2018 (1) TMI 786 - AT - Income Tax

Deduction of franchise consideration Capital or revenue expenditure - Held that - As no enduring benefit by making the payment of the Franchise fee got vested with the assessee, therefore, the said judicial pronouncements being distinguishable on facts would not assist the case of the revenue. We thus in the backdrop of our aforesaid observations and finding ourselves to be in agreement with the view taken by the coordinate benches of the Tribunal, therefore, are of the considered view that the payment of the Franchise fee for IPL Season-1 of ₹ 30,03,60,000/- by the assessee can safely be held to be in the nature of a revenue expenditure, which was rightly claimed by the assessee as such while computing its income for the year under consideration. We thus set aside the order of the CIT(A) and direct the A.O to delete the addition of ₹ 30,03,60,000/-. We may herein observe that as we have held that the Franchise fee of ₹ 30,03,60,000/- paid by the assessee to BCCI is a revenue expenditure, therefore, the contentions of the assessee as regards quantification of the W.D.V for computing the depreciation in respect of the franchise rights is rendered as redundant and is not being adjudicated by us. The Ground of appeal No. 2 to 4 are allowed in terms of our aforesaid observations. Expenditure under the head Franchise fee - Held that - We find that in the present case before us, as the liability as regards the Franchise fee as per Clause 7.1 (a) was to arise and assume the character of an expenditure on the date of the first match of the league in the year in which the league deposit was paid, therefore, as observed by us hereinabove, now when no match of IPL Season-2 was played till 31.03.2009, thus no expenditure in respect of the Franchise fee accrued at all during the year under consideration. We thus in the backdrop of our aforesaid observations, finding ourselves to be in agreement with the view taken by the lower authorities that the amount of ₹ 7,50,90,000/- cannot be held as a revenue expenditure in the hands of the assessee during the year under consideration, therefore, uphold the order of the CIT(A) to the said extent and dismiss the Ground of appeal no. 5 raised by the assessee before us. Disallowance of an amount forming part paid by the assessee to Cricket Association of Bengal for use of Eden Garden - Held that - The payment of ₹ 75 lac was made by the assessee to Kolkata Police Welfare fund, not by its choice, but as per the directions of CAB who was responsible to arrange for security in the stadium at the time of staging of the matches by the assessee. We thus not being persuaded to be in agreement with the observations of the lower authorities as regards the allowability of the claim of the amount of ₹ 75,00,000/- (forming part of total expenditure of ₹ 3,50,00,000/-) paid by the assessee as per the directions of CAB to Kolkata Police Welfare Fund, therefore, set aside the order of the CIT(A) to the said extent and delete the addition/disallowance of ₹ 75,00,000/- sustained by him. The Ground of appeal No. 6 is allowed. Disallowance of the expenditure which was claimed by the assessee to have been paid to Mr. John Buchanan for providing coaching services to the team for IPL Season-1 - Held that - The revenue had neither placed on record any irrefutable documentary evidence which could persuade us to conclude that no coaching services were provided by Mr. John Buchanan to the assesse s cricket team for IPL Season-1, nor the material placed on record by the ld. A.R before us to fortify his aforesaid claim had been rebutted or disproved by the ld. D.R. We thus being of the view that the claim of the assessee as regards the expenditure of ₹ 1,28,34,490/- in respect of the coaching fees paid to Mr. John Buchanan for IPL Season-1 is found to be in order, therefore, set aside the order of the CIT(A) to the extent the latter had sustained the addition/disallowance of ₹ 1,28,34,490/- made by the A.O. The Ground of appeal of no. 7 and 8 raised by the assessee are allowed. Disallowance being expenditure incurred in connection with airfare expenses, travelling expense ad vehicle hire charges - Held that - 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, details of persons utilizing these services and their nexus with business etc, therefore, as per him the possibility of the expenditure partly having been incurred for non business purposes could not be ruled out, and the fact that the assessee too had submitted before us that sufficient opportunity was not allowed to it at the time when such adhoc disallowance of expenses was made, therefore, in all fairness restore the matter to the file of the A.O for making necessary verifications on the basis of documentary evidence as regards the entitlement of the assessee towards the claim of the aforesaid expenses. We herein direct that the A.O shall in the backdrop of our aforesaid observations make necessary verifications as regards the aforesaid claim of expense of the assessee booked under the said respective heads, viz. airfare expenses, travelling expenses and vehicle hiring charges. Disallowance of security charges expenses - Held that - We are unable to comprehend the observation of the CIT(A) who had concluded that now when the police was taking care of the security arrangements in the stadium, therefore, it was the responsibility of the State of government to have provided the necessary security arrangements to the aforesaid persons. We are unable to persuade ourselves to subscribe to the aforesaid observations of the CIT(A). We are of the considered view that now when it stands established that the visits of the actors, celebrities and VIPs to the matches staged by the assessee was a part of the business strategy of the assessee to generate more revenues, therefore, what quality of security cover was required to be provided to the aforesaid persons remained within the exclusive realm of the wisdom of the assessee and the A.O could not guide him as to the nature of the security cover that should have been provided. We thus being of the considered view that the claim of the assessee of ₹ 1,08,700/-incurred for security for VIPs and celebrities who attended the matches at Eden Garden was well in order, therefore, set aside the order of the CIT(A) sustaining the aforesaid disallowance. Disallowance of expense - Held that - As the expenditure under consideration was incurred by the assessee to meet the aforesaid liability of the business which had accrued during the year, therefore, the amount of ₹ 8,85,600/- was rightly claimed as an expenditure while computing the income of the assessee for the year under consideration. We thus set aside the order of the CIT(A and delete the addition/disallowance of ₹ 8,85,600/-. Addition in connection with website design charges - Held that - As averred by the ld. A.R, the CIT(A) in the assesse s own case for the subsequent years, viz. AY 2010-11 to AY 2012-13 had held the web designing charges as a revenue expenditure. We are of the considered that as claimed by the ld. A.R before us that the website design charges had been held by the CIT(A) in the subsequent years, viz. AY 2010-11 to AY 2012-13 as a revenue expenditure in the assesse s own case, therefore, in all fairness restore the matter to the file of the A.O to make necessary verifications as regards the factual position and readjudicate the entitlement of the assessee as regards the web designing charges, keeping in view the aforesaid judicial pronouncements

Summary

Issues Involved:

1. Nature of Franchise Fee: Revenue vs. Capital Expenditure
2. Disallowance of Franchise Fee for IPL Season-2
3. Disallowance of Payment to Kolkata Police Family Welfare Centre
4. Disallowance of Fees Paid to Mr. John Buchanan
5. Adhoc Disallowance of Boarding, Lodging, and Food Expenses
6. Adhoc Disallowance of Airfare, Traveling, and Vehicle Hire Charges
7. Disallowance of Security Charges
8. Disallowance of Fashion Show Participation Expenses
9. Disallowance of Website Design Charges

Issue-wise Detailed Analysis:

1. Nature of Franchise Fee: Revenue vs. Capital Expenditure

The Tribunal examined whether the franchise fee paid by the assessee to BCCI-IPL was a revenue expenditure or a capital expenditure. It was noted that the fee was for participating in the league for a specific year without guaranteeing future participation. The fee did not create an asset or benefit of enduring nature. The Tribunal relied on previous rulings, including India Win Sports Pvt. Ltd. vs. ACIT and DCIT vs. M/s Deccan Chargers Sporting Ventures Ltd., which held similar franchise fees as revenue expenditure. Thus, the Tribunal concluded that the franchise fee of ?30,03,60,000/- was a revenue expenditure and allowed the assessee's claim.

2. Disallowance of Franchise Fee for IPL Season-2

The Tribunal upheld the disallowance of ?7,50,90,000/- claimed by the assessee for IPL Season-2. It was observed that the liability for the franchise fee crystallized only on the date of the first match of the league, and since no match was played before 31.03.2009, the fee could not be claimed as an expenditure for the year under consideration. The Tribunal cited the principle from Taparia Tools Ltd. vs. CIT, emphasizing that the expense must accrue and crystallize within the relevant financial year.

3. Disallowance of Payment to Kolkata Police Family Welfare Centre

The Tribunal allowed the claim of ?75,00,000/- paid to the Kolkata Police Family Welfare Centre. It was established that the payment was made as per the directions of the Cricket Association of Bengal (CAB) for security services during IPL matches. The Tribunal found that the payment was genuine and incurred in the normal course of business, thus allowable under Section 37(1) of the Act.

4. Disallowance of Fees Paid to Mr. John Buchanan

The Tribunal allowed the claim of ?1,28,34,490/- paid to Mr. John Buchanan for coaching services. It was established that Mr. Buchanan provided coaching services to the assessee's team during IPL Season-1, supported by the service agreement and corroborative evidence from Wikipedia and news articles. The Tribunal concluded that the expenditure was incurred wholly and exclusively for business purposes.

5. Adhoc Disallowance of Boarding, Lodging, and Food Expenses

The Tribunal found that expenses incurred for boarding, lodging, and food for team members, support staff, directors, and invited guests, including celebrities, were part of the assessee's business strategy to boost ticket sales and sponsorship revenues. The Tribunal allowed the expenses, emphasizing that they were incurred wholly and exclusively for business purposes. However, certain bills with discrepancies were remanded to the AO for verification.

6. Adhoc Disallowance of Airfare, Traveling, and Vehicle Hire Charges

The Tribunal remanded the issue of disallowance of ?95,63,132/- for verification by the AO. It was noted that the expenses were likely incurred for business purposes, including for celebrities and VIPs, which were part of the assessee's business strategy. The AO was directed to verify the documentary evidence and reassess the claim.

7. Disallowance of Security Charges

The Tribunal allowed the claim of ?1,08,700/- for security charges incurred for VIPs and celebrities, including Mr. Shah Rukh Khan. It was established that providing security to such individuals was part of the assessee's business strategy to attract more viewers and sponsors, thus the expenditure was incurred wholly and exclusively for business purposes.

8. Disallowance of Fashion Show Participation Expenses

The Tribunal allowed the claim of ?8,85,600/- paid to Mr. Manish Malhotra for participation in fashion shows. It was established that the expenditure was incurred to advertise and promote the KKR team, and since the assessee followed the mercantile system of accounting, the expense was recognized in the year it was incurred.

9. Disallowance of Website Design Charges

The Tribunal remanded the issue of disallowance of website design charges of ?8,49,305/- to the AO for verification. It was noted that similar expenses were allowed as revenue expenditure in subsequent years. The AO was directed to reassess the claim in light of judicial pronouncements and the assessee's own case in subsequent years.

Conclusion:

The appeal of the assessee was partly allowed. The Tribunal directed the AO to delete certain disallowances and remanded others for verification, emphasizing that the expenses incurred were part of the assessee's business strategy and were allowable under Section 37(1) of the Act.