Thursday 8 November 2012

To be an “intangible asset” u/s 32(1)(ii), the rights must be “in rem” & transferable. A “non-compete right” is not an “intangible asset” though “goodwill” is

Sharp Business System vs. CIT (Delhi High Court)


The assessee, a joint venture of Sharp Corp, Japan, and L&T Ltd, paid Rs. 3 crores to L&T as consideration for the latter not competing with the assessee for 7 years. The assessee claimed that the non-compete fee was revenue in nature. It also claimed, in the alternative, that the rights under the non-compete agreement were an “intangible asset” u/s 32(1)(ii) eligible for depreciation. The AO, CIT(A) & Tribunal rejected the assessee’s claim. On further appeal by the assessee before the Tribunal, HELD dismissing the appeal:

(i) The advantage derived by the assessee from the non-compete agreement entered into with L&T is for a substantial period of 7 years and ensures a certain position in the market by keeping out L&T. The advantage cannot be regarded as being merely for facilitation of business and ensuring greater efficiency & profitability. The advantage falls in the capital field (Eicher 302 ITR 249 (Del) distinguished; Pitney Bowles 204 Taxman 333 (Del) followed);

1 comment:

DIP NARAYAN said...

Dear Manish Sir,
I am working a Scientist in CSIR and posted at Durgapur, West Bengal. I am currently in the pay scale of Rs. 15600-39100/-, G. Pay 6600. I have an outstanding Loan of Rs. 14 Lakh from United Bank of India in favour of Me and my parents (i.e. the loan account is in the name of Dip Narayan Ray (me), Arup Mohan Ray (my father), Padma Bati Ray (my mother). The loan was sanctioned on 20/04/2009. The house has been completed, but I didn't collect the completion certificate from the Municipal Authority. After my marriage due to family problem, I have shifted to my quarter with my wife in the same city. I am paying the loan installments each month and getting the benefit of Tax deduction though I am not staying in that house. With reference to the (Clause 3.7) CIRCULAR NO. 8/2012 [F.NO. 275/192/2012-IT(B)], DATED 5-10-2012, I want to know whether I can still avail the the deductions.

I shall be highly obliged if you help me by answering my question.

Thanks & regards,

D. N. Ray

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