2016 (7) TMI 1568 - AT - Income Tax

Nature of expenses - annual payment being franchise fees paid to BCCI to participate in the Indian Premier League (IPL) - Revenue or capital expenditure - HELD THAT - As relying on M/S DECCAN CHARGERS SPORTING VENTURES LTD. (AMALGAMATED WITH DECCAN CHRONICLE HOLDINGS LTD) 2015 (12) TMI 1279 - ITAT HYDERABAD 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 lower 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 IPL was revenue in nature therefore allowable during the year under consideration we are not going to assessee s alternate claim of allowing depreciation on the entire value of intangible rights which is also supported by the decision of co-ordinate bench in case of India Cements Limited India Cements Limited 2016 (1) TMI 1028 - ITAT CHENNAI

Issues Involved:
1. Nature of the annual franchise fee payment to BCCI for IPL participation.
2. Eligibility of the franchise fee as revenue expenditure or capital expenditure.
3. Alternative claim for depreciation on the cost of intangible assets.

Detailed Analysis:

1. Nature of the Annual Franchise Fee Payment to BCCI for IPL Participation:
The assessee, engaged in owning, managing, and operating the 'Mumbai Indian' team in the IPL, paid an annual franchise fee to BCCI to participate in the league. The payment was made under a Franchise Agreement dated 10.04.2008, which granted the assessee franchise rights for the Mumbai Indian team. The fee was paid annually, with specific amounts due as League deposit and on the date of the first match each year. The agreement included clauses allowing termination if matches did not occur for two consecutive years, and the rights granted were limited, with crucial "Central Rights" retained by BCCI.

2. Eligibility of the Franchise Fee as Revenue Expenditure or Capital Expenditure:
The AO disallowed the deduction claim for the annual franchise fee, treating it as capital in nature. The CIT(A) upheld this decision but noted that depreciation on the cost of rights should have been allowed. The Tribunal, however, found that the franchise fee was an annual payment directly related to earning income each year and was not for acquiring any enduring benefit or asset. The Tribunal referenced a similar case (Deccan Chargers Sporting Ventures Limited) where the annual franchise fee was deemed revenue in nature. The Tribunal concluded that the payments were for annual benefits and necessary for the assessee to participate in IPL, thus qualifying as revenue expenditure.

3. Alternative Claim for Depreciation on the Cost of Intangible Assets:
The assessee alternatively contended that depreciation should be allowed on the cost of intangible assets under section 32(1)(ii). The Tribunal, referencing the case of Indian Cements Ltd., acknowledged that if the franchise fee were considered capital expenditure, depreciation would be allowable. However, since the Tribunal determined the fee to be revenue expenditure, this alternative claim was not addressed.

Conclusion:
The Tribunal held that the annual franchise fee paid to BCCI for IPL participation was revenue in nature and allowable as business expenditure. The decision was based on the nature of the payment, the terms of the Franchise Agreement, and judicial precedents. Consequently, the assessee's appeals were allowed, and the AO was directed to treat the franchise fee as revenue expenditure. The alternative claim for depreciation was not considered, as the primary issue was resolved in favor of the assessee.

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