M/s. Royal Challengers Sports Private Limited, Bangalore V. The Deputy Commissioner of Income Tax, Central Range -2(3), Bangalore

ITA 1135/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6197 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 06-02-2020
• Assessment Year: 2012-2013
• Appeal Filed On: 21-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJEET SINGH
• Keywords: Additional evidence; Revenue expenditure; Capital expenditure; TDS
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ES : A , BANGALORE BEFORE SHRI N.V.VASUDEVAN, VICE PRESIDENT AND S HRI A.K.GARODIA, A CCOUNTANT MEMBER ITA NO. 1 135 (BANG)/ 20 1 9 ( ASSESSMENT YEAR : 20 12 - 13 ) M/S ROYAL CHALLENGERS SPORTS PVT.LTD ., UB TOWER, 6 TH FLOOR, NO.24, VITTAL MALLYA ROAD, BANGALORE - 560 0 01 PAN NO. A ADCR9071L APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME TAX , CENTRAL RANGE - 2 ( 3 ) BANGALORE RESPONDENT APPELLANT BY : S MT. SHREYA LOYALKA, C A RE VENUE BY : SHRI MANJEET SINGH, ADDL.C IT DATE OF HEARING : 06 - 02 - 2020 DATE OF PRONOUNCEMENT : 12 - 02 - 2020 O R D E R PER SHRI N.V.VASUDEVAN, VICE PRESIDENT : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 16 - 07 - 2018 OF CIT(A) - 11 , BANGALORE, RELATING TO AY 20 12 - 13 . 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN DISALLOWING EXPENDITURE BEING CONTRIBUTION TO CRICKET ACADEMY AMOUNTING TO RS.1,55,00,000/ - U/S 37 OF THE I NCOME TAX ACT, 1961 ( ACT) . 3. THE ASSESSEE IS A COMPANY . I TS MAIN ACTIVITY IS TO ACT AS FRANCHISE OF BOARD OF CONTROL FOR CRICKET IN INDIA ( BCCI ) - INDIAN PREMIER LEAGUE ( IPL ) WHICH ORGANIZES T - 20 ITA NO.1135(BANG/2019 2 FORMAT CRICKET MATCHES. IT OWNS CRICKET TEAM IN THE NAME AND STYLE OF M/S ROYAL CHALLENGERS, BANGALORE WHICH PARTICIPATES IN THE IPL LEAGUE MATCHES. THE ASSESSEE ENTERED INTO AN AGREEMENT DATED 14 - 09 - 2011 WITH KARNATAKA STATE CRICKET ASSOCIATION (KSCA) WHO WANTED TO ESTABLISH AN A CA D EMY WHICH WILL PROVIDE HIGH QUALITY CRICKET EDUCATI ON WITH HOLISTIC DEVELOPMENT AND TRAINING , COACHING ETC. AS PER THE AGREEMENT (CLAUSE 4.3) IT WAS AGREED THAT THE ASSESSEE WILL FUND RS.15.00 CRORES AND KSCA WOULD FUND AN AMOUNT OF RS.5.00 CRORES TO THE ACADEMY FOR ESTABLISHING AND OPERATING IT. THE AM OUNT WAS TO BE CONTRIBUTED IN THE FOLLOWING MANNER BY KSCA AND THE ASSESSEE. YEAR & MONTH OF PAYMENT RSCPL KSCA SEPTEMBER 2011 2 3 SEPTEMBER 2012 2 2 SEPTEMBER 2013 4 SEPTEMBER 2014 4 SEPTEMBER 2015 3 4. AS CAN BE SEEN FROM THE ABOVE TABLE THE CONTRIBUTION H A S TO BE MADE OVER A PERIOD OF 5 YEARS. IN THE PREVIOUS YEAR RELEVANT ASSESSMENT YEAR 2011 - 12 THE ASSES S EE HAD CONTRIBUTED A SUM OF RS.1.55 CRORES TO THE CRICKET ACADEMY. THE QUESTION BEFORE THE AO WAS WHETHER THE SUM CAN BE ALLOWED AS DEDU CTION WHILE COMPUTING INCOME . 5. T HE AO TOOK THE VIEW THAT UNDER THE AGREEMENT ASSESSEE HAD MARKETING RIGHTS WITH REGARD TO THE ACADEMY PLAYER S, RELATED RIGHTS I.E. WITH REGARD TO ADMISSION OF PLAYERS AND AL SO THE RIGHT TO SIGN CONTRACTS O F THE PLAYERS FROM THE ACADEMY. THE AO WAS THEREFORE, OF THE VIEW THAT THE EXPENDITURE IN QUESTION WOULD BE CAPITAL IN NATURE. HE ACCORDINGLY, DISALLOWED THE CLAIM OF ASSESSEE FOR DEDUCTION BY OBSERVING AS FOLLO W S; 3.2. THE ARGUMENT OF THE ASSESSEE IS NOT CONVINCING. FIRST OF ALL, IT IS NOT CLEAR WHETHER THE ACADEMY WAS IN EXISTENCE AND FULLY OPERATIONAL DURING FY: 2011 - 12. THIS WAS CLEARLY NOT ESTABLISHED BY THE ASSESSEE. ITA NO.1135(BANG/2019 3 SECONDLY, AS PER THE AGREEMENT WITH KSCA THE AGREEMENT IS RENEWABLE I.E. IT CAN BE EXTENDED FURTHER BY MUTUAL CONSENT. AS PER THE AGREEMENT BETWEEN THE ASSESSEE FRANCHISE RCSPL (ASSESSEE) WHICH WILL HAVE EXCLUSIVE NAMING RIGHTS IN THE NATURE OF EXCLUSIVE RIGHTS FOR BRANDING AND LEVERAGING THE ACADEMY FOR THE PURPOSE OF BRANDING AND PROMOTION. FURTHER, THE ASSESSEE WILL HAVE THE FIRST RIGHT TO SIGN THE CONTRACT, TO RECRUIT ANY PLAYER FOR ITS FR ANCHISEE. 3.3. FOLLOWING CONCLUSIONS CAN BE DRAWN ON THE BASIS OF ABOVE DISCUSSIONS: 1. FIRSTLY, IT IS NOT CLEAR WHETHER THE ACADEMY WAS FULLY OPERATIONAL DURING THE YEAR. 2. S ECONDLY, THE INVESTMENT THAT THE COMPANY HAS MADE IS GOING TO PROVIDE ENDURING BENEFITS AS IT IS CLEAR FROM THE EXCLUSIVE RIGHTS FOR BRANDING AND PLAYER RIGHTS ARISING TO THE COMPANY. THIS WHOLE EXPENDITURE OF CONTRIBUTION TOWARDS ACADEMY IS NOT BASICALLY IN THE NATURE OF ANNUAL EXPENDITURE TOWARDS MEETING ANNUAL NEEDS. HOWEVER, TH IS IS STRATEGIC EXPENDITURE AIMED AT BUILDING BRAND VALUE AND CREATING A POOL OF LOCAL TALENTS BOTH OF WHICH WILL PROVIDE ENDURING BENEFITS TO THE FRANCHISEE OVER THE YEARS. IN SHORT, THE EXPENDITURE IS BASICALLY CAPITAL IN NATURE. HENCE, THE SAME IS DI SALLOWED AS REVENUE EXPENDITURE AND ADDED TO THE TOTAL INCOME OF THE ASSESSE E. 6 . THE A SSESSEE WAS AGGRIEVED BY THE AFORESAID ADDITION AND IT FILED AN APPEAL BEFORE THE CIT(A). THE CT(A) UPHELD THE ORDER O F THE AO. 7 . AGGRIEVED BY THE ORDER OF CIT( A) A SSESSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8 . AT THE TIME OF HEARING OF THE APPEA , L IT WAS BROUGHT TO OUR NOTICE BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN RESPECT OF AN IDENTICAL PAYMENT MADE BY THE ASSESSEE UNDER THE VERY SAME A GREEMENT FOR ESTABLISHING CRICKET ACADEMY FOR ASSESSMENT YEAR 2010 - 11 , THE ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN ITA NO.59(B)/2015 AND BY AN ORDER DATED 20 - 07 - 2018 THE TRIBUNAL HELD THAT EXPENDITURE IN QUESTION WAS RE V ENUE EXPENDITURE AND SH OULD BE ITA NO.1135(BANG/2019 4 ALLO WED AS A DEDUCTION. THE F OLLOWING RELEVANT OBSERVATION OF TH E TRIBUNAL IS AS UNDER ; 6. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSES S EE RAISED 5 GROUNDS OF APPEAL. GROUND NOS.1,2 AND 5 ARE GENERAL IN NATURE. GROUND NO.5 CHALLENGES THE ADDITION ON ACCOUNT OF CONTRIBUTION MADE TO CRICKET ACADEMY OF RS.45 LAKHS HOLDING IT T O BE CAPITAL EXPENDITURE. THE ASSESSEE MADE A CONTRIBUTION OF RS.45 LAKHS TO KARNATAKA STATE CRICKET ASSOCIAT ION(KSCA) FOR THE PURPOSE OF CR EATING CRICKET ACADEMY. THE ASSESSEE WAS ALSO A FR AN C H ISEE OF BCC - IPL, WHICH OWNS ROYAL CHALLENGERS BANGALORE TEAM AND IS ALSO OWNER OF A CRICKET TEAM AND HAD COMMERCIAL I NTEREST IN THE GAME OF CRICKET. THIS CONTRIBUTION WAS MADE IN TERMS OF AGREEMENT WITH KARNAT AKA STATE CRICKET ASSOCIATION. THE OBJECTIVES FOR WHICH THE CRICKET ACADEMY WA S SET UP ARE AS UNDER; OBJECTIVES OF THE ACADEMY (AS PER CLAUSE - 2 OF THE AGREEMENT) - TO PROVIDE HIGH QUALITY CRICKET EDUCATION WITHIN A HOLISTIC DEVELOPMENT PROGRAM - TO ENHANCE THE STANDARDS OF COACHING ACROSS THE STATE BY INTRODUCING TECHNIQUES SUCH AS COGNITIVE VIDEO BASED COACHING TO CRICKET DEVELOPMENT. - TO PERCOLATE INTERNATIONAL CRICKET PRACTICES TO DOMESTIC LEVELS - TO BE A LEADER IN C RICKET DEVELOPMENT AND TO BE RECOGNIZED NATIONALLY AND INTERNATIONALLY AS A CENTER O F CRICKET EXCELLENCE. - TO POSITION THE ACADEMY AS ONE OF THE BEST IN THE WORLD - TO PROVIDE BOTH NATIONAL AND INTERNATIONAL T20/ODI MATCH PLAY EXPERIENCE THROUGH TIE UPS WITH CLUBS/ STATE SIDES/ASSOCIATIONS IN SOUTH AFRICA/AUSTRALIA/ENGLAND. IT IS STATED THAT AT THE TIME OF ADMISSION OF PLAYER TO THE ACADEMY, THE KSCA SHALL ENSURE THAT THE PLAYER SHALL SIGN A CONTRACT GIVING THE APPELLANT FIRST RIGHT TO OFFER AN UNCAPPED PLAYER CONTRACT TO RECRUIT THE PLAYER TO PLAY FOR THE APPELLANT. THUS, IT IS CLEAR THAT THE TERMS OF CONTRACT RE DIRECTLY RELATED TO BUSINESS INTEREST OF THE ASSESSEE. THEREFORE, THE CONTRIBUTION MADE FOR CREATION OF CRICKET AC A DEMY CAN BE HELD TO BE IN BUSINES S INTEREST AND THE SAME IS ALLOWABLE AS DEDUCTION. ACCORDINGLY, WE ALLOW THIS G R OUND OF APPEAL. 9. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DECISION RENDERED BY THE TRIBUNAL ON IDENTICAL FACTS UNDER THE VERY SAME AGREEMENT TO CREAT CRICKE T ACADEMY SHOULD BE FOLLOWED. THE LD.COUNSEL FOR THE ASSESSEE FILED BEFORE US A COPY OF THE ADDITIONAL EVIDENCE WHICH WAS FILED BEFORE THE ITAT ITA NO.1135(BANG/2019 5 WHEN THE ISSUE WAS DECIDED IN ASSESSMENT YEAR 20 10 - 11. COPY OF THE EXTRACT OF FINANCIALS OF 2011 - 12 WAS ALSO FILED BEFORE US TO SHOW THAT THE ACADEMY WAS OPERATIONAL DURING THE RE LEVANT ASSESSMENT YEAR 2012 - 13. THE SAME IS ALSO PLACED ON RECORD. 10. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN THE EARLIER ASSESSMENT YEAR, WE DIRECT THE AO TO ALLOW T HE CLAIM OF THE ASSESSEE FOR DEDUCTION FOR A SUM OF RS.1.55 CRORES. THE FACTS OF THE CASE AND THE AGREEMENT UNDER WHICH THE PAYMENT IN QUESTION WAS MADE ARE IDENTICAL TO THE CASE DECIDED BY THE TRIBUNAL. IN THE LIGHT OF THE ABOVE SAID DECISION OF THE TRI BUNAL ARE OF THE VIEW THAT THE EXPENDITURE IN QUESTION HAS TO BE ALLOWED AS DEDUCTION. WE HOLD AND DIRECT ACCORDINGLY. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEB.2020. SD / - SD/ - ( A.K.GARODIA ) ( N.V.VASUDEVAN ) ACCOUNTANT MEMBER VIC E PRESIDENT DATED: 12 - 02 - 2020 *AM COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7.GUARD FILE BY ORDER ASST. REGISTRAR ITA NO.1135(BANG/2019 6