2019 (2) TMI 1135 - AT - Income Tax

Nature of expenditure - expenditure on account of Franchise fees paid to BCCI for RIGHTS to participate in the Indian Premier League (IPL) - revenue or capital expenditure - Held that - The revenue fails to bring on record any new facts contrary to the facts recorded by the ITAT in the light of certain judicial precedents. The revenue also failed to bring on record any contrary decision in its favour. Therefore consistent with the view taken by the co-ordinate bench in assessee s own case for earlier years we are of the considered view that there is no error in the findings recorded by the CIT(A) while deleting addition made by the AO towards annual franchise fees paid to BCCI. Hence we are inclined to uphold the order of CIT(A) and dismiss appeal filed by the revenue. Whether travelling expenses incurred on family members of players is incurred wholly and exclusively for the purpose of business and which is related to the business of the assessee was a subject matter of deliberations? - Held that - Although the 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 that the issue and is already considered by the Tribunal keeping in view the judicial discipline we are not inclined to accept the arguments of the AR for the assessee. Therefore we affirm the addition made by the AO towards disallowance of travelling expenses incurred on family members of players. Adhoc disallowance of 10% of hospitality expenses - AO has disallowed 10% of hospitality expenses under the head hospitality expenditure for providing lunch and other entertainment facilities to individuals in corporate boxes VVIP area etc. - Held that - We are of the considered view that the AO was erred in making adhoc disallowance of 10% of hospitality expenditure. Therefore we direct the AO to delete addition made towards hospitality expenses.

Summary

Issues Involved:
1. Treatment of Franchise Fees as Revenue or Capital Expenditure.
2. Disallowance of Travelling Expenses for Family Members of Players.
3. Adhoc Disallowance of Hospitality Expenses.

Issue 1: Treatment of Franchise Fees as Revenue or Capital Expenditure

The revenue's appeal questioned whether the franchise fees paid by the assessee to BCCI for IPL participation rights should be treated as revenue expenditure or capital expenditure. The assessee argued that the franchise fees, paid annually, were revenue in nature as they were periodic payments necessary for business operations. The AO treated these fees as capital expenditure, citing enduring benefits and the ability to sell or transfer franchise rights. The CIT(A) reversed this, treating the fees as revenue expenditure, referencing past ITAT decisions in similar cases. The ITAT upheld the CIT(A)'s decision, emphasizing that the fees were annual payments without conferring perpetual rights, thus qualifying as revenue expenditure deductible under Section 37(1) of the Income-tax Act, 1961.

Issue 2: Disallowance of Travelling Expenses for Family Members of Players

The assessee's appeal contested the disallowance of ?20,64,019 in travelling expenses for players' family members, arguing these expenses were business-related. The AO and CIT(A) disallowed the expenses, deeming them personal and unrelated to business. The ITAT referenced a prior decision for AY 2011-12, where similar expenses were disallowed, concluding the necessity of such expenses was unproven. The ITAT upheld the disallowance, maintaining that the expenses were not wholly and exclusively for business purposes.

Issue 3: Adhoc Disallowance of Hospitality Expenses

The assessee also appealed against the disallowance of ?31,47,064, being 10% of hospitality expenses. The AO made this disallowance on an adhoc basis, suggesting personal use elements. The CIT(A) upheld this decision. The ITAT, however, referenced multiple judicial precedents establishing that a company, being an artificial person, cannot incur personal expenses. The ITAT concluded that the disallowance was unfounded and directed the AO to delete the addition, noting that any personal benefit should be taxed in the hands of the individual receiving it, not the company.

Conclusion:

The ITAT dismissed the revenue's appeal, affirming the treatment of franchise fees as revenue expenditure. The assessee's appeal was partly allowed, with the disallowance of travelling expenses upheld and the adhoc disallowance of hospitality expenses deleted. The order was pronounced on 13-02-2019.