Pitney Bowes India Pvt Ltd vs. CIT (Delhi High Court) – Assessee itself treated the expenditure as capital in the books of accounts. However, at the same time, it was maintained that since it was paid for loss of business that KOAL would suffer for non-compete fee, the same was treated as revenue in nature. Likewise, in Schedule 2 to the balance sheet disclosing ‘fixed assets’, payment of non‑compete fee is treated as ‘intangible assets’. This also shows that the assessee treats this as asset acquired, which is intangible in nature. The issue regarding forwarding of payment was discussed by the Special Bench of the Tribunal in M/s Tecumesh India Pvt. Ltd. (supra) in greater details and after applying the ratio of various judgements of different High Courts including jurisdictional Court as well as the Supreme Court, the Tribunal summarised in the following terms:
“129. According to above observations it can be seen that warding off competition in business even to a rival dealer will constitute capital expenditure and to hold them capital expenditure it is not necessary that non-compete fee is paid to create monopoly rights.
130 . The assessee also cannot get any help from the decision of Hon‟ble Delhi High Court in the case of CIT vs. Eicher Company Ltd. (supra) as in that case their Lordships have clearly found from the record that it was not clear that how long the restrictive covenant was to last and what the assessee had done was that it eliminated the competition in the two-wheeler business for a while. Their Lordships have also found that the benefit received by the assessee in that case was neither permanent nor ephemeral. Therefore, the said decision is not applicable to the facts of the present case as in the case of assessee the non compete agreement is applicable for 5 years, which period has been considered to be sufficient to give enduring benefit in the case of Assam Bengal (supra).
131. With these observations we hold that the expenditure of Rs.2.65 crore claimed by the assessee in pursuance of non-compete agreement dated 10th July, 1997 are capital expenditure, the deduction of which cannot be granted to the assessee as revenue expenditure. The main issue is decided against the assessee and in favour of the revenue.”
The position in the instant case is almost identical. That was a reason that even the learned counsel for the appellant had conceded before the Tribunal that the matter was covered by the aforesaid Special Bench decision.Agreeing with the aforesaid view, we are of the opinion that the Tribunal rightly held that the expenditure was capital in nature.
In regard to allowance of depreciation @ 25% treating non-compete fees paid as an intangible asset
