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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 ..... owards right to operate IPL franchises of 'Deccan Chargers' (DC) for a period of ten years. The facts relating to this addition are that the assessee-company is wholly owned subsidiary of M/s. Deccan Chronicle Holdings Limited (DCHL). During the year, the DCHL was successful in its bid and acquired franchisee rights of DC of BCCI-IPIL-20 Cricket for the highest bid amount of Rs. 428.04 Crores. Assessee was awarded the right to operate the IPL franchise of DC for a period of ten years for which it was required to pay Rs. 42.08 Crores every year, starting from 2008 to 2017. After this bid was won by DCHL, a 100% wholly owned subsidiary company M/s. Deccan Chargers Sporting Ventures Limited (DCSVL) was incorporated on 10-04-2008 for ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. over a period of 10 year period itself. Accordingly Franchisee fees paid for the year is charged off in the year of incurrence itself. Hence, revised return filed". 3.2. Going by the enduring right over the franchisee assessee acquired, the AO proposed to treat the franchisee fee as capital and required assessee to furnish its objections. After going through the detailed reply of assessee, which substantiated its claim of revenue expenditure as claimed in the revised return, the AO relying on a plethora of judicial decisions held that : i. What was set up by the franchisee was a new business and the payments for setting up of the business represent capital expenditure; ii. Merely because the payments are required to be made in annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly pointed by the Ld. CIT(A), assessee in the original return has shown the total franchise fee at Rs. 428.40 Crores as 'capital' and claimed depreciation of Rs. 107.01 Crores at 25%. Later on, assessee realized that the amount paid on yearly basis is revenue expenditure and there is no need to capitalize the future payments also. Consequently, the return filed originally at Rs. 87,08,88,716/- was modified and revised return was filed claiming loss of Rs. 22,88,28,716/-. Ld. CIT(A) analysed whether the franchise right is a capital asset or not, vide para 5.3.2 as under: "Before considering the claim of allowability of deduction, it is necessary to decide whether the aforesaid franchise right is a capital asset eligible for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any right to assign or delegate the performance of any right or obligations under this agreement. The same vests with BCCI-IPLonly. Perusal of the above clauses 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 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". 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 yearly basis. If assessee has not paid the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aracter and are allowable as deductible expenditure. The Hon'ble Supreme Court in the case of CIT v. L.A.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 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 asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure if its impact is on the running of business [CIT V MRF Ltd, 144 ITR 678 (Mad)). (vii) Acquisition of goodwill of business is acquisition 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 obtaining a commercial right would be a capital expenditure. But payment made periodically for exploiti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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