Please find our latest Newsflash titled “Supreme Court rules on allowability of non-compete fees as revenue expenditure”. The Newsflash sets out the key facts, issues before the Court, the reasoning adopted by the Supreme Court, and the practical implications of the decision for taxpayers.

The Hon’ble Supreme Court of India has ruled that payment of non-compete fee is an allowable revenue expenditure under section 37(1) of the Income-tax Act, 1961. The Hon’ble Apex Court reversed the decision of the Hon’ble Delhi High Court and held that non-compete fee paid by the Appellant to L&T did not create any monopoly, did not result in acquisition of any new business or addition to the profit-making apparatus, and was essentially made to ensure that its business is operated more efficiently and profitably.

This judgement assumes considerable significance in the context of tax treatment of non-compete fee payments, brings much-needed clarity and guidance, and is a welcome ruling expected to reduce litigation risk for corporates while aligning with the commercial realities of modern-age businesses.

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