TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 1135
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....evenue expenditure instead of capital expenditure for the A.Y. 2012-13 relying on the decision of the Hon'ble ITAT in assessee's own case for A.Y. 2009-10 862010-11 (2) "Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A), erred in directing the A.O. in treating the expenditure on account of Franchise fees of Rs. 44.76 Crore paid to BCCI for RIGHTS to participate in the Indian Premier League (IPL) in the light of amendment to section 55(2) (a) inserting "or right to carry on any business" as capital asset through the Finance Act ?" 3. The brief facts of the case are that the assessee is a company engaged in the business of owning, managing and operating Mumbai Indian team of the Indian Premier League. The assessee has filed return of income for AY 2012- 13 on 26-09-2012 declaring total income of Rs. 2,93,879. The case has been selected for scrutiny and accordingly, notices u/s 143(2) and 142(1) of the Act, were issued. In response to notices, authorised representative of the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings, AO observed that the assessee has paid an amou....
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....e the CIT(A). Before the CIT(A), assessee has filed elaborate written submissions on the issue of franchise fees paid to BCCI in light of certain judicial precedents to argue that said expenditure is a revenue expenditure which was periodically paid to BCCI on annual basis for acquiring right in IPL matches. The AO has treated said expenditure as capital in nature by referring to certain conditions in agreement between the assessee and BCCI ignoring important aspect of the issue which is very relevant to decide the issue, i.e. the said payment is a periodical payment paid annually but not lump sum payment which gives enduring benefit to the assessee. The assessee also made an alternative submission that if at all the said expenditure has been treated as capital expenditure, the assessee may be allowed depreciation u/s 32(1)(iii) on entire cost of intangible asset, but not only on periodical payment paid to BCCI. The Ld.CIT(A), after considering relevant submissions of the assessee and also by following the decision of ITAT in assessee's own case for AYs 2009-10 and 2010-11 held that annual franchise fees paid to BCCI is revenue in nature and accordingly directed the AO to delete a....
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.... M/s. Deccan Charges (supra) wherein exactly similar issue decided by Tribunal in assessee's favour after observing as under: "Before considering the claim of alienability of deduction, it is necessary to decide whether the aforesaid franchise right is a capital asset eligible for depreciation or it is a revenue expenditure. As per clause 3 of the FA, the impugned agreement shall come into effect upon signature and shall continue for so long as the League continues subject to termination, suspension or renewal as provided (the 'Term'). As per clause 4 of the FA, the franchisee (appellant) has acknowledged and agreed that BCCI-IPL owns the Central Rights and the BCCl has all pervasive rights to exploit present as well as future Central Rights. The Central Rights includes media rights, umpire sponsorship rights, tile sponsorship rights, official sponsorship rights, stadium advertising right, games rights etc. The franchisee would be allowed to enjoy only t.hose rights which BCCI-IPL would Acknowledge. Another very important clause laid down in the FA f clause 7.1 (b)] is that from and including 20J8 onwards, for definite period, an amount equal to 20 per cent of (he fra....
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.... of ownership or merely a right to use. The former will be capital, while the latter will be in the revenue field. Analogy can be drawn from the following instances: (i) Technical know-how is an intangible asset and entitled to depreciation u/s 32. However, if an annual fee is paid for the use of technical know how and right to use technical know how ceases on the termination of such agreement, then ihe annual payments made are revenue in character and are allowable as deductible expenditure. The Hon'ble Supreme Court in the case ofCITv. LA.E.C. (Pumps) Ltd, 232 ITR 316 (sq held thai use of patents and designs for ten years with&! option to extend or renew the same was held to be a revenue. expenditure. The ratio is fully applicable to the facts of the . present case Similarly, in case of other assets also which are normally treated as fixed assets entitled to depreciation, if an assessee takes these assets on lease or hire, the payments made annually for the right to use these assets are revenue expenditure.. They would not be treated as capital assets entitled to depreciation on {he annual lease payments. Rental payment in respect of buildings, which are fixed assets, t....
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....al payment. However, the subsequent annual payments made by the assessee are clearly for exploiting the rights as a franchisee, which are for a year and which can be terminated for non-payment of the franchise fees in the subsequent year Therefore, the franchise fee paid is revenue in nature because by making such annual payment the appellant does not acquire any rights of permanent nature ". 7. In view of these judicial principles which clearly apply to the facts of the case, we do not find any reason to interfere with the order of CIT(A) who analysed the issue on the given facts. There is no merit in Revenue 's grounds and accordingly, Revenue 's appeal is dismissed. " 10. Respectfully following the decision of co-ordinate bench on the similar facts, we do not find any merit for treating the assessee's claim as capital expenditure, which is essentially revenue in nature. Accordingly we set aside the order of iower authorities and direct the AO to allow assessee's claim of revenue expenditure. As we have already decided ground no.1 in assessee's favour by holding that annual payment of Rs. 447.60 crores being franchise fees paid to BCCI to participate in ....
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....iture incurred for family members of players for the reason that expenditure incurred towards travelling expenses of relatives of players is neither incurred wholly and exclusively for the purpose of business nor related to the business of the assessee. On appeal, the Ld.CIT(A) confirmed the findings of the AO while confirming disallowance of travelling expenditure incurred on family members of players. 16. The Ld.AR for the assessee, at the time of hearing, submitted that although the issue is covered against the assessee by the decision of ITAT, Mumbai Bench "H" for AY 2011-12, but fact remains that the ITAT has confirmed the addition made by the AO by holding that no new facts have been brought on record to controvert the findings of the CIT(A) and, therefore, there is no reason to interfere with the findings without appreciating the facts placed before the Tribunal. The Ld.AR further submitted that the necessity of expenditure i.e. the requirement of contractual obligation to incur said expenditure is not relevant. The Tribunal rejected the arguments that the presence of the spouse of the player helps in attracting sponsors as well as provides moral support to the players whic....
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....right to operate the of the IFL and has right to terminate the agreement, if the matches do not take place for two consecutive years. The agreement between the parties can be terminated by them with immediate effect by giving notice to other party on breach of any clause in the agreement. Thus, the assessee, in the light of above termination clause, has not received any enduring benefit by paying annual franchise fees. Though it was granted some rights, but "Central Rights" which are crucial for managing and operating the team, are retained by the BCCI as stipulated clause 4.1 of the Franchise Agreement. The rights exercised by the assessee are subject to prior decision and acknowledgement of BCCI as categorically stipulated in clause 4.3 of the agreement. Hence, the assessee was not granted any absolute right but only a limited one." 19. We further notice that although the Ld.AR for the assessee tried to argue the case in light of certain judicial precedents that the presence of spouse of the players and their family members helped in attracting sponsors as well as provide moral support to the players which ultimately helps the business of the assessee. But, considering the fact ....