TaxTMI 
TaxTMI 
TaxTMI 
2020 (12) TMI 1058
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....nse or franchise or any other business or commercial right of similar nature (i.e intangible asset) as per the provisions of section 32(1)(ii) of the Act. 4. without prejudice to the above, erred in upholding the learned AO's order by confirming the cost of the intangible asset to be only Rs. 30,03,60,000 (i.e the annual consideration), instead of adjusting the actual cost of the franchise for the purpose of computing the depreciation. Arbitrary adhoc disallowance in connection with airfare and travelling expense 5. erred in upholding the order of the learned AO, by confirming that the arbitrary adhoc disallowance of the expenditure in connection with airfare and travelling expenses on the premise that the said expenses are not in the nature of business expenditure allowable under section 37(1) of the Act. 6. without prejudice to the above, erred in upholding the order of the learned AO, by confirming the arbitrary adhoc disallowance of a sum of Rs. 59,80,098 (i.e 25% of Rs. 2,39,20,390) being expenditure in connection with airfare and travelling expense, which was disallowed by the learned AO without requesting for actual details of invited guests and celebrities. Ar....
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....team named as Kolkata Knight Riders. On perusal of the financial statements, the A.O found that assessee has debited and claimed Franchisee Fees of Rs. 30,03,60,000/- in the profit and loss account and the AO is of the view that the same has to be treated as capital expenditure, which has an enduring benefit to the assessee. The assessee has filed submissions referred at page 3 to 10 of the assessment order and explained with the reasons for claim of Franchisee Fee in the year of payment and supported with the judicial decisions and provisions of law. Whereas, the AO found that the Board of Control for Cricket in India (BCCI) started IPL series through Bid orders and leagues. The Franchisee were entitled to sale their Franchise to third party or to effect the transaction of control interest in the company which controls franchise after minimum period of three years subject to payment to IPL, percentage of value of business, being 10% of the first such sale or transfer and 5% subsequently. The AO dealt on the consideration for the Franchisee and the nature of payments, judicial decisions and finally concluded that the Franchisee payments are to be treated as a capital expenditure as....
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.... and allowed the claim. On the disputed issue of disallowance of Lodging, boarding and Food and Nutrition Expenses, the CIT(A) considered the facts and relied on his own order and granted partial relief and partly allowed the appeal of the assessee. Aggrieved by the order, the assessee has filed an appeal with the Tribunal. 4. At the time of hearing, the ld. AR of the assessee Shri J.D.Mistri submitted that the assessee has challenged the disallowances made by the A.O and confirmed by the CIT(A) in ground of appeal no.2 to 4. The contentions of the LdAR are that for the Assessment Years 2010-11 and 2011-12, the Hon'ble Tribunal has considered the Franchisee agreements and the claim raised by the assessee that, the franchisee fee is in the nature of revenue expenses and has to be allowed in the year in which it has been incurred and further submitted that,the Tribunal in assessee's own case has deleted the addition and allowed the claim of the assessee. On the second disputed issue with respect to disallowance of Air-fair and Travelling Expenses, the AO has made an adhoc disallowance without considering the fact that the expenses have been incurred wholly and exclusively and to be ....
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....team. The 'Franchisee Fee' payments creates an intangible asset being Licence or Franchisee akin to Licence or Franchisee referred to in section 32(1)(ii) of the Act. The CIT (A) has upheld the findings of Assessing Officer. We find that for similar reasons the Assessing Officer had disallowed assessee's claim of treating 'Franchisee Fee' as revenue expenditure in the very first year of claim i.e. assessment year 2009-10. The assessee carried the issue in appeal to the Tribunal in ITA No.1307/Mum/2013 (supra). The Coordinate Bench after examining the facts of the case and various decisions held that the 'Franchisee Fee' paid by the assessee is in the nature of revenue expenditure. For the sake of completeness relevant extract of the finding of Tribunal on this issue are reproduced herein below:- "47. We have deliberated at length as regards the nature of the rights as got vested with the assessee on the payment of the Franchise fee of Rs. 30,03,60,000/- to BCCI. We have given a thoughtful consideration to the issue before us and are of the considered view that the payment of the Franchise fee by the assessee to BCCI-IPL only facilitated participation....
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....aforesaid franchise rights as per Clause 16 of the franchise agreement were personal to the franchisee and it had no right to either assign the agreement or to sub-contract or otherwise delegate the franchisees obligations under it without the BCCI-IPLs written consent. We further find that the issue before us as to whether the Franchise fee paid to BCCI-IPL is a revenue expenditure or a capital expenditure had already been looked into and adjudicated upon by a coordinate bench of Tribunal, viz. ITAT "I" Bench, Mumbai in the case of India Win Sports Pvt. Ltd. Vs. ACIT (ITA No. 5290 & 5291/Mum/2014, dated 22.07.2016, wherein the Tribunal had held as under: "The expenditure of Rs. 44,76,00,000/- incurred by it for making payment of the first instalment to the BCCI-IPL in terms of Clause 7 of the agreement was not for the purpose of acquisition of any asset but for an annual right to manage the franchise. The purpose of the expenditure to be incurred under the agreement by the assessee has been stated in Clause 6 of the agreement as consideration for the right to operate the Franchise and to be a member of the league. The total expenditure of Rs. 44,76,00,000/- payable in yearly ins....
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.... of depreciation. We may herein observe that the Hon‟ble Apex Court in the aforesaid case had as a word of caution observed that the said judgment may not be understood to mean that every business or commercial right would constitute a "licence" or a "franchise" in terms of Sec. 32(1)(ii) of the Act, by holding as under: "24. Before concluding, we wish to clarify that our present judgment is strictly confined to the right of membership conferred upon the member under the BSE Membership Card during the relevant assessment years. We hold that the said right of membership is a "business or commercial right" which gives a non-defaulting continuing member a right to access the Exchange and to participate therein and in that sense it is a licence or akin to licence in terms of s. 32(1)(ii) of the 1961 Act. That, such a right vests in the Exchange only on default/demise in terms of the rules and byelaws of BSE, as they stood at the relevant time. Our judgment should not be understood to mean that every business or commercial right would constitute a "licence" or a "franchise" in terms of s. 32(1)(ii) of the 1961 Act. " Similarly, in the case of Jonas Woodhead And Sons (India) ....
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....iture. The facts in the assessment year under appeal are identical. The 'Franchisee Fee' has been paid in pursuance to agreement dated 04/04/2008, which has been examined by the Tribunal in the very first year of assessment. No contrary material has been placed on record by the revenue. Thus, respectfully following the decision of Co-ordinate Bench, we hold 'Franchisee Fee' paid by the assessee is revenue in nature. Grounds No. 2 and 3 of the appeal are allowed." 7. We find the facts in the present case are similar and identical as in earlier years. Where the assessee has paid the Franchisee Fee to BCCI and the claim was examined and the Revenue could not controvert with any new evidences. We respectfully fallow judicial precedence and consider the Franchisee Fee paid to the BCCI as revenue expenditure and direct the Assessing officer to delete the addition and allow the claim of the assessee. Further the assessee has also raised alternative claim. We find that, when the Franchisee Fee paid is treated as revenue expenditure and directed the A.O to allow the claim, Hence the alternative claim becomes infructuous and is dismissed. 8. The second disputed issue t....
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....e said disallowance and had observed that as the assessee had not produced before him any evidence, viz. air tickets, details of vehicles, name of service providers, persons utilizing these services and their nexus with the business etc., therefore, the possibility of the expenditure partly having been for non business purposes could not be ruled out. We further find that the assessee also had averred before us that it was not given an opportunity of being heard by the A.O while making an adhoc disallowance of the aforesaid expenses. We have given a thoughtful consideration to the issue before us, and as observed by us hereinabove, are of the considered view that the observations of the A.O that an adhoc disallowance of airfare expenses, travelling expenses and vehicle hiring expenses was called for in the hands of the assessee for the reason that expenses under the said respective heads must had been incurred by the assessee in respect of actors, celebrities, and VIPs, cannot be sustained. However, keeping in view the fact that as observed by the CIT(A) that the assessee had failed to place before him any evidence e.g air tickets, details of vehicles, name of service providers, ....
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....& Food and Nutrition expenditure for Celebrities where the A.O has disallowed 33% of the claim. We found that this issue was also dealt by the Hon'ble Tribunal in assessee's own case for assessment year 2011-12 at page 9 para 12 which is read as under: "12. Grounds No.7 and 8 of the appeal are against adhoc disallowance of expenditure relating to: (a) Boarding and Lodging; and (b) Food and Nutrition. The assessee has claimed expenditure on account of boarding and lodging Rs. 95,85,836/- and food and nutrition Rs. 18,61,320/-. The Assessing Officer disallowed Rs. 39,93,047/- from the aforesaid expenditure i.e. 33% of the total expenditure. We find that in assessment year 2009-10, the expenditure on aforesaid account was disallowed for similar reasons. The Tribunal restored the issue back to the file of Assessing Officer for de-novo consideration. The relevant extract of the findings of the Tribunal on this issue are reproduced herein under:- "55. ........................We are of the considered view that the aforesaid expenditure incurred by the assessee by hosting dinners on the days on which the matches were played at the home ground, which amongst others were attended by the ....
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....l, tobacco, etc, but they too did not indicate the purpose and the persons attending the said occasion; (iv). bill of Rs. 4,51,900/- which was for 400 snacks, soft drinks, transportation, equipment rental, which did bear a discrepancy, as against the said date the amount mentioned in the submissions by the assessee was Rs. 6,83,071/- which could not be reconciled; and (v) bill of Rs. 5,31,893/- for 25.05.2008 which was stated to be of Rs. 6,69,698/- in the submissions which too could not be reconciled by the assessee. We are of the considered view that in the backdrop of the observations of the CIT(A) that either the assessee had failed to relate the aforesaid bills pertaining to hosting of dinners, tea parties etc., with the purpose for which the same had been incurred, or the same suffered from certain discrepancies as regards the amounts mentioned therein in comparison to those stated by the assessee during the course of the proceedings and had not been reconciled, therefore, in all fairness restore the matter to the file of the A.O for verifying as to whether the aforesaid bills, viz. (i). bill of Rs. 5,31,573/-, dated 30.04.2008; (ii) bill of Rs. 5,31,893/-, dated 08.05,2008; ....