TaxTMI 
TaxTMI 
2008 (3) TMI 15
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...., specialized knowledge of technology in the two-wheeler industry as well as of managing the dealership of the market place and other specialized knowledge relating to the two-wheeler business. Vishwanathan entered into an agreement with a company called VCPL to the effect that he would promote VCPL and collaborate with it to set up manufacturing facilities for two-wheelers upon his retirement from the Assessee. 3. On coming to know of this, the Assessee negotiated a non-compete agreement with VCPL and Vishwanathan whereby the Assessee paid a sum of Rs.4 crores to VCPL so that VCPL and Vishwanathan would not carry out any business activity with regard to two wheelers. The Assessee claim....
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....s were dealt with both by the CIT (A) as well as by the Tribunal. The undisputed fact is that the payment of Rs. 4 crores is to restrain or prevent VCPL and Vishwanathan from becoming potential business rivals of the Assessee. The payment is to protect the Assessee's business interests, its market position and profitability. No new asset is created thereby nor is the Assessee's profit making apparatus expanded or increased. The Assessee does not suffer any loss or diminution or erosion in its capital assets. On these conclusions, the CIT (A) and the Tribunal decided that the payment was allowable as a business expenditure and that it was not a capital expenditure. 8. The submissions made by l....
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....ng this contention, it was held on page 909 of the Report as follows: The case which has been set up on behalf of the revenue is that, as the object of making the payments in question was to eliminate competition of a rival exporter, the benefit which enured to the respondent was of an enduring nature and, as such, the payment should be treated as capital expenditure. We find ourselves unable to accede to this contention because we find that the arrangement between the respondent and M/s. H.V. Lowe and Co. Ltd. was not for any fixed term but could be terminated at any time at the volition of any of the parties. Although an enduring benefit need not be of an ever-lasting character, it should not, at the same time, be so transitory and ephem....
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....of the considerations is the length of time for which the non-compete agreement would operate although that is not decisive. While the length of time for which competition is eliminated may not strictly be decisive in all cases, yet, at the same time, it should not be so brief as to virtually be transitory. 13. In Commissioner of Income Tax v. Late G.D. Naidu, [1987] 165 ITR 63, compensation paid to the assessee was referable to a restrictive covenant in an agreement between the assessee and another party. The question that arose was whether the amount was a capital expenditure or not. The Supreme Court held that in so far as the assessee is concerned, he did not acquire any separate business nor was any....
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....ot only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade. If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. 3. Whether for the purpose of the expenditure, any capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed ca....