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

ITA 6262/MUM/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4849 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2012-2013
• Appeal Filed On: 24-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Business expenditure; Revenue expenditure; Capital expenditure
• Section: 37; 142(1); 37(1)

Judgement Text

1 INDIAWIN SPORTS P LTD IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C, MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) ITA NO. 5813/MUM/2016 (ASSESSMENT YEAR : 2012-13) INDIAWIN SPORTS P LTD THIRD FLOOR, COURT HOUSE LOKMANYA TILAK MARG DHOBI TALAO, MUMBAI-400 002 PAN: AADCR8195F VS ACIT, CENT.CIR.35, MUMBAI APPELLANT RESPONDEDNT ITA NO. 6262/MUM/2016 (ASSESSMENT YEAR : 2012-13) DCIT, CENT.CIR.6(2), MUMBAI VS INDIAWIN SPORTS P LTD THIRD FLOOR, COURT HOUSE LOKMANYA TILAK MARG DHOBI TALAO, MUMBAI-400 002 PAN: AADCR8195F APPELLANT RESPONDEDNT ASSESSEE BY SHRI MADHUR AGARWAL REVENUE BY SHRI AWUNGSHI GIMSON / SHRI ABI RAMA KARTIKEYAN DATE OF HEARING 13-11-2018 DATE OF PRONOUNCEMENT 13-02-2019 2 INDIAWIN SPORTS P LTD O R D E R PER G MANJUNATHA, AM : THESE CROSS APPEALS FILED BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A)-54, MUMBAI DATED 29 -07-2016 FOR THE ASSESSMENT YEAR 2012-13. SINCE FACTS ARE IDENTICAL AND ISSUES ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD T OGETHER AND ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. REVENUES APPEAL : ITA NO.6262/MUM/2016 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- (1) 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A), ERRED IN DIRECTING THE A.O. TO TREA T THE EXPENDITURE ON ACCOUNT OF FRANCHISE FEES OF RS.44.76 CRORE PAID TO BCCI FO R RIGHTS TO PARTICIPATE IN THE INDIAN PREMIER LEAGUE (IPL) AS REVENUE EXPENDIT URE INSTEAD OF CAPITAL EXPENDITURE FOR THE A.Y. 2012-13 RELYING ON THE DEC ISION OF THE HONBLE ITAT IN ASSESSEE'S OWN CASE FOR A.Y. 2009-10 862010-11 (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. IN TREA TING 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 T HE LIGHT OF AMENDMENT TO SECTION 55(2) (A) INSERTING 'OR RIGHT TO CARRY ON A NY BUSINESS' AS CAPITAL ASSET THROUGH THE FINANCE ACT ?' 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF OWNING, MANAGING AND OPERATING MUMB AI INDIAN TEAM OF THE INDIAN PREMIER LEAGUE. THE ASSESSEE HAS FILED RETU RN OF INCOME FOR AY 2012- 13 ON 26-09-2012 DECLARING TOTAL INCOME OF RS.2,93, 879. THE CASE HAS BEEN SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) AND 142(1) OF THE ACT, WERE ISSUED. IN RESPONSE TO NOTICES, AUTHORISED RE PRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAIL S, AS CALLED FOR. DURING THE 3 INDIAWIN SPORTS P LTD COURSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED THAT THE ASSESSEE HAS PAID AN AMOUNT OF RS.44.76 CRORES TO BCCI TOWARDS FRANCHISE FEES FOR IPL AND THE SAME HAS BEEN CLAIMED AS REVENUE EXPENDITURE. THE AO FU RTHER OBSERVED THAT THE COMPANY HAD ENTERED INTO A FRANCHISE AGREEMENT DATE D 10-04-2008 WITH BCCI- IPL. AS PER THE SAID AGREEMENT, THE COMPANY HAS RE CEIVED FRANCHISE RIGHTS FOR THE IPL TEAM MUMBAI INDIANS FOR A PERIOD OF 10 YE ARS WHICH COULD BE EXTENDED FURTHER. THE AGREEMENT FURTHER STATED THA T THE ASSESSEE NEEDS TO MAKE FIXED PAYMENT OF ANNUAL SUBSCRIPTION FEES FOR A PERIOD OF 10 YEARS TO LEAGUE ASSOCIATION AND SUBSEQUENT TO THAT PERIOD, T HERE IS AN ARRANGEMENT OF REVENUE SHARING. THE AO, CONSIDERING THE NATURE OF PAYMENT AND ALSO THE AGREEMENT BETWEEN THE PARTIES, CAME TO THE CONCLUSI ON THAT THE ANNUAL FRANCHISE FEES PAID TO BCCI IS IN THE NATURE OF CAP ITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT TO THE ASSESSEE. THEREFORE, CALLE D UPON THE ASSESSEE TO EXPLAIN AS TO WHY SAID EXPENDITURE SHALL NOT BE DIS ALLOWED. IN RESPONSE TO NOTICE, THE ASSESSEE, VIDE LETTERS DATED 18-11-2013 AND 27-12-2013, FILED A DETAILED SUBMISSION TO ARGUE THAT ANNUAL FRANCHISE FEES PAID TO BCCI IS A PERIODICAL PAYMENT WHICH NEEDS TO BE PAID EVERY YEA R, AS PER THE TERMS OF AGREEMENT BETWEEN THE ASSESSEE AND BCCI. THEREFORE , THE SAME CANNOT BE CONSIDERED AS CAPITAL IN NATURE WHICH GIVES ENDURIN G BENEFIT TO THE ASSESSEE. THE AO, AFTER CONSIDERING RELEVANT SUBMISSIONS OF T HE ASSESSEE AND ALSO BY 4 INDIAWIN SPORTS P LTD RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF JONAS WOODHEAD & SONS (I) LTD VS CIT 224 ITR 342(SC) HELD THAT THE ASSESSEE HAS PAID ANNUAL FRANCHISE FEES FOR ACQUIRING A RIGHT TO OPER ATE A TEAM BY THE TERMS OF THE LEAGUE AND BY VIRTUE OF THIS RIGHT, EACH FRANCH ISE IS ENTITLED TO RECEIVE CERTAIN REVENUE RELATING TO THE LEAGUE. THE RIGHT ACQUIRED IN THE FRANCHISE CAN BE SOLD OR CONTROLLING INTEREST CAN BE TRANSFERRED TO AN OUTSIDER, THEREFORE, FRANCHISE FEES PAID TO BCCI FOR ACQUIRING IPL RIGHT S IS IN THE NATURE OF CAPITAL EXPENDITURE WHICH CANNOT BE ALLOWED AS DEDUCTION. HE, FURTHER OBSERVED THAT SINCE EXPENDITURE IS IN THE NATURE OF A COMMERCIAL RIGHT, THE ASSESSEE IS ENTITLED FOR DEPRECIATION AS PER THE PROVISIONS OF SECTION 32(1) OF THE I.T. ACT, 1961 AND ACCORDINGLY WORKED OUT DEPRECIATION AND AL LOWED AS PER THE PROVISIONS OF THE ACT ON TOTAL FRANCHISE FEES PAID BY THE ASSESSEE. 4. AGGRIEVED BY THE ASSESSMENT ORDER, ASSESSEE PREF ERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ON THE ISSUE OF FRANCHISE FEES PAID TO BCCI IN LIG HT OF CERTAIN JUDICIAL PRECEDENTS TO ARGUE THAT SAID EXPENDITURE IS A REVE NUE EXPENDITURE WHICH WAS PERIODICALLY PAID TO BCCI ON ANNUAL BASIS FOR ACQUI RING RIGHT IN IPL MATCHES. THE AO HAS TREATED SAID EXPENDITURE AS CAPITAL IN NATUR E BY REFERRING TO CERTAIN CONDITIONS IN AGREEMENT BETWEEN THE ASSESSEE AND BC CI IGNORING IMPORTANT ASPECT OF THE ISSUE WHICH IS VERY RELEVANT TO DECID E THE ISSUE, I.E. THE SAID 5 INDIAWIN SPORTS P LTD PAYMENT IS A PERIODICAL PAYMENT PAID ANNUALLY BUT N OT LUMP SUM PAYMENT WHICH GIVES ENDURING BENEFIT TO THE ASSESSEE. THE ASSESSEE ALSO MADE AN ALTERNATIVE SUBMISSION THAT IF AT ALL THE SAID EXPE NDITURE HAS BEEN TREATED AS CAPITAL EXPENDITURE, THE ASSESSEE MAY BE ALLOWED DE PRECIATION U/S 32(1)(III) ON ENTIRE COST OF INTANGIBLE ASSET, BUT NOT ONLY ON PE RIODICAL PAYMENT PAID TO BCCI. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIO NS OF THE ASSESSEE AND ALSO BY FOLLOWING THE DECISION OF ITAT IN ASSESSEES OWN CASE FOR AYS 2009-10 AND 2010-11 HELD THAT ANNUAL FRANCHISE FEES PAID TO BCC I IS REVENUE IN NATURE AND ACCORDINGLY DIRECTED THE AO TO DELETE ADDITION MADE TOWARDS DISALLOWANCE OF FRANCHISE FEES. 5. AS REGARDS ALTERNATIVE CLAIM MADE BY THE ASSESSE E FOR DEPRECIATION ON TOTAL COST OF THE ASSET, SINCE THE DISALLOWANCE MAD E BY THE AO TOWARDS FRANCHISE FEES PAID HAS BEEN DELETED, THERE IS NO Q UESTION OF ALLOWANCE OF DEPRECIATION ON THE SAME AND ACCORDINGLY, DISMISSED THE GROUND TAKEN BY THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD.CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEARI NG SUBMITTED THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL IS SQUARELY CO VERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BENCH I IN ASSESSEES OWN CASE FOR AYS 2009-10 AND 2010-11 IN ITA NOS 5290 & 5291/MUM/ 2014, WHERE THE ITAT, 6 INDIAWIN SPORTS P LTD BY FOLLOWING THE CO-ORDINATE BENCH OF HYDERABAD TRI BUNAL IN THE CASE OF M/S DECCAN CHARGERS VS CIT IN ITA NO.1043/HYD/2013 HELD THAT ANNUAL FRANCHISE FEES PAID TO BCCI IS REVENUE EXPENDITURE. 7. THE LD.DR, ON THE OTHER HAND, FAIRLY ACCEPTED TH AT THE ISSUE IS COVERED BY THE DECISION OF ITAT, MUMBAI BENCH I FOR AYS 2 009-10 & 2010-11 IN ITA NOS 5290 & 5291/MUM/2014, IN ASSESSEES OWN CASE, B UT FURTHER ARGUED THAT THE LD.CIT(A) ERRED IN DELETING ADDITION MADE BY TH E AO TOWARDS ANNUAL FRANCHISE FEES PAID TO BCCI FOR RIGHT TO PARTICIPAT E IN INDIAN PREMIER LEAGUE AS REVENUE EXPENDITURE WITHOUT APPRECIATING THE FACT T HAT THE AO HAS BROUGHT OUT CLEAR FACTS IN LIGHT OF AGREEMENT BETWEEN THE P ARTIES THAT THE SAID EXPENDITURE IS CLEARLY IN THE NATURE OF CAPITAL EXP ENDITURE. 8. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE ISSUE INVOLVED IN THE PRESENT APPEAL, I.E. ANNUAL FRANCHISE FEES PAID TO BCCI FOR ACQUIRING RIGHT IN IPL MATCHES IS A REVENUE EXPENDITURE WHICH IS DEDUC TIBLE U/S 37(1) OR A CAPITAL EXPENDITURE WHICH GIVES ENDURING BENEFIT WAS A SUBJ ECT MATTER OF DELIBERATIONS BY THE ITAT, MUMBAI BENCH I IN ASSESSEES OWN CAS E FOR AYS 2009-10 & 2010- 11. THE ITAT, BY CONSIDERING RELEVANT FACTS AND AL SO BY FOLLOWING THE CO- ORDINATE BENCH OF HYDERABAD TRIBUNAL IN THE CASE OF DECCAN CHARGERS SPORTING VENTURES LTD (SUPRA) HELD THAT ANNUAL FRANCHISE FEE S PAID TO BCCI IS REVENUE IN 7 INDIAWIN SPORTS P LTD NATURE WHICH IS DEDUCTIBLE U/S 37(1) OF THE INCOME- TAX ACT, 1961. THE RELEVANT OBSERVATIONS OF THE ITAT ARE AS UNDER:- 9. WE HAD CAREFULLY GONE THROUGH ORDERS OF T HE CO-ORDINATE BENCH IN CASE OF M/S. DECCAN CHARGES (SUPRA) WHEREIN EX ACTLY SIMILAR ISSUE DECIDED BY TRIBUNAL IN ASSESSEE'S FAVOUR AFTER OBSE RVING AS UNDER: 'BEFORE CONSIDERING THE CLAIM OF ALIENABILITY OF DE DUCTION, IT IS NECESSARY TO DECIDE WHETHER THE AFORESAID FRANCHISE RIGHT IS A C APITAL ASSET ELIGIBLE FOR DEPRECIATION OR IT IS A REVENUE EXPENDITURE. AS PER CLAUSE 3 OF THE FA, THE IMPUGNED AGREEMENT SHALL COME INTO EFFECT UPON SIGN ATURE AND SHALL CONTINUE FOR SO LONG AS THE LEAGUE CONTINUES SUBJEC T TO TERMINATION, SUSPENSION OR RENEWAL AS PROVIDED (THE 'TERM'). AS PER CLAUSE 4 OF THE FA, THE FRANCHISEE (APPELLANT) HAS ACKNOWLEDGED AND AGR EED THAT BCCI-IPL OWNS THE CENTRAL RIGHTS AND THE BCCL HAS ALL PERVAS IVE RIGHTS TO EXPLOIT PRESENT AS WELL AS FUTURE CENTRAL RIGHTS. THE CENTR AL RIGHTS INCLUDES MEDIA RIGHTS, UMPIRE SPONSORSHIP RIGHTS, TILE SPONSORSHIP RIGHTS, OFFICIAL SPONSORSHIP RIGHTS, STADIUM ADVERTISING RIGHT, GAME S RIGHTS ETC. THE FRANCHISEE WOULD BE ALLOWED TO ENJOY ONLY T.HOSE RI GHTS WHICH BCCI-IPL WOULD ACKNOWLEDGE. ANOTHER VERY IMPORTANT CLAUSE LA ID DOWN IN THE FA F CLAUSE 7.1 (B)] IS THAT FROM AND INCLUDING 20J8 ONW ARDS, FOR DEFINITE PERIOD, AN AMOUNT EQUAL TO 20 PER CENT OF (HE FRANCHISEE IN COME RECEIVED IN RESPECT OF SUCH YEAR SHALL BE PAID TO BCCI-IPL BY THE FRANC HISEE 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 BCC I-IPL (CLAUSE 16 OF FA). FRANCHISEE SHALL ALSO NOT SUB-LET OR SUB-CONTRACT T HE FRANCHISEE RIGHTS WITHOUT PRIOR WRITTEN PERMISSION OF THE BCCI-IPL. F URTHER, AS PER CLAUSE 10.1 OF FA, THE APPELLANT DOES NOT HAVE ANY RIGHT T O ASSIGN OR DELEGATE THE PERFORMANCE OF ANY RIGHT OR OBLIGATIONS UNDER THIS AGREEMENT. THE SAME VESTS WITH BCCI-IPLONLY. PERUSAL OF THE ABOVE CLAUS ES REVEAL THAT UNDER THE TERMS OF THE AGREEMENT, APPELLANT COMPANY NEVER ENJOYS THE PROPRIETARY RIGHTS. THE PROPRIETARY RIGHTS CONTINUE TO VEST IN THE BCCI-IPL. THEREFORE, APPELLANT CANNOT BE REGARDED AS HAVING ACQUIRED EIT HER WHOLLY OR ANY PART OF PROPRIETARY RIGHTS BY OR UNDER THE AGREEMENT. TH EREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, FRANCHISE RIGHT CANN OT BE TREATED AS CAPITAL ASSET '. 6. WE AGREE WIIH THE ABOVE ORDER OF THE LD. CIT(A) AS THE. AMOUNT WAS NO! FOR ACQUIRING CAPITA! RIGHTS- IT IS FOR CONDUCTING THE MATCHES ON YEARLY BASIS. IF ASSESSEE HAS NOT PAID THE AMOUNT, IT LOSE S THE RIGHT TO CONDUCT THE MATCHES. ACCORDINGLY, LD. CIT(A) HAS COME TO CORREC T CONCLUSION THAT THE RIGHT ACQUIRED BY 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 AD JUDICATION IS WHETHER THE ABOVE FRANCHISE RIGHT CONSTITUTES CAPIT AL ASSET ENTITLED TO DEPRECIATION. NO DOUBT, SECTION 32(1) INCLUDES FRAN CHISE RIGHT AS PART OF THE INTANGIBLE ASSETS ENTITLED TO DEPRECIATION. THE MAIN REQUIREMENT 8 INDIAWIN SPORTS P LTD FOR CONSIDERING WHETHER THE FRANCHISE RIGHTS CONSTI TUTE 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 CAPITA! PAYME NT AND SUCH RIGHTS CONSTITUTE A DEPRECIABLE ASSET. JT HAS TO BE DETERMINED ON THE BASIS OF ACTUAL RIGHTS CONFERRED ON THE ASSESSEE. I S 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 CA N BE DRAWN FROM THE FOLLOWING INSTANCES: (I) TECHNICAL KNOW-HOW IS AN INTANGIBLE ASSE T AND ENTITLED TO DEPRECIATION U/S 32. HOWEVER, IF AN ANNUAL FEE IS P AID FOR THE USE OF TECHNICAL KNOW HOW AND RIGHT TO USE TECHNICAL KNOW HOW CEASES ON THE TERMINATION OF SUCH AGREEMENT, THEN IHE ANNUAL PAYM ENTS MADE ARE REVENUE IN CHARACTER AND ARE ALLOWABLE AS DEDUCTIBL E EXPENDITURE. THE HON'BLE SUPREME COURT IN THE CASE OFCITV. LA.E. C. (PUMPS) LTD, 232 ITR 316 (SQ HELD THAI USE OF PATENTS AND DESIGN S 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 F ACTS OF THE . PRESENT CASE SIMILARLY, IN CASE OF OTHER ASSETS ALSO WHICH ARE N ORMALLY TREATED AS FIXED ASSETS ENTITLED TO DEPRECIATION, IF AN ASSESS EE TAKES THESE ASSETS ON LEASE OR HIRE, THE PAYMENTS MADE ANNUALLY FOR TH E RIGHT TO USE THESE ASSETS ARE REVENUE EXPENDITURE.. THEY WOULD NOT BE TREATED AS CAPITAL ASSETS ENTITLED TO DEPRECIATION ON {HE ANNUAL LEASE PAYMENTS. RENTAL PAYMENT IN RESPECT OF BUILDINGS, WHICH ARE FIXED AS SETS, TAKEN ON LEASE WOULD CONSTITUTE REVENUE EXPENDITURE. WHATEVER MAY BE THE PERIOD OF LEASE, THE ANNUAL PAYMENT WILL BE ONLY REVENUE IN N ATURE. IN FACT THE MADRAS HIGH COURT IN THE CASE OF CIT V: GEMINI AM ( P) LTD, 254 ITR 201, FOLLOWING THE APEX COURT IN CJT V. MADRAS AUTO SERVICES PVT. LTD, 233 ITR 468 (SQ, HAS HELD THAT UPFRONT PAYMENT OF FUTURE RENT FOR 41 YEARS WOULD STILL BE REVENUE EXPENDITURE. 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 CO NSTITUTE CAPITAL PAYMENT BIN NO! A PERIODIC PAYMENT FOR THE ACTUAL U SE OF THE PROPERTY[CIT V. PANBARI TEA CO. LTD. 57 ITR 422 (SC )]. WHILE TENANCY RIGHT PER SC IS CONSIDERED AS A CAPITAL ASS ET [5.5 (2)], PAYMENT FOR THE USAGE OF SUCH TENANCY RIGHT IS ALWAYS REVEN UE EXPENDITURE. (IV) THE KARNATAKA HIGH COURT IN THE CASE OF C IT V. HMT LTD. 203 ITR 820 HAS HELD THAT EVEN THOUGH LUMP SUM AMOUNT P AID AS PREMIUM IN CONNECTION WITH LEASE OF PROPERTY AS LONG AS IF IS TOWARDS RENT FOR THE USE OF THE PROPERTY, IT IS ALLOWABLE AS REVENUE EXPENDITURE. (V) THE SUPREME COURT IN THE CASE OF EMPIRE J UTE MANUFACTURING CO, [124 ITR I (SC)] HAS HELD THAT EVEN IF THE PAYM ENT GIVES BENEFITS FOR A PERIOD OF TIME IT WILL BE IN THE REVENUE FIEL D ONLY, IF IT IS INCURRED IN CONNECTION WITH DAY TO DAY OPERATION AND DOES NO T AFFECT THE CAPITAL STRUCTURE OF THE ASSESSEE. (VI) EXPENDITURE ON TECHNICAL KNOW-HOW, EVEN I F OF ENDURING CHARACTER IS REVENUE EXPENDITURE IF ITS IMPACT IS O N THE RUNNING OF BUSINESS [CIT V MRF LTD, 144 ITR 678 (MAD)). 9 INDIAWIN SPORTS P LTD (VII) ACQUISITION OF GOODWILL OF BUSINESS IS ACQ UISITION OF CAPITAL ASSET AND THEREFORE, ITS PURCHASE PRICE WOULD BE CA PITAL EXPENDITURE. WHERE, HOWEVER, THE TRANSACTION IS NOT ONE FOR ACQU ISITION 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 C.LE.NR THAT THE CHARACTER OF THE PAYMENT WOULD DEPEND ON NATURE OF RIGHTS ACQ UIRED AND F $IE PERIOD FOR WHICH SUCH RIGHTS WAS ACQUIRED BY THE APPELLANT. AN Y MADE FOR OBTAINING A COMMERCIAL RIGHT WOULD BE A CAPITAL EX PENDITURE. BUT PAYMENT MADE PERIODICALLY FOR EXPLOITING SUCH RIGHTS IS REVENUE IN NATURE. TH EREFORE, IN THE INSTANT CASE, PAYMENT MADE AT THE FIRST INSTANCE FOR GRANT OF RIG HT TO BE FRANCHISEE CAN BE CONSIDERED AS CAPITAL PAYMENT. HOWEVER, THE SUBSEQU ENT ANNUAL PAYMENTS MADE BY THE ASSESSEE ARE CLEARLY FOR EXPLOITING THE RIGH TS 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 I S REVENUE IN NATURE BECAUSE BY MAKING SUCH ANNUAL PAYMENT THE APPELLANT DOES NOT A CQUIRE ANY RIGHTS OF PERMANENT NATURE '. 7. IN VIEW OF THESE JUDICIAL PRINCIPLES WHICH CLEAR LY APPLY TO THE FACTS OF THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORD ER OF CIT(A) WHO ANALYSED THE ISSUE ON THE GIVEN FACTS. THERE IS NO MERIT IN REVE NUE 'S GROUNDS AND ACCORDINGLY, REVENUE 'S APPEAL IS DISMISSED. ' 10. RESPECTFULLY FOLLOWING THE DECISION OF CO-ORDIN ATE BENCH ON THE SIMILAR FACTS, WE DO NOT FIND ANY MERIT FOR TREATIN G THE ASSESSEE'S CLAIM AS CAPITAL EXPENDITURE, WHICH IS ESSENTIALLY REVENU E IN NATURE. ACCORDINGLY WE SET ASIDE THE ORDER OF IOWER AUTHORI TIES AND DIRECT THE AO TO ALLOW ASSESSEE'S CLAIM OF REVENUE EXPENDITURE . AS WE HAVE ALREADY DECIDED GROUND NO.1 IN ASSESSEE'S FAVOUR BY HOLDING THAT ANNUAL PAYMENT OF RS.447.60 CRORES BEING FRANCHISE FEES PAID TO BCCI TO PARTICIPATE IN IPL WAS REVENUE IN NATURE, THEREF ORE, ALLOWABLE DURING THE YEAR UNDER CONSIDERATION, WE ARE NOT GOING TO A SSESSEE'S ALTERNATE CLAIM OF ALLOWING DEPRECIATION ON THE ENTIRE VALUE OF INTANGIBLE RIGHTS, WHICH IS ALSO SUPPORTED BY THE DECISION OF CO-ORDIN ATE BENCH IN CASE OF INDIA CEMENTS LIMITED, INDIA CEMENTS LIMITED ORDER DATED 01.01.2016. 12. FACTS REMAIN UNCHANGED. THE REVENUE FAILS TO B RING ON RECORD ANY NEW FACTS CONTRARY TO THE FACTS RECORDED BY THE ITAT IN THE LIGHT OF CERTAIN JUDICIAL PRECEDENTS. THE REVENUE ALSO FAILED TO BRING ON RE CORD ANY CONTRARY DECISION IN ITS FAVOUR. THEREFORE, CONSISTENT WITH THE VIEW TA KEN BY THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIER YEARS, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN THE FINDINGS RECORDED BY THE L D.CIT(A) WHILE DELETING 10 INDIAWIN SPORTS P LTD ADDITION MADE BY THE AO TOWARDS ANNUAL FRANCHISE FE ES PAID TO BCCI. HENCE, WE ARE INCLINED TO UPHOLD THE ORDER OF LD.CIT(A) AN D DISMISS APPEAL FILED BY THE REVENUE. 13. ASSESSEES APPEAL : ITA NO.5813/MUM/2016 14. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS O F APPEAL:- 1. THE LEARNED COMMISSIONER OF INCOME-TAX - { APPEALS - 54) {HEREINAFTER REFERRED TO AS CIT(A)} ERRED IN CONFIRMING THE ACTI ON OF THE ASSTT. COMMISSIONER OF INCOME-TAX CC-35, MUMBAI (HEREINAFTER REFERRED T O AS AO) IN DISALLOWING AN AMOUNT OF RS.20,64,019/- BEING TRAVELLING EXPENSES INCURRED ON BEHALF OF FAMILY MEMBERS OF PLAYERS, BY HOLDING THAT THESE PERSONS H AVE NOT RENDERED ANY SERVICE TO THE APPELLANT AND THE EXPENSES ARE PRIVA TE EXPENSES OF INDIVIDUALS UNRELATED TO THE BUSINESS. THE APPELLANT SUBMITS THAT THE TRAVELLING EXPENSES INCURRED ON BEHALF OF FAMILY MEMBERS OF PLAYERS ARE INCURRED FOR THE PURPOSE OF BUSINESS AND THE SAME SHOULD BE ALLOWED AS CLAIMED. 2. THE CIT(A) ERRED IN CONFIRMING THE ACTION O F THE AO IN DISALLOWING AN AMOUNT OF RS. 31,47,0647- BEING 10% OF HOSPITALITY EXPENSES OF RS 3,14,70,644/- ON ADHOC BASIS BY HOLDING THAT THE SA ME IS NOT RELATED TO APPELLANTS BUSINESS. THE APPELLANT SUBMIT THAT THE HOSPITALITY EXPENSES HAVE BEEN INCURRED IN THE COURSE OF CARRYING ON BUSINESS AND DULY SUPPORTED B Y EVIDENCES. THE APPELLANT THEREFORE SUBMITS THAT THE ADHOC DISALLOWANCE MADE BY THE AO AND CONFIRMED BY CIT(A) IS BASELESS AND SHOULD BE DELETED IN TOTA L. 15. THE FIRST ISSUE THAT CAME UP FOR OUR CONSIDERAT ION FROM ASSESSEES APPEAL IS DISALLOWANCE OF TRAVELLING EXPENDITURE INCURRED FOR FAMILY MEMBERS OF PLAYERS FOR THE REASON THAT EXPENDITURE INCURRED TO WARDS TRAVELLING EXPENSES OF RELATIVES OF PLAYERS IS NEITHER INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS NOR RELATED TO THE BUSINESS OF THE ASSESSE E. ON APPEAL, THE LD.CIT(A) CONFIRMED THE FINDINGS OF THE AO WHILE CONFIRMING D ISALLOWANCE OF TRAVELLING EXPENDITURE INCURRED ON FAMILY MEMBERS OF PLAYERS. 11 INDIAWIN SPORTS P LTD 16. THE LD.AR FOR THE ASSESSEE, AT THE TIME OF HEAR ING, SUBMITTED THAT ALTHOUGH THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISION OF ITAT, MUMBAI BENCH H FOR AY 2011-12, BUT FACT REMAINS T HAT THE ITAT HAS CONFIRMED THE ADDITION MADE BY THE AO BY HOLDING TH AT NO NEW FACTS HAVE BEEN BROUGHT ON RECORD TO CONTROVERT THE FINDINGS O F THE CIT(A) AND, THEREFORE, THERE IS NO REASON TO INTERFERE WITH THE FINDINGS W ITHOUT APPRECIATING THE FACTS PLACED BEFORE THE TRIBUNAL. THE LD.AR FURTHER SUBM ITTED THAT THE NECESSITY OF EXPENDITURE I.E. THE REQUIREMENT OF CONTRACTUAL OBL IGATION TO INCUR SAID EXPENDITURE IS NOT RELEVANT. THE TRIBUNAL REJECTED THE ARGUMENTS THAT THE PRESENCE OF THE SPOUSE OF THE PLAYER HELPS IN ATTRA CTING SPONSORS AS WELL AS PROVIDES MORAL SUPPORT TO THE PLAYERS WHICH ULTIMAT ELY HELPED THE BUSINESS OF THE ASSESSEE. IN THIS REGARD, HE RELIED UPON VARIO US JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF TATA SONS LTD VS CIT 18 ITR 469 (BOM). 17. THE LD.DR, ON THE OTHER HAND, STRONGLY SUPPORTE D THE ORDER OF THE LD.CIT(A). 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. ADMITTEDLY, THE ISSUE INVOLVED IN THE PRES ENT APPEAL, I.E. WHETHER TRAVELLING EXPENSES INCURRED ON FAMILY MEMBERS OF P LAYERS IS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND WHI CH IS RELATED TO THE BUSINESS 12 INDIAWIN SPORTS P LTD OF THE ASSESSEE WAS A SUBJECT MATTER OF DELIBERATIO NS BY THE ITAT, MUMBAI BENCH H IN ASSESSEES OWN CASE FOR AY 2011-12 WHE RE THE TRIBUNAL HELD THAT THE ASSESSEE FAILED TO MAKE OUT A CASE FOR NECESSIT Y OF INCURRING EXPENDITURE ON THE FAMILY MEMBERS OF THE PLAYERS. THE RELEVANT OB SERVATIONS OF THE TRIBUNAL ARE AS UNDER:- 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND GONE TH ROUGH THE ORDERS OF AUTHORITIES BELOW AND ALSO DELIBERATED BY THE JUDICIAL PRONOUNCEMENTS CITED BY THE ID. AR DURING THE COURS E OF HEARING BEFORE US. FROM THE RECORD WE FOUND THAT THE ASSESSEE HAD DEBITED RS.44.76 CRORES PAID TO THE BCCI-IPL AS FRANCHISEE FEES FOR THE IPL AND CLAIMED THE SAME AS REVENUE EXPENDITURE FOR THE AYS UNDER CONSIDERATION . IT WAS OBSERVED THAT THE APPELLANT HAD ENTERED INTO FRANCH ISEE AGREEMENT DATED 10.04.2008 WITH THE BCCL-IPL AND HAD GOT FRANCHISE RIGHTS FOR THE MUMBAI INDIAN TEAM FOR THE TERM OF THE LEAGUE. IN THE CURR ENT YEAR, THE APPELLANT HAD PAID RS.44.76 CRORES TO THE BCCL-IPL ON THIS AC COUNT, AS PER THE TERMS AND CONDITIONS OF AGREEMENT PAYMENT WAS TO BE MADE ANNUALLY AS PER THE CONTRACTUAL OBLIGATION OF THE ASSESSEE TO E XPLOIT THE FRANCHISEE. THIS WAS AN ANNUAL PAYMENT SPREAD OVER THE PERIOD O F RIGHT GRANTED AND DIRECTLY RELATED TO THE EARNING OF INCOME EACH YEAR . THIS ANNUAL FRANCHISEE FEES WAS PAYABLE IN 2 PARTS I.E. RS. 13,42,80,000/- AS LEAGUE DEPOSIT ON OR BEFORE 2ND JAN AND RS,31,33,20,000/- ON THE DATE OF THE FIRST MATCH IN THE LEAGUE IN EACH YEAR. THE LEAGUE DEPOSIT WAS REF UNDABLE, IF LEAGUE DID NOT TAKE PLACE AND IN THAT EVENT THE FRANCHISEE IS NOT REQUIRED TO PAY FRANCHISEE FEE. THE PAYMENT WAS AN ANNUAL CHARGE AN D HENCE THE FRANCHISE FEE WAS CLAIMED AS BUSINESS EXPENDITURE. REFERRING TO CLAUSES 1.2 AND 11 OF THE SAID AGREEMENT, THE ASSESSEE HAS RIGH T TO OPERATE THE OF THE IFL AND HAS RIGHT TO TERMINATE THE AGREEMENT, I F THE MATCHES DO NOT TAKE PLACE FOR TWO CONSECUTIVE YEARS. THE AGREEMENT BETWEEN THE PARTIES CAN BE TERMINATED BY THEM WITH IMMEDIATE EFFECT BY GIVING NOTICE TO OTHER PARTY ON BREACH OF ANY CLAUSE IN THE AGREEMENT. THU S, THE ASSESSEE, IN THE LIGHT OF ABOVE TERMINATION CLAUSE, HAS NOT RECE IVED ANY ENDURING BENEFIT BY PAYING ANNUAL FRANCHISE FEES. THOUGH IT WAS GRANTED SOME RIGHTS, BUT 'CENTRAL RIGHTS' WHICH ARE CRUCIAL FOR MANAGING AND OPERATING THE TEAM, ARE RETAINED BY THE BCCI AS STIPULATED CL AUSE 4.1 OF THE FRANCHISE AGREEMENT. THE RIGHTS EXERCISED BY THE AS SESSEE ARE SUBJECT TO PRIOR DECISION AND ACKNOWLEDGEMENT OF BCCI AS CATEG ORICALLY STIPULATED IN CLAUSE 4.3 OF THE AGREEMENT. HENCE, THE ASSESSEE WA S NOT GRANTED ANY ABSOLUTE RIGHT BUT ONLY A LIMITED ONE. 13 INDIAWIN SPORTS P LTD 19. WE FURTHER NOTICE THAT ALTHOUGH THE LD.AR FOR T HE ASSESSEE TRIED TO ARGUE THE CASE IN LIGHT OF CERTAIN JUDICIAL PRECEDENTS TH AT THE PRESENCE OF SPOUSE OF THE PLAYERS AND THEIR FAMILY MEMBERS HELPED IN ATTR ACTING SPONSORS AS WELL AS PROVIDE MORAL SUPPORT TO THE PLAYERS WHICH ULTIMATE LY HELPS THE BUSINESS OF THE ASSESSEE. BUT, CONSIDERING THE FACT THAT THE ISSUE AND IS ALREADY CONSIDERED BY THE TRIBUNAL KEEPING IN VIEW THE JUDICIAL DISCIPLIN E, WE ARE NOT INCLINED TO ACCEPT THE ARGUMENTS OF THE LD.AR FOR THE ASSESSEE. THEREFORE, WE AFFIRM THE ADDITION MADE BY THE AO TOWARDS DISALLOWANCE OF TRA VELLING EXPENSES INCURRED ON FAMILY MEMBERS OF PLAYERS. 20. THE NEXT ISSUE THAT CAME UP FOR OUR CONSIDERATI ON FROM ASSESSEES APPEAL IS ADHOC DISALLOWANCE OF 10% OF HOSPITALITY EXPENSE S. THE AO HAS DISALLOWED 10% OF HOSPITALITY EXPENSES OF RS.31,47,064 UNDER T HE HEAD, HOSPITALITY EXPENDITURE FOR PROVIDING LUNCH AND OTHER ENTERTAI NMENT FACILITIES TO INDIVIDUALS IN CORPORATE BOXES, VVIP AREA, ETC. TH E SAID EXPENDITURE HAS BEEN CLEARLY INCURRED FOR PERSONS OTHER THAN THE CRICKET TEAM OF THE ASSESSEE AND ITS STAFF AND HAS ELEMENT OF PERSONAL USE EMBEDDED IN I T. THEREFORE, MADE ADHOC DISALLOWANCE OF 10% OF SUCH EXPENDITURE. ON APPEAL , THE LD.CIT(A) HAS CONFIRMED THE FINDING OF THE AO. 21. AT THE TIME OF HEARING, THE LD.AR FOR THE ASSES SEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF ITAT, MUMBAI 14 INDIAWIN SPORTS P LTD BENCH I IN ITA NO.5291/MUM/2014 FOR AY 2010-11 WH ERE IN MISCELLANEOUS APPLICATION NO.3131/MUM/2016, THE ITAT HAS DELETED ADDITION MADE BY THE AO TOWARDS 10% ADHOC DISALLOWANCE OF HOSPITALITY EXPEN SES. 22. HAVING CONSIDERED THE ARGUMENTS OF BOTH THE SID ES, WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL AS REGARDS ADH OC DISALLOWANCE OF HOSPITAL EXPENSES WAS A SUBJECT MATTER OF DELIBERATIONS BY T HE CO-ORDINATE BENCH OF ITAT. THE ITAT, AFTER CONSIDERING RELEVANT FACTS, HAS DELETED ADDITION MADE BY THE AO. THE RELEVANT OBSERVATIONS OF THE BENCH ARE AS UNDER:- 6. FOLLOWING DECISIONS LAY DOWN THE RATIO THAT A CO MPANY BEING AN ARTIFICIAL PERSON, THERE CANNOT BE ANY PERSONAL ELE MENT IN EXPENSES INCURRED BY A COMPANY AND SUBSEQUENTLY, NO DISALLOW ANCE IN THE HANDS OF A COMPANY CAN BE MADE U/S 37 OF THE ACT. THE ADD ITION, IF ANY, CAN BE MADE IN THE HANDS OF A PERSON (E.G. EMPLOYEE, DIREC TORS ETC.) RECEIVING SUCH BENEFITS. SAYAJI IRON & ENGG. CO (A LEADING JUDGEMENT- IT HAS UBSEQUENTLY BEEN FOLLOWED BY THE MUMBAI TRIBUNAL IN VARIOUS CASES AS UNDER) 253 ITR 749 GUJARAT HC RAMKISHIN TEXTILES (P.) LTD VS ITO (PARA-8) 16TAXMA NN.COM 57 ITAT-MUMBAI JOHNSON & JOHNSON LTD VS ACIT (PARA-35) 43 TAXMANN .COM 255 ITAT-MUINBAI KSS LTD-{2016) VS DOT (PARA-6.2) 66 TAXMANN. COM 97 ITAT-MUMBAI FAIRFIELD ATLAS LTD. VSACFT (PARA-9) 3 TAXMANN. COM 760 ITAT-MUNTBAI 15 INDIAWIN SPORTS P LTD VIESHESH FILMS (P.) LTD. VS DOT (PARA-7) 26 SOT 64 ITAT-MUMBAI NTERSIL INDIA LTD. VS ADD.CIT (PARA- J2-6) 101ITD85 ITAT- MUMBAI VFARKWELL HOSE INDUSTRIES (P.) LTD.VS JCIT PARA 1 9) 95ITD27I FTAT-MUMBAI 7. RESPECTFULLY FOLLOWING THE PROPOSITIONS LAID DOW N IN ABOVE JUDICIAL PRONOUNCEMENTS, WE DO NOT FIND ANY MERIT FOR THE DI SALLOWANCE OF 10% OF THE HOSPITALITY EXPENSES ON ADHOC BASIS IN THE HAND S OF THE ASSESSEE BEING A CORPORATE ENTITY / ARTIFICIAL PERSON. 23. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH THE VIEW TAKEN BY THE CO- ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN MAKING ADHOC DISALLOWANCE OF 10% OF HOSPITALITY EXP ENDITURE. THEREFORE, WE DIRECT THE AO TO DELETE ADDITION MADE TOWARDS HOSPI TALITY EXPENSES. 24. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 25. AS A RESULT, APPEAL FILED BY THE REVENUE IS DIS MISSED AND APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 -02-2019 . SD/- SD/- (C.N. PRASAD) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 13 TH FEBRUARY, 2019 PK/- 16 INDIAWIN SPORTS P LTD COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI