Actual cost for franchise rights includes the full agreed consideration despite staggered payments for depreciation purposes.

Franchise rights acquired under a team-league arrangement were treated as intangible assets, and the fixed franchise consideration was the relevant actual cost under section 43(1). Staggered annual instalments and the league deposit did not change that cost merely because payment was deferred, so depreciation was allowable on the entire franchise fee rather than only on the amount paid during the year. The actual cost could, however, be adjusted in later years if subsequent events reduced or enhanced the liability.

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Issues: Whether depreciation on the franchise rights and league deposit was allowable on the entire franchise fee of Rs. 268 crores or only on the annual instalment actually paid during the year.

Analysis: The franchise agreement conferred a bundle of intangible rights to operate the team and participate in the league for the term of the arrangement, and the fixed franchise consideration of Rs. 268 crores was the agreed cost of acquiring those rights. The expression "actual cost" under section 43(1) had to be read harmoniously with the mercantile system of accounting and the accounting principles governing recognition of intangible assets. The annual instalments and the league deposit formed part of the same acquired franchise consideration, and the fact that payment was staggered did not alter the original cost for the year of acquisition. At the same time, the actual cost could be adjusted in later years if subsequent events reduced or enhanced the liability.

Conclusion: Depreciation was allowable on the entire franchise fee of Rs. 268 crores and not merely on the amount actually paid during the year, subject to later adjustment in accordance with subsequent factual or legal developments.

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