TMI Blog2016 (7) TMI 1568X X X X Extracts X X X X X X X X Extracts X X X X ..... 90 & 5291/Mum/2014 - - - Dated:- 22-7-2016 - SHRI R.C. SHARMA, AM AND SHRI AMARJIT SINGH, JM For the Appellant : Shri Arvind Sonde For the Responent : Shri B.C.S.Naik ORDER PER R.C. SHARMA (A.M): These are the appeals filed by the assessee against the order of CIT(A), Mumbai, for the assessment years 2009-2010 2010-2011, in the matter of order passed u/s.143(3) of the I.T.Act. 2. In both these appeals the assessee is aggrieved for decline of annual payment being franchise fees paid to BCCI to participate in the Indian Premier League (IPL) by holding the same as capital in nature for both the assessment years under consideration. 3. Rival contentions have been heard and record perused. Facts in brief are that the assessee is engaged in the business of owning, managing and operating 'Mumbai Indian' team of Indian Premier League (IPL). The assessee has been granted perpetual franchisee for the 'Mumbai Indian' team. The assessee is franchise holder of IPL i.e. Indian Premier League. The IPL is 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business expenditure. Referring to clauses 1, 2 and 11 of the said agreement, the assessee has right to operate the Franchise of the IFL and has right to terminate the agreement, if 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. Thus, the assessee, in the light of above termination clause, has not received 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 in clause 4.1 of the Franchise Agreement. The rights exercised by the assessee are subject to prior decision and acknowledgement of BCCI as categorically stipulated in clause 4.3 of the agreement. Hence, the assessee was not granted any absolute right but only a limited one. 6. From the record we found that during F.Y. 2007-08 (Le. A.Y. 2008- 09), the assessee has paid ₹ 20,00,00,000/- on 20.01.2008 as deposit (which was in terms of clause 7.1 of franchise agreement) for the matches to be held in April, 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. 8. As an alternate it was contended by ld. AR that assessee be allowed depreciation on the cost of intangible assets as contemplated u/s.32(1)(ii) of ₹ 447.60 crores. In support of its claim of depreciation on the entire value of intangible assets, ld. AR placed on record order of the coordinate bench in the case of Indian Cements Ltd., ITA No.1343/Mds/2010, order dated 1-1-2016, wherein claim of depreciation u/s.32(1)(ii) was allowed on the entire cost of intangible assets. 9. We had carefully gone through orders of the co-ordinate bench in case of M/s. Deccan Charges (supra) wherein exactly similar issue decided by Tribunal in assessee s favour after observing 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 depreciation or it is a revenue expenditure. As per clause 3 of the FA, the impugned agreement shall come into effect upon signature and shall continue for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... includes franchise right as part of the intangible assets entitled to depreciation. The main requirement for considering 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 intangible 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 drawn from the following instances: (i) Technical know-how is an intangible asset and entitled to depreciation u/s 32. However, 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 Hon'ble Supreme Court in the case of CIT v. LA.E.C. (Pumps) Ltd, 232 ITR 316 (sq held that use of patents and designs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 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, the franchise fee paid is revenue in nature because by making such 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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