Non-compete fee held as allowable revenue expenditure u/s 37(1) of IT Act – Supreme Court

Payment made by the assessee as non-compete fee was an allowable revenue expenditure under Section 37(1) of the Act –Supreme Court

In a recent judgment, Hon’ble Supreme Court has held that non-compete fee payment made to essentially keep a potential competitor out of the same business cannot be considered as acquisition of any capital asset or bringing into existence a new profit earning apparatus.

ABCAUS Case Law Citation:
4950 (2025) (12) abcaus.in SC

The core issue for consideration in relevant appeals was whether noncompete fee paid by the assessee is a revenue expenditure or capital expenditure?

The Hon’ble Supreme Court observed that non-compete compensation from the stand point of the payer of such compensation is so paid in anticipation that absence of a competition from the other party may secure a benefit to the party paying the compensation. However, there is no certainty that such benefit would accrue. Further, notwithstanding such arrangement, the payer assesee may still not achieve the desired result.

The Hon’ble Supreme Court observed that in the present case, on account of payment of non-compete fee, the assessee had not acquired any new business and there is no addition to the profit making apparatus of the assessee. The assets remained the same. Such payment made by the appellant assessee did not create a monopoly of the appellant over the business of the goods. Payment was made only to ensure that the appellant operated the business more efficiently and profitably.

The Hon’ble Supreme Court held that payment made by the appellant assessee as non-compete fee was an allowable revenue expenditure under Section 37(1) of the Act. 

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