DCIT CC 6(2), MUMBAI V. INDIA WIN SPORTS P. LTD, MUMBAI

ITA 6261/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1072 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 24-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M C OMI NINGSHEN
• Assessee Lawyers: ARVIND SONDE
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI DT GARASIA, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO. 6261/MUM/2016 ASSESSMENT YEAR: 2011 - 12 DCIT, CENT. CIR - 6(2) R.NO. 1903, 19 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINT MUMBAI - 400021. VS. M/S INDIAWIN SPORT PVT. LTD., THIRD FLOOR, COURT HOUSE, LOKMANYA TILAK MARG, DHOBI TALAO MUMBAI - 400002 PAN: AADCR8195F (APPELLANT) : (RESPONDENT) APPELLANT BY : SHRI MC OMI NINGSHEN (DR) RESPONDENT BY : SHRI ARVIND SONDE (AR) DATE OF HEARING : 12/04/2017 DATE OF PRONOUNCEMENT : 28 /04/2017 O R D E R PER D. T. GARASIA, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) - 54 MUMBAI, DATED 29/07/2016 ARISING OUT OF ORDER OF ASST. ACIT. CC.35 , MUMBAI DATED 31/12/2013 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1 961 FOR THE ASSESSMENT YEAR 2011 - 12 . M/S INDIAWIN SPORT PVT. 2 ITA NO. 6261/M/2016 2. FOLLOWING GROUNDS ARE RAISED BY THE DEPARTMENT READS AS UNDER: - 1. WHETHER, ON THE FACTS AND IN THE CIRCU MSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), ERRED IN DIRECTING THE A.O. TO TREAT THE EXPENDITURE ON ACCOUNT OF FRANCHISE FEES OF RS.44.76 CRORE PAID TO BCCI FOR RIGHTS TO PARTICIPATE IN THE INDIAN PREMIER LEAGUE (IPL) AS REVENUE EXPENDITURE INSTEAD OF CAPITAL EXPENDITURE FOR THE A.Y. 2011 - 12 RELYING ON THE DECISION OF THE HONBLE ITAT IN ASSESSEES OWN CASE FOR A.Y. 2009 - 10 & 2010 - 11? 2. WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), ERRED IN DIRECTING THE A.O. I N TREATING THE EXPENDITURE ON ACCOUNT OF FRANCHISE FEES OF RS.44.76 CRORE PAID TO BCCI FOR RIGHTS TO PARTICIPATE IN THE INDIAN PREMIER LEAGUE (IPL) IN THE LIGHTS OF AMENDMENT TO SECTION 55(2)(A) INSERTING OR RIGHT TO CARRY ON ANY BUSINESS AS CAPITAL ASSE T THROUGH THE FINANCE ACT 2002? 3. THE SHORT FACTS OF THE CASE ARE AS UNDER: - THE ASSESSEE IS A PRIVATE LIMITED COMPANY. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE WAS ENGAGED IN BUSINESS OF OWNING, MANAGING AND OPERATING THE FRANCHISEE OF INDIAN PR EMIER LEAGUE (IPL) TOURNAMENT ORGANIZATION BY BOARD FOR CONTROL OF CRICKET IN INDIA. DURING THE YEAR THE ASSESSEE HAS PAID FRANCHISEE FEES OF RS.44.76 CRORE PAID IN FINANCIAL YEAR 2010 - 11RELEVANT TO ASSESSMENT YE AR 2011 - 12. THE FRANCHISEE FEES WERE DISALLOWED. THE MATTER WENT TO CIT(A) AND CIT(A) HAS DISMISSED THE APPEAL. 4. DURING THE COURSE OF HEARING THE LD. AR SUBMITTED THAT THE ISSUE IN CONTROVERSY IS COVERED BY THE DECISION IN ASSESSEE S OWN CASE IN ITA NO. 5290 & 5291/MUM/2014 WHEREIN THE T RIBUNAL HAS TREATED THE FRANCHISEE FEES REVENUE IN NATURE AND THE ISSUE IN CONTROVERSY IS COVERED BY THE DECISION. THEREFORE, THE APPEAL MAY BE DISMISSED. 5. THE LD. DR RELIED UPON THE ORDER OF THE A.O. M/S INDIAWIN SPORT PVT. 3 ITA NO. 6261/M/2016 6. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PA RTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE SIMILAR ISSUE HAD COME UP IN ASSESSMENT YEAR 2009 - 10 AND 2010 - 11. WHEREIN THE SIMILAR ADDITION HAS BEEN TREATED AS REVENUE EXPENDITURE BY OBSERVING AS UNDER: - 9. WE HAD CAREFULLY GONE THROUGH ORDER OF THE CO - ORDINATE BENCH IN CASE OF M/S DECCAN CHARGES SPORTING VENTURES LIMITED WHEREIN EXACTLY SIMILAR ISSUE DECIDES BY THE TRIBUNAL IN ASSESSEES FAVOUR AFTER OBSERVING AS UNDER: - BEFORE CONSIDERING THE CLAIM OF ALLOWABILITY OF DED UCTION, IT IS NECESSARY TO DECIDE WHETHER THE AFORESAID FRANCHISEE RIGHT IS A CAPITAL ASSET ELIGIBLE FOR DEPRECIATION OR IT IS REVENUE EXPENDITURE. AS PER CLAUSE 3 OF THE FA, THE IMPUGNED AGREEMENT SHALL COME INTO EFFECT UPON SIGNATURE AND SHALL CONTINUE F OR SO LONG AS THE LEAGUE CONTINUES SUBJECT TO TERMINATION, SUSPENSION OR RENEWAL AS PROVIDED (THE TERM). AS PER CLAUSE 4 OF THE FA, THE FRANCHISEE (APPELLANT) HAS ACKNOWLEDGED AND AGREED THAT BCCI - IPL OWNS THE CENTRAL RIGHTS AND THE BCCI HAS ALL PERVASIV E 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 ETC. THE FRANCHISEE WOULD BE ALLOWED T O 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. FUTURE, 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 PE RMISSION FROM 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 APPELLANT DOES NOT HAVE ANY RIGHT TO ASSIGN OR DE LEGATE THE PERFORMANCE OF ANY RIGHT OR OBLIGATIONS UNDER THIS AGREEMENT. THE SAME VESTS WITH BCCI - IPL ONLY. PERUSAL OF THE ABOVE CLAUSES REVEAL THAT UNDER THE TERMS OF THE AGREEMENT, APPELLANT COMPANY NEVER ENJOYS THE PROPRIETARY RIGHTS. THE PROPRIETARY RI GHTS CONTINUE TO VEST IN THE BCCI - IPL. THEREFORE, APPELLANT CANNOT BE REGARDED AS HAVING ACQUIRED EITHER WHOLLY OR ANY PART OF PROPRIETARY RIGHTS BY OR UNDER THE AGREEMENT. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, FRANCHISE RIGHT CANNOT BE TREATED AS CAPITAL ASSET. M/S INDIAWIN SPORT PVT. 4 ITA NO. 6261/M/2016 6. WE AGREE WITH THE ABOVE ORDER OF THE LD. CIT(A) AS THE AMOUNT WAS NOT FOR ACQUIRING CAPITAL RIGHTS. IT IS FOR CONDUCTING THE MATCHES ON YEARS BASIS. IF ASSESSEE HAS NOT PAID THE AMOUNT, IT LOSES THE RIGHT TO CONDUCT THE MATCHE S. ACCORDINGLY, THE LD. CIT(A) HAS COME TO CORRECT CONCLUSION THAT THE RIGHT ACQUIRED BY THE ASSESSEE IS NOT A PERPETUAL RIGHT AND THE EXPENDITURE PAID ON YEARLY BASIS IS REVENUE EXPENDITURE. 6.1. HE ALSO ANALYSED VARIOUS CASE LAW VIDE PARA 5.3.4 AND 5.3.5 AS UNDER: - AGAINST THE ABOVE FACTUAL GROUND, THE ISSUE FOR ADJUDICATION IS WHETHER THE ABOVE FRANCHISEE RIGHT CONSTITUTE CAPITAL ASSET ENTITLED TO DEPRECIATION. NO DOUBT, SECTION 32(1) INCLUDES FRANCHISEE RIGHT AS PART OF THE INTANGIBLE ASSETS ENTI TLED TO DEPRECIATION. THE MAIN REQUIREMENT FOR CONSIDERATION 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 INTANGIB LE 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 FIELD. ANALOGY CAN BE DRAM FROM THE FOLLOWING INSTANCES: - (I) TECHNICAL KNOW - HOW IS AN INTANGIBLE ASSET AND ENTITLED TO DEPRECIATION U/S 32. HOWEVE R, IF AN ANNUAL FEE IS PAID FOR THE USE OF TECHNICAL KNOW - HOW AND RIGHT TO USE TECHNICAL KNOW - HOW CEASES ON THE TERMINATION OF SUCH AGREEMENT, THEN THE ANNUAL PAYMENTS MADE ARE REVENUE IN CHARACTER AND ARE ALLOWABLE AS DEDUCTIBLE EXPENDITURE. THE HONBLE S UPREME COURT IN THE CASE OF CIT V. LA.E.C. (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 PRESE NT 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 WOUL D NOT BE TREATED AS CAPITAL ASSETS ENTITLED TO DEPRECIATION ON THE ANNUAL LEASE PAYMENTS. RENTAL PAYMENT IN RESPECT OF BUILDING, WHICH ARE FIXED ASSETS, TAKEN ON LEASE WOULD CONSTITUTE REVENUE EXPENDITURE. WHATEVER MAY BE THE PERIOD OF LEASE, THE ANNUAL PA YMENT WILL BE M/S INDIAWIN SPORT PVT. 5 ITA NO. 6261/M/2016 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 CAPITAL PAYMENT BUT NOT A PERIODIC PAYMENT FOR THE ACTU AL 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 CA SE 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 TH E CASE OF EMPIRE JUTE MANUFACTURING CO. [124 ITR 1 (SC)] HAS HELD THAT EVEN IF THE PAYMENT GIVES BENEFITS FOR A PERIOD OF TIME IT WILL BE IN THE REVENUE FIELD ONLY, IF IT IS INCURRED IN CONNECTION WITH DAY TO DAY OPERATION AND DOES NOT AFFECT THE CAPITAL S TRUCTURE OF THE ASSESSEE. (VI) EXPENDITURE ON TECHNICAL KNOW - HOW, EVEN IF OF ENDURING CHARACTER IS REVENUE EXPENDITURE IF ITS IMPACT IS ON THE RUNNING OF BUSINESS [CIT V. MRF LTD. 144 ITR 678 (MAD)]. (VII) ACQUISITION OF GOODWILL OF BUSINESS IS ACQUISIT ION OF CAPITAL ASSET AND THEREFORE, ITS PURCHASE PRICE WOULD BE CAPITAL EXPENDITURE. WHERE, HOWEVER, THE TRANSACTION IS NOT ONE FOR ACQUISITION OF GOODWILL, BUT FOR THE RIGHT TO USE IT, THE EXPENDITURE WOULD BE REVENUE EXPENDITURE [DEVIDAS VITHALDAS & CO. V. CIT, 84 ITR 277 (SC)]. 5.3.5. FROM THE ABOVE LEGAL PRONOUNCEMENTS, IT IS CLEAR THAT THE CHARACTER OF THE PAYMENT WOULD DEPEND ON NATURE OF RIGHTS ACQUIRED AND THE PERIOD FOR WHICH SUCH RIGHTS WAS ACQUIRED BY THE APPELLANT. ANY PAYMENT MADE FOR OBTAININ G A COMMERCIAL RIGHT WOULD BE A CAPITAL EXPENDITURE. BUT PAYMENT MADE PERIODICALLY FOR EXPLOITING SUCH RIGHTS IS REVENUE IN NATURE. THEREFORE, IN THE INSTANT CASE, PAYMENT MADE AT THE FIRST INSTANCE FOR GRANT OF RIGHT TO BE FRANCHISEE CAN BE CONSIDERED AS CAPITAL PAYMENT. HOWEVER, THE SUBSEQUENT ANNUAL PAYMENTS MADE BY THE M/S INDIAWIN SPORT PVT. 6 ITA NO. 6261/M/2016 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, T HE FRANCHISE FEE PAID IS REVENUE IN NATURE BECAUSE BY MAKING SUCH A ANNUAL PAYMENT THE APPELLANT DOES NOT ACQUIRE ANY RIGHTS OF PERMANENT NATURE. 7. IN VIEW OF THESE JUDICIAL PRINCIPLES WHICH CLEARLY APPLY TO THE FACTS OF THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF CIT(A) WHO ANALYSED THE ISSUE ON THE GIVEN FACTS. THERE IS NO MERIT IN REVENUES GROUNDS AND ACCORDINGLY, REVENUES APPEAL IS DISMISSED. 7. R ESPECTFULLY FOLLOWING THE SAME WE ALLOW THE ASSESSEES CLAIM AND DISMISSED THE REVENUES APPEAL . 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. JUDGMENT PRONOUNCED IN THE OPEN COURT ON 28 TH APRIL 2017. SD/ - SD/ - (MANOJ KUMAR AGGARWAL) ACCOUNTANT MEMBER (D.T. GARASIA) JUDICIAL MEMBER MUMBAI, DATED: 28 TH APRIL , 2017 *RAHUL SHARMA* COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, H BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI