Sharp Business Systems (India) Ltd. vs. DCIT (ITAT Delhi)

Payment made under non-compete agreement is capital expenditure and not result into acquisition of any intangible asset and could not be eligible for depreciation allowance and could not be claimed as deferred revenue expenditure

M/s Sharp Business Systems (India) Ltd. vs. DCIT (ITAT Delhi)- The Tribunal held that payment made to ward off competition, under a covenant of non-compete, was to get established in the market and to acquire the market as per the facts of the case. The payment made was of a capital nature but could not be considered as an asset. It was not an asset entitled to depreciation, not being “business or commercial rights of similar nature”. Further, the payment being capital in nature, could not be allowed over the period during which benefit was expected to accrue.

IN THE INCOME TAX APPELLATE TRIBUNAL
[DELHI BENCH “B” DELHI ]

I. T. A. No. 4564 (Del) of 2004

Assessment year : 2001-02.

M/s. Sharp Business Systems (India) Ltd., Vs. Dy. Commissioner of Income-tax

O R D E R.

PER K. D. RANJAN, AM :

This appeal by the assessee for assessment year 200 1-02 arises out of order of the ld. CIT (Appeals)-XI, New Delhi.

2.         The grounds of appeal raised by the assessee are reproduced as under :-

” 1. That the ld. CIT (Appeals) erred on facts and in law in confirming disallowance of Rs.3,00,00,000/- made by the assessing officer in respect of the amount paid to M/s. Larsen and Toubro Limited, in lieu of the same agreed not to enter into competing business with the appellant for seven years, holding the same to be a capital expenditure incurred for obtaining an enduring benefit;