Non-compete payment qualifies for depreciation: Tribunal overturns lower authorities' decisions

The Tribunal allowed the appeals of the assessee against the rejection of the claim of depreciation on non-compete rights for assessment years 2002-03, 2003-04 & 2004-05. It held that the non-compete payment constituted an intangible asset eligible for depreciation under section 32(1)(ii) of the Act, overturning the decisions of the lower authorities. The judgment was delivered on 24th April 2015.

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Issues:
Appeals against orders passed by ld. CIT(A) for assessment years 2002-03, 2003-04 & 2004-05 regarding the decline of claim of depreciation on non-compete rights.

Analysis:
The assessee appealed against the rejection of the claim of depreciation on non-compete rights for the mentioned assessment years. The company had entered into a non-compete agreement with an individual to prevent competition in India and also employed him to promote its business. The AO rejected the claim, stating that non-compete fee cannot be considered an intangible asset for depreciation. The CIT(A) upheld this decision, leading to the appeal. The Tribunal examined the facts and found that the company paid a substantial amount to prevent competition and enhance its business rights. The Tribunal referred to the decision of the Karnataka High Court, emphasizing that a non-compete right is a valuable commercial asset that confers the right to conduct business without competition. The Tribunal also cited the Madras High Court's decision, supporting the view that a non-compete clause strengthens commercial rights transferred to the assessee. Additionally, a previous Tribunal decision was referenced, affirming that a non-compete right is an intangible asset under the Income Tax Act.

The Tribunal concluded that the lower authorities erred in rejecting the depreciation claim on the non-compete payment, as it constitutes an intangible asset eligible for depreciation under section 32(1)(ii) of the Act. Therefore, the appeals of the assessee were allowed, and the claim for depreciation on non-compete rights was upheld. The judgment was delivered on 24th April 2015.

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