SC: Non-compete fee paid to restrict competition held allowable as revenue expenditure under sec. 37(1){ Sharp Business System vs. Commissioner of Income-tax [2025] 181 taxmann.com 657 (SC)}
Facts:
The assessee paid a non-compete fee to certain parties under an agreement to restrain them from carrying on competing business for a specified period. The payment did not result in acquisition of any asset, brand, or enduring right; it was only to protect the assessee’s existing business from competition.
Issue:
Whether the non-compete fee paid by the assessee is capital expenditure or allowable as revenue expenditure under section 37(1) of the Income-tax Act.
Held:
The Supreme Court held that the non-compete fee is revenue expenditure allowable under section 37(1), since it was incurred to facilitate smooth conduct of business and protect profits, did not create any enduring capital asset, and was time-bound in nature.
