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TMI Blog2016 (7) TMI 1568X X X X Extracts X X X X X X X X Extracts X X X X ..... s sub-committee of BCCI which manages Twenty-20 format of Cricket in India. The Mumbai Indian team was bought in auction by the assessee for Rs,441 crores. The Franchise Agreement was signed between BCCI-IPL and M/s.Rathipriya Trading Pvt. Ltd. (old name of the assessee) on 10.04.2008. The assessee filed its return of income u/s.139(l) for the A.Y. under consideration on 25.09.2009 at a loss of RS,42,88,55,466/-. Order u/s.143(3) of the Act was passed by the A..O on 30.12.2011 at assessed loss of Rs. 7,90,25,660/- after making certain additions additions/disallowances. The AO disallowed claim of deduction of Rs. 44,76,00,000/- being annual franchise fees paid by the assessee to the Board of Control for Cricket in India (BCCI) holding the same to be capital in nature. 4. By the impugned order, the CIT(A) confirmed the action of AO after observing that payment so made was capital in nature. The CIT(A) further observed that the AO ought to have allowed depreciation on the cost of rights paid for the year amounting to Rs. 44.76 lakhs. Against the above order of CIT(A) the assessee is in further appeals before us. 5. We have considered rival contentions and gone through the orders o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posit (which was in terms of clause 7.1 of franchise agreement) for the matches to be held in April, 2008 and the same has been shown as "advances recoverable in cash or kind of for value to be received" in the audited financial statement of F.Y. 2007-08. During the AY. under consideration, the assessee has paid Rs. 24,76,OO,000 (net of service tax) on 05.05.2008 (in terms of clause 7.2 of franchise agreement) and debited the aggregate amount of Rs. 44,76,00,000/- (i.e. Rs. 20,00,00,000 + Rs. 24,76,00,000/-) under the head "Franchise Fees" in its Profit & Loss account. For the matches to be held in April, 2009, the assessee is said to have paid Rs. 13,37,82,643/- as deposit and grouped the same under the head "Prepaid Expenses" in the Balance Sheet for the year ended 31.03.2009. The expenditure of Rs. 44,76,Oo.,000/- incurred by it for making payment of the first instalment to the BCCI-1PL 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 4 of the FA, the franchisee (appellant) has acknowledged and agreed that BCCI-IPL owns the Central Rights and the BCCI has all pervasive rights 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 without prior written permission from the BCCI-IPL. Powers to terminate the agreement is mostly tilted in favour of the BCCI-IPL (clause 16 of FA). Franchisee shall also not sub-let or sub-contract the franchisee rights without prior written permission of the BCCI-IPL. Further, as per clause 10.1 of FA, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Pumps) Ltd, 232 ITR 316 (sq held that use of patents and designs for ten years with option to extend or renew the same was held to be a revenue expenditure. The ratio is fully applicable to the facts of the present case. (ii) Similarly, in case of other assets also which are normally treated as fixed assets entitled to depreciation, if an assessee takes these assets on lease or hire, the payments made annually for the right to use these assets are revenue expenditure. They would not be treated as capital assets entitled to depreciation on the annual lease payments. Rental payment in respect of buildings, which are fixed assets, taken on lease would constitute revenue expenditure. Whatever may be the period of lease, the annual payment will be only revenue in nature. In fact the Madras High Court in the case of CIT v. Gemini Arts (P) Ltd, 254 ITR 201, following the Apex Court in CIT v. Madras Auto Services Pvt. Ltd, 233 ITR 468 (sq, has held that upfront payment of future rent for 47 years would still be revenue expenditure. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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