INCOME TAX ACT, 1961

Section 37(1)

Capital or revenue expenditure - Payment of non-compete fee in terms of business purchase agreement - -

Assessee in terms of business purchase agreement (BPA) paid non-compete fee to the transferor company. In terms of said agreement transferor company would not directly or indirectly manage, operate or have an interest in control or participate or compete against the assessee any where in the world for five years. AO disallowed deduction of non-compete fee holding the same to be of capital in nature.Held: Expenditure incurred primarily and essentially related to non-competition of transferor company against assessee in the same business, which constituted the profit-earning apparatus of the assessee, therefore, payment of non-compete fees, was an allowable business expenditure of revenue nature incurred by assessee.

Relied:Empire Jute Co. Ltd. v. CIT reported in (1980) 124 ITR 1 (SC) : 1980 TaxPub(DT) 1083 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2002-03

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