Supreme Court: Non-Compete Fees Are Tax Deductible Revenue Expenditure

• The Supreme Court ruled that non-compete fees are revenue expenditure and thus tax deductible under the Income Tax Act, 1961.
• The ruling rejects the income tax department's contention that such payments constitute capital expenditure.
• The Court stated non-compete fees protect or enhance a business and do not create new assets or add to profit-earning apparatus.
• It overturned a 2012 Delhi High Court ruling in the case of Sharp Business System vs. Larsen & Toubro Ltd.
• This decision has significant implications for corporate tax treatment in mergers, joint ventures, and restructuring transactions.

Why It Matters: Supreme Court declares non-compete fees as tax-deductible revenue expenditure, impacting corporate tax.