Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2011 (6) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2011 (6) TMI 505 - AT - Income TaxNon compete fees - Capital or revenue expenditure - Held that:- L & T Ltd entered into the agreement with the assessee undertaken not to set up any undertaking or assist in setting up, undertaking any business in India of selling/marketing and trading of electronic office products for a period of 7 years in lieu of which payment of ₹ 3 crores had been received. Non-compete agreement between two parties is like personal services contract which is un-assignable. Personal services contract cannot survive on the demise of either of the parties - The payment has been made to ward off the competition for a period of 7 years during which any company could have set up its products and reputation in the market. Thus the payment for non compete fees is capital in nature As decided in Madras Industrial Investment Corpn. Ltd. v. CIT [1997 (4) TMI 5 - SUPREME Court] wherein it was held that expenditure which is revenue in nature and is incurred to secure a benefit over a number of years can be spread over the period of benefit derived by an assessee - Since the expenditure incurred by way of non-compete fee is capital in nature, it cannot be allowed to be spread over for the period of seven years - against assessee.
|