MRF Ltd. Vs DCIT (Madras High Court)
The Madras High Court considered the assessee’s appeals under Section 260A of the Income Tax Act, 1961 against the common order dated 11.03.2011 passed by the Income Tax Appellate Tribunal, Chennai, for assessment years 2006-07 and 2007-08. The dispute concerned disallowance of Rs.1.70 Crores incurred by MRF for establishing and operating the MRF Pace Foundation.
The Assessing Officer had treated the expenditure as being of a charitable nature. The assessee contended that it was one of the largest corporate sponsors of sports in India, particularly cricket, and that training pace bowlers through the Pace Foundation promoted the MRF brand and generated publicity. The Foundation selected young pace bowlers, provided systematic and scientific training and periodically invited foreign coaches, trainers and therapists. The assessee stated that several trainees subsequently represented national, State and District teams and that the Foundation’s activities generated substantial television-media publicity for MRF. It also pointed out that its products were exported to 65 countries, including cricket-playing countries, and relied upon JCIT vs. ITC Limited [2008 112 ITD 57].
The Assessing Officer rejected the claim on the ground that MRF had not sponsored a sporting event for sales promotion but had established the Pace Foundation for training fast bowlers. According to the Assessing Officer, such expenditure could not be equated with sponsorship expenditure involving hoardings and media advertisements. The Assessing Officer also questioned how promotion of bowling activity in India could affect tyre sales in other countries and added Rs.1.70 Crores to the assessee’s total income.
