Amount paid for non-compete rights while acquiring business is capital expenditure

Pitney Bowes India Pvt Ltd vs. CIT (Delhi High Court)

The assessee acquired the mailing business of Kilburn Office as a going concern on a slump sale basis pursuant to a Business Transfer Agreement. The consideration for the transfer was Rs. 18.92 crores which included Rs. 5.94 Crores by way of non-compete fee for a period of 5 years. In the accounts, the expenditure was treated as a capital payment though a deduction was claimed in the computation u/s 37(1). The AO disallowed the claim though the CIT (A) allowed it as deferred revenue expenditure. On appeal by the department, the Tribunal reversed the CIT (A) following Tecumesh India 132 TTJ 129 (Del) (SB) though it directed the AO to consider whether the payment was an “intangible asset” for purposes of depreciation. On appeal by the assessee, HELD dismissing the appeal: