Royal Multisport Private Limited Vs ACIT (ITAT Mumbai)
Summary: The Special Bench of the Income Tax Appellate Tribunal, Mumbai considered two questions concerning franchise payments made by Royal Multisport Private Limited, formerly known as Jaipur IPL Cricket Private Limited, in connection with its Rajasthan Royals franchise in the Indian Premier League (IPL). The reference arose from the Division Bench’s order constituting the Special Bench by order dated 15-09-2020. The appeals before the Special Bench included ITA Nos. 3602/Mum/2014, 3727/Mum/2014, 1113/Mum/2016 and 1114/Mum/2016 concerning Assessment Years 2009-10, 2010-11 and 2011-12.
The first question was whether the franchise payment made by the assessee was capital or revenue in nature. The second question was, if the payment was capital, whether depreciation was allowable on the entire franchise fee and league deposit or only on the annual instalments of franchise payment and league deposit actually paid by the assessee.
The assessee was the owner of Rajasthan Royals, which participated in the IPL organised by the Board of Control for Cricket in India (BCCI). Following the auction process, the assessee obtained franchise rights and entered into a franchise agreement with BCCI-IPL. Under the arrangement, the franchise fee represented a bid amount of Rs. 268 crore, payable in ten equal annual instalments. The agreement also contemplated payment of 20% of franchise income from the 11th year onwards for the term of the League. The franchisee acquired rights to operate as a member of the League, receive specified revenue shares and exploit its own franchise, subject to the terms of the agreement.
