Non-Competent Fee paid is an Intangible Asset, Depreciation Allowable: ITAT [Read Order]

The Income Tax Appellate Tribunal ( ITAT ), Bengaluru bench, in M/s. Sapa Extrusion India Pvt. Ltd v. DCIT held that the non-compete fee paid is an intangible asset acquired on which Depreciation is allowable under Section 32(1)(ii) of the Income Tax Act.

In the instant case, the Assessee- Company engaged in the business of manufacturing and distribution of Aluminum extrusion profiles, paid a sum of Rs.28 crores to M/s. Alufit India (P) Ltd. for not carrying out any extrusion business within the specified territories directly or indirectly.

According to the assessee, payment of non-compete fee gave the assessee, commercial right to carry on manufacturing activity without competition from one major manufacturer. The assessee was also able to retain old customers consequent to the non-compete agreement. The assessee claimed that payment of non-compete fee resulted in acquisition of an intangible asset and the assessee was entitled to claim depreciation on such intangible asset.

Considering a catena of decisions dealing with a similar issue, the bench noted that payment by the assessee in the present case is similar to payment that was considered by the Hon’ble High Court of Karnataka in the case of Ingersoll Rand International Ltd.

Allowing the contentions of the assessee, the bench held that “we are of the view that the order of CIT(Appeals) does not call for any interference. In fact, in para 6 of the judgment of the Hon’ble High Court of Karnataka, the decision of the Hon’ble Delhi High Court has been considered, but the Hon’ble High Court of Karnataka has still decided the issue in favour of assessee, while concluding that non-compete fee paid is an intangible asset acquired by the assessee on which depreciation has to be allowed u/s. 32(1)(ii) of the act. In the given facts and circumstances of the case and the law laid down by the jurisdictional High Court, we are of the view that the order of CIT(Appeals) does not call for any interference. Consequently, the appeal by the revenue is dismissed.”