Sharp Business System v. CIT: Landmark Ruling on Tax Treatment of Non-Compete Payments and Commercial Expediency in Group Funding
Supreme Court of India | 2025 INSC 1481 | Decided: 19 December 2025 1. Factual Background This batch of civil appeals before the Supreme Court concerned multiple assessees and assessment years, revolving around two critical tax issues under the Income Tax Act, 1961: (A) Non-Compete Fee Payments The principal case involved Sharp Business System, a joint venture between Sharp Corporation (Japan) and Larsen and Toubro Limited (L&T). During the assessment year 2001-02, the assessee paid ₹3 crores to L&T as a 'non-compete fee.' In exchange, L&T agreed not to set up, undertake, or assist in any competing business of selling, marketing, or trading electronic office products in India for a period of 7 years. Other cases in the batch included: • Pentasoft Technologies paid ₹180 crores as a non-compete fee to restrain Pentamedia Graphics Ltd. from undertaking similar software development and training activities after acquisition of a division. Initial Dispute:...