Depreciation Not allowable on Intangible asset on payment of Non-compete Fees for Acquiring ‘Going Concern’: ITAT [Read Order]

Delhi bench of Income Tax Appellate Tribunal (ITAT) recently disallowed depreciation claim under section 32 of the Income Tax Act, 1961 on intangible asset on non-compete fees paid.

Assessee in the recent case is a company engaged in the business of wholesale trading in general and specialty chemicals has filed its return of income for the relevant assessment year declared a total income of Rs. 11261525.

During the course of assessment proceedings, the Assessing Officer (AO) noted that the assessee has acquired running business from Nitrex Chemicals India Ltd and paid non-compete fees of Rs 35830000 and claimed depreciation at 25 percent under the head “intangible assets”. But the AO denied assessee’s claim, he was of the view that assessee has not acquired any intangible assets as the business of the assessee is specialized and there are not many other players who can enter into its business because of its complexity.

While considering the submissions and material facts the bench comprising of Judicial Member Bhavnesh Siani and Accountant Member Prashant Maharishi observed that it is clear that the assessee has paid a non-compete fee for a period of five years included in above consideration and the assessee also claimed depreciation on the above sum considering it as “intangible asset”.

The bench further said that as per section 32 of the Income Tax Act, 1961, depreciation is allowed on tangible assets and intangible assets owned, wholly or partly, by the assesse and used for the purposes of business or profession.  But in the present case non-compete fee is not an eligible intangible asset, consequently the assessee’s claim on depreciation is not allowable.