Royal Multisport Private Limited Vs ACIT (ITAT Mumbai)
Summary: The Mumbai ITAT partly allowed the assessee’s appeal for AY 2009-10 against the order passed by the CIT(A) under Section 250 of the Income Tax Act, 1961. The dispute principally concerned depreciation on IPL franchise rights and transfer pricing adjustment on management fees paid to the assessee’s Associated Enterprise (AE), EM Sporting Holdings Ltd., Mauritius.
The assessee had acquired franchise rights relating to the Rajasthan Royals pursuant to a successful bid before the BCCI for participation in the IPL. The franchise agreement provided exclusive rights to own and operate the team, participate in IPL matches, commercially exploit the franchise and receive various revenues. The total franchise consideration was approximately ₹268 crore, structured through a league deposit of ₹80.40 crore payable over ten years and franchise consideration of ₹187.60 crore payable in ten annual instalments of ₹18.76 crore each, with 20% of franchise income payable to BCCI from the 11th year. During the relevant year, the assessee paid ₹26.80 crore but capitalised the entire contractual consideration of approximately ₹268 crore and claimed depreciation of ₹67 crore under Section 32(1)(ii).
The Assessing Officer accepted that the franchise rights constituted an intangible asset eligible for depreciation but held that the actual cost could increase only as instalments became due and were paid. Depreciation was therefore restricted to ₹6.70 crore, being 25% of ₹26.80 crore, resulting in a disallowance of ₹60.30 crore. The CIT(A) upheld the disallowance.
