Section 2(11) of the Income Tax Act
The decision most relied on for Section 2(11) is Sharp Business System v. CIT III (27 Taxmann.com 50), cited in 53 of the 104 judgments on BharatTax that turn on this section.
Leading authorities on Section 2(11)
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.
Expenses incurred prior to business commencement but after business setup are deductible as revenue expenses, as the setting up and commencement dates of a business are not necessarily the same.
The sale of certified emission reductions or carbon credits constitutes business income and is treated as trading receipts. This treatment is affirmed by considering the manufacturing process and is supported by a series of tribunal decisions.
The setting up of a business and the commencement of a business are distinct events and do not necessarily occur on the same date. Expenses incurred before the commencement of business but after the setting up of business may be considered for determining profits.
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.
Allowing deduction of interest paid by the assessee as business expenditure u/s.37(1) of the Act is not permissible when netting off interest received against interest paid.
Expenses incurred for drawing up and registering a lease deed, including stamp duty and professional fees, are revenue expenditure if they do not involve any premium and would have been the same regardless of the lease period (provided it's more than one year). The period of the lease does not determine if the asset is of an enduring nature.
The actual cost of an asset for depreciation purposes is the cost to the assessee, reduced by any portion of that cost met by another person. Revaluation of assets motivated by inflating depreciation claims, rather than genuine business needs, is not permissible.
