“depreciation on non-compete fee”
The decision most relied on for depreciation on non-compete fee is Guffic Chem (P.) Ltd. v. CIT (332 ITR 602), cited in 66 judgments on BharatTax.
Leading authorities on depreciation on non-compete fee
Compensation received for a non-compete covenant or for not carrying on a specific business activity is a capital receipt and not liable to tax as business income.
A non-compete fee paid as part of a business acquisition or transaction constitutes an intangible asset, eligible for depreciation under Section 32(1)(ii) of the Income-tax Act.
A non-compete fee, being a capital expenditure, is not allowable as a deduction from income and does not qualify for depreciation under Section 32(1)(ii) of the Income-tax Act, 1961.
Depreciation is allowable on a non-compete fee as it constitutes an intangible asset, even if the right acquired cannot be transferred, provided it is treated as part of a block of assets.
A deduction for interest expense on borrowed funds used for interest-free advances to group companies is permissible only if the assessee establishes these advances were from surplus funds. The decision further clarifies eligibility for depreciation on intangible assets like non-compete fees, software, goodwill, and commercial rights under section 32(1)(ii), often arising from a slump sale.
A payment for non-compete fees creates a commercial right and is considered an intangible asset eligible for depreciation under Section 32(1)(ii).
Depreciation is allowable on non-compete fees when a businessman pays another to restrain them from competing, as this constitutes an intangible asset.
Depreciation is not allowable on non-compete fees if they represent the acquisition of a business or commercial right, rather than an identifiable intangible asset.
