivalent to Rs. 4,73,00,000/- to the Directors of MDL to be equally distributed among themselves and claimed the same as non-compete fees of Revenue in nature u/s. 37(1) in the return of income for A.Y. 2002-03. However, TPO disallowed the same by holding it to be in the nature of capital expenditure. It was held that issue was covered in favour of the assessee by the decision of the Co-ordinate Benches in its own case in ITA Nos. 812 & 1245/Ahd/2008 for A. Ys. 2004-05 & 2003-04) and in ITA No.7555/Mum/2012 for A.Y. 2008-09 & ITA No. 1246/Mum/2016 for A.Y. 2011-12, wherein the Tribunal had admitted the additional ground and directed AO to allow depreciation on payment made for non-compete fee treating the same as capital expenditure. Respectfully following the same in assessee’s own case, AO was directed to allow depreciation on payment made for non-compete fee.
FULL TEXT OF THE ITAT JUDGEMENT
The aforesaid appeal has been filed by the assessee against the impugned order, dated 20.02.2017, passed by the ACIT, Mumbai, u/s 143(3) r.w.s 144C pursuant to the directions of the DRP for the assessment year 2012-13.
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