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TMI Blog2015 (12) TMI 1279X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as capital 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 - Decided against revenue - ITA No. 1043/Hyd/2013 - - - Dated:- 28-10-2015 - P. Madhavi Devi, JM And B. Ramakotaiah, AM For the Appellant : Smt K Mythili Rani, CIT-DR For the Respondent : Shri S Rama Rao, AR ORDER Per B Ramakotaiah, AM This is Revenue's appeal against the order of the Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of franchisee fee of 42.80 crores made during the year as revenue. The reasons for change in stance as submitted in a note are as follows: The Deccan Chargers Sporting Ventures Ltd., is the owner of the Hyderabad franchise of the Indian Premier League (IPL) Deccan Chargers right and the company can operate the franchise as along as the IPL tournament is conducted. The consideration for acquiring the franchise right of ₹ 428.04 Crores is payable to BCCI over a period of 10 years in equal installments commencing from the year 2008. The company capitalized the franchise rights as intangible asset and recognized as equal amount as liability payable to BCCI. The economic useful life of the asset was estimated at 25 years and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve amount of ₹ 42.80 Crores treated as 'Capital Expenditure', AO also disallowed the corresponding service charges paid of ₹ 5,29,05,744/- after capitalizing the same along with the franchise fee paid of ₹ 42.80 Crores. AO however, allowed depreciation on the above two amounts. 4. Assessee was aggrieved and carried the matter to CIT(A) and made detailed submissions. After considering the submissions, Ld. CIT(A) allowed assessee's contentions in his detailed order running from para 5.3 to 5.3.8 and para 6 for service tax. Revenue is aggrieved and raised the grounds as under: 2. The CIT(A) ought to consider payments made for enduring benefits as capital expenditure. 3. The CIT(A) ought to consider se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hts 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 those rights which BCCI-IPL would acknowledge. Another very important clause laid down in the FA [clause 7.1 (b)] is that from and including 2018 onwards, for indefinite period, an amount equal to 20 per cent of the franchisee income received in respect of such year shall be paid to BCCI-IPL by the franchisee appellant. Further, franchisee shall have no right to assign or to sub-contract or otherwise delegate the performance of any right or Obligation under the agreement wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes capital asset entitled to depreciation. No doubt, section 32(1) includes franchise right as part of the intangible assets entitled to depreciation. The main requirement for considering whether the franchise rights constitute a depreciable asset is that such franchise right should be owned wholly or partly by the appellant. Merely because franchise rights are treated as intangible assets, it does not mean that any or all payments made towards franchise rights would become capital payment and such rights constitute a depreciable asset. It has to be determined on the basis of actual rights conferred on the assessee. Is it a rig lit of ownership or merely a right to use. The former will be capital, while the latter will be in the revenue fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) In the case of lease of immovable property, the Supreme Court has held that any premium paid for acquisition of the right to lease would constitute capital payment but not a periodic payment for the actual use of the property [CIT v. Panbari Tea Co. Ltd, 57 ITR 422 (SC)]. While tenancy right per se is considered as a capital asset [5.5 (2)], payment for the usage of such tenancy right is always revenue expenditure. (iv) The Karnataka High Court in the case of CIT v. HMT Ltd. 203 ITR 820 has held that even though lump sum amount paid as premium in connection with lease of property as long as it is towards rent for the use of the property, it is allowable as revenue expenditure. (v) The Supreme Court in the case of Empire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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