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);