Case Law Details

Case Name : M/s. Royal Challenger Sports Pvt. Ltd. Vs Deputy Commissioner of Income-tax (ITAT Bangalore)
Appeal Number : ITA No.59/Bang/2015
Date of Judgement/Order : 20/07/2018
Related Assessment Year : 2010-11
Courts : All ITAT (6377) ITAT Bangalore (315)

M/s. Royal Challenger Sports Pvt. Ltd. Vs DCIT

Assessee challenges the addition on account of contribution made to Cricket Academy of Rs.45 lakhs holding it to be capital expenditure. The assessee made a contribution of Rs.45 lakhs to Karnataka State Cricket Association (KSCA) for the purpose of creating a cricket academy. The assessee was also a Franchisee of BCCI-IPL, which owns Royal Challengers Bangalore Team and is also owner of a cricket team and had commercial interest in the game of cricket. This contribution was made in terms of agreement with Karnataka State Cricket Association. The objectives for which the Cricket Academy was 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 to cricket development

-To percolate international cricket practise to domestic levels

-To be a leader in cricket development and to be recognized nationally and internationally as a centre of 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 are directly related to business interest of the assessee. Therefore, the contribution made for creation of Cricket Academy can be held to be in business interest and the same is allowable as deduction.

FULL TEXT OF THE ITAT JUDGMENT

This is an appeal filed by the assessee directed against the order of the learned Commissioner of Income-tax (Appeals)-VI, Bengaluru [CIT(A)] dated 07/10/2014 for the assessment year 2010-11.

2. The assessee raised the following grounds of appeal: 

 1. That the order of Assessing officer/CIT (A) in so far as it is against the appellant is against the law, facts, facts, circumstance, natural justice, equity, without jurisdiction, bad in law and all other known principles of law.

2. That the total income computed is hereby disputed.

3. That the authorities below erred in disallowing expenditure on account of contribution to cricket academy amounting to Rs. 45,00,000/-by holding it as capital expenditure.

4. That the authorities below erred in disallowing ticking expenses amounting to Rs. 51,47,000/-

5. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the appellant requests that the appeal be allowed as prayed and justice be rendered.

3. The assessee is a company duly incorporated under the provisions of the Companies Act, 1956. The main activity of the assessee-company is stated to be one of the Franchisee of BCCI-IPL which organizes T-20 format cricket matches. The return of income for the assessment year 2010-11 was filed on 01/10/2010 declaring loss of Rs.91,10,62,798/- and subsequently revised loss at Rs.26,55,04,799/- Against the said return of income the assessment was completed vide order dated 22/02/2013 passed u/143(3) of the Income-tax Act, 1961 [hereinafter referred to as ‘the Act’ for short] at total loss of Rs.25,58,57,798/-. The disparity between the returned loss and the assessed loss is on account of disallowance of amount of contribution made to Karnataka State Cricket Association (KSCA), Bengaluru, for construction of Cricket Academy of Rs.45 lakhs and also disallowance of ticketing expenses of Rs.51,47,000/-.

4. Being aggrieved, an appeal was preferred before the ld.CIT(A) who vide impugned order, confirmed the order of the AO.

5. Being aggrieved, the assessee is before us in the present appeal.

5.1 Learned AR of the assessee submitted that the contribution of Rs.45 lakhs was made by the assessee for creation of Cricket Academy for the purpose of training and development of enthusiastic cricketers and to create platform of talented cricketers who could participate in the league matches wherein the assessee is  a participant. He further submitted that creation of facilities is  essential for identification of talent in young players and to ensure them with a provision of adequate training and coaching facilities. Hence, this contribution was made in the ordinary course of business of the assessee and should be allowed as business expenditure as it was incurred wholly and exclusively for the purpose of the assessee. Reliance in this regard was placed on the decision of the Hon’ble Supreme Court in the case of CIT vs. Malayalam Plantation Ltd. (53 ITR 140). It was further submitted that on account of making this contribution, the assessee had not  acquired any asset of an enduring nature or enduring benefit as the benefit to join the team still rests with the concerned player. Therefore, it should not be treated as capital expenditure in the light of the Hon’ble Apex Court decision in the case of Empire Jute Co. Ltd. vs. CIT (124 ITR 1).

 5.2 As regards ticketing expenses of Rs.51,47,000/- it is submitted that one of the major sources of assessee’s income is income from sponsorship with United Spirits Ltd., being one of the chief sponsors. As per this sponsorship agreement, the assessee-  company had obligation to provide free hospitability and provide free tickets in lieu of consideration received from its sponsors. He  further submitted that the AO never doubted the genuineness of the expenditure. As the tickets were purchased and issued in the business interest of the company the same should be allowed as deduction. The expenditure was incurred to maintain good relations and by keeping representatives of foreign collaborators in good humour and therefore, should be allowed as a business expenditure.

5.3 On the other hand, learned Departmental Representative placed reliance on the orders of the lower authorities.

6. We heard rival submissions and perused the material on record. The assessee 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 to be capital expenditure. The assessee made a contribution of Rs.45 lakhs to Karnataka State Cricket Association (KSCA) for the purpose of creating a cricket academy. The assessee was also a Franchisee of BCCI-IPL, which owns Royal Challengers Bangalore Team and is also owner of a cricket team and had commercial interest in the game of cricket. This contribution was made in terms of agreement with Karnataka State Cricket Association. The objectives for which the Cricket Academy was 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 to cricket development

-To percolate international cricket practise to domestic levels

-To be a leader in cricket development and to be recognized nationally and internationally as a centre of 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 are directly related to business interest of the assessee. Therefore, the contribution made for creation of Cricket Academy can be held to be in business interest and the same is allowable as deduction. Accordingly, we allow this ground of appeal.

As regards the ticketing expenses, there is neither doubt about genuineness of the expenditure nor that the expenditure incurred was for business purpose. Undoubtedly, this expenditureincurred by the assessee was to promote goodwill and enhance the business interest and therefore, the same is allowable as a business deduction in the light of the decision of the Hon’ble High Court Punjab & Haryana in the case of CIT vs. Avery Cycle Inds. Ltd., (296 ITR 393)(P&H) and Gujarat High Court decision in the case of Karjan Co-operative Cotton Sales Ginning & Pressing Society vs. CIT (199 ITR 17)(Guj.).

7. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 20th July, 2018

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