PR COMMISSIONER OF INCOME TAX vs M/S GMR SPORTS PVT LTD

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF MARCH 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE M.G.S. KAMAL I.T.A. NO.193 OF 2017 C/W I.T.A. NO.194 OF 2017 I.T.A. NO.195 OF 2017 I.T.A. NO.196 OF 2017 I.T.A. NO.193 OF 2017 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX

CENTRAL, BMTC COMPLEX

KORMANGALA, BANGALORE. 2. DY. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-2(2)

BMTC COMPLEX, KORAMANGALA

2 THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29.07.2016 PASSED IN ITA NO.1488/BANG/2014 FOR THE ASSESSMENT YEAR 2009- 10, PRAYING TO: (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. (ii) SET ASIDE THE APPELLATE ORDER DATED:29.07.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO.ITA NO.1488/BANG/2014 FOR ASSESSMENT YEAR 2009-10, AS SOUGHT FOR IN THIS APPEAL AND TO GRANT FOR IN THIS APPEAL, AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. I.T.A. NO.194 OF 2017 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX

CENTRAL, BMTC COMPLEX

KORMANGALA, BANGALORE. 2. DY. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-2(2)

BMTC COMPLEX, KORAMANGALA

BANGALORE. .... APPELLANTS (BY MR. SANMATHI E.I. ADV.,) AND: M/S. GMR SPORTS PVT. LTD BIRLA TOWERS, 25 BARAKHAMBHA ROAD NEW DELHI-110001. ... RESPONDENT (BY MR. K.P. KUMAR SR. COUNSEL FOR MR. BALARAM R. RAO, ADV.,) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29.07.2016 PASSED

3 IN C.O.NO.114/BANG/2015 IN ITA NO.1488/BANG/2014 FOR THE ASSESSMENT YEAR 2009-10, PRAYING TO: (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. (ii) SET ASIDE THE APPELLATE ORDER DATED:29.07.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, IN C.O. NO.114/BANG/2015 IN ITA NO.1488/BANG/2014 FOR ASSESSMENT YEAR 2009-10, AS SOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. I.T.A. NO.195 OF 2017 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX

CENTRAL, BMTC COMPLEX

KORMANGALA, BANGALORE. 2. DY. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-2(2)

BMTC COMPLEX, KORAMANGALA

4 (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT. (ii) SET ASIDE THE APPELLATE ORDER DATED:29.07.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO.ITA NO.1489/BANG/2014 FOR ASSESSMENT YEAR 2010-11, AS SOUGHT FOR IN THIS APPEAL AND TO GRANT FOR SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. I.T.A. NO.196 OF 2017 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX

CENTRAL, BMTC COMPLEX

KORMANGALA, BANGALORE. 2. DY. COMMISSIONER OF INCOME TAX

CENTRAL CIRCLE-2(2)

BMTC COMPLEX, KORAMANGALA

BANGALORE. .... APPELLANTS (BY MR. SANMATHI E.I. ADV.,) AND: M/S. GMR SPORTS PVT. LTD BIRLA TOWERS, 25 BARAKHAMBHA ROAD NEW DELHI-110001. ... RESPONDENT (BY MR. K.P. KUMAR, SR. COUNSEL FOR MR. BALARAM R. RAO, ADV.,) - - - THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 29.07.2016 PASSED IN C.O.NO.115/BANG/2015 IN ITA NO.1489/BANG/2014 FOR THE ASSESSMENT YEAR 2010-11, PRAYING TO: (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT.

5 (ii) SET ASIDE THE APPELLATE ORDER DATED:29.07.2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, IN C.O. NO.115/BANG/2015 IN ITA NO.1489/BANG/2014 FOR ASSESSMENT YEAR 2010-11, AS SOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THESE I.T.As. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: COMMON JUDGMENT These appeals have been filed by the revenue under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) against the order dated 29.07.2016 passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). ITA Nos.193/2017 and 194/2017 pertain to the Assessment Year 2009-10 whereas ITA Nos.195/2017 and 196/2017 pertain to the Assessment Year 2010-11. Since common question of law arises for consideration in these appeals, they were head analogously and are being decided by this common judgment. The appeals were admitted on the following common substantial question of law: "Whether on the facts and circumstances of the case, the Tribunal is right in law in holding that the depreciation should be granted on total franchisee cost in the first year itself on accrual

6 basis, not on the franchisee fees paid during the year in question as even when the terms of the agreement that if payments are not made on stipulated dates annually, then it would lead to termination of the agreement and moreover the ingredients of section 32 of the Act are not satisfied in case of assessee to give relief on entire amount which is not yet paid by assessee and as such it can be said that order of the Tribunal is perverse in nature"? 2. Facts giving rise to filing of these appeals briefly stated are that in the year 2008, Board of Control for Cricket in India (BCCI) announced that the T20 cricket league namely 'Indian Premier League' shall be held. In pursuance thereof, tenders were invited i.e. bids to form cricket teams for eight regions in India on a franchise basis. The assessee is a holding company i.e. G.M.R. Holdings Pvt. Ltd. Participated in the said tender and won the franchise for Delhi region. The assessee was incorporated as a special purpose vehicle to operate as a franchise and a franchise agreement dated 10.04.2008 was entered into with BCCI. As a consideration for right to operate the franchise, the

7 assessee was paid a sum of Rs.3,36,00,000/- as franchisee fees which was to be paid over a period of 10 years in 10 yearly installments between the period from 2008 to 2017. Thus, the assessee was required to pay a sum of Rs.33,60,00,000/- each year along with applicable service tax. 3. For the Assessment Year 2009-10, the assessee filed return of income on 29.09.2009 and declared a loss of Rs.45,58,78,981/-. While computing the total income for the Assessment Year, the assessee claimed a deduction of Rs.37,75,29,600/- of the franchisee fee paid during the year. The Assessing Officer, by an order dated 29.12.2011, disallowed the same on the ground that the franchise fee is for the acquisition of business rights which is an intangible asset in terms of Section 32(1)(ii) of the Act. Accordingly, depreciation at the rate of 25% on the amount of Rs.37,75,29,600/- which comes to Rs.9,43,82,400/- was allowed and the claim for depreciation was disallowed in respect of balance amount of Rs.28,31,47,200/-. The assessee thereupon filed an appeal before the Commissioner

8 of Income Tax (Appeals), who by an order dated 31.07.2014 directed the Assessing Officer to treat the franchise fees as revenue expenditure and delete the addition. It was held by the Commissioner of Income Tax (Appeals) that in terms of Section 43(5) of the Act, the assessee is otherwise eligible to claim depreciation on full amount of actual cost of Rs.3,36,00,000/-, which has been incurred in terms of franchise agreement and only payment has been deferred in 10 annual equal installments. The revenue filed an appeal whereas the assessee filed a cross-objection against the order passed by the Commissioner of Income Tax (Appeals). The Tribunal, vide impugned order dated 29.07.2016, has allowed the cross-objection preferred by the assessee and has dismissed the appeal preferred by the revenue. In the aforesaid factual background, these appeals have been filed. 4. Learned counsel for the revenue submitted that the assessee under the franchise agreement is required to pay Rs.3,36,00,000/- on the eve of match and the amount under the agreement is divided in 10 equal installments. It is further submitted that the assessee had paid

9 Rs.3,36,00,000/- only in the relevant Assessment Year and the balance amount was not paid. Therefore, the assessee was entitled to depreciation for an amount of Rs.3,36,00,000/- only. It is further submitted that the assessee is not eligible for depreciation on the entire amount of Rs.3,36,00,000/-. It is also urged that the Tribunal ought to have appreciated that the assessee is not entitled to depreciation on the entire amount of franchise fee as the same was not paid. It is also pointed out that the payment under the agreement to the tune of Rs.3,36,00,000/- has not been treated as an asset in the balance sheet by the assessee. It is further submitted that the franchisee continues to enjoy the right only upon payment of the amount stipulated under para 7(1)(a)(i) of the agreement. While referring to paragraph 11.1 of the agreement, it is also pointed out that if there is a breach of payment obligation, then the franchise agreement is liable for termination. It is also contended that from the terms and conditions of the agreement, it is evident that the rights enjoyed by the franchisee are only subject to payment. It is also urged that the mandate contained in Section 32(1)(ii), Section 43 and

10 Section 43B of the Act has not been satisfied. It is further submitted that the franchise fee paid by the assessee provides the benefit of enduring nature and is not a fee for playing the IPL matches. It is also contended that the franchise fee payment creates an intangible asset being licence or franchisee akin to licence or franchisee referred to under Section 32(1)(ii) of the Act. It is also urged that depreciation means a systematic allocation of the depreciable amount of an asset over its useful life. In support of aforesaid submission, reliance has been placed on the decision of the Supreme Court in Civil Appeal No.1709/2008 dated 03.03.2008 and decision of ITAT, Bombay Bench in ITA.1307/Mum/2013 dated 29.12.2017. 5. On the other hand, learned Senior counsel for the assessee submitted that when the assessee was declared a successful bidder, it had to pay a sum of Rs.3,36,00,000/- to the BCCI to acquire the franchise rights and the franchise agreement enabled the assessee to make payment of bid amount in 10 equal installments. It is also submitted that it

11 is an admitted position that the franchise rights is an intangible asset which is eligible for depreciation under Section 32(1)(ii) of the Act and the only issue involved in these appeals is whether the depreciation has to be allowed on the entire bid amount of Rs.3,36,00,000/- or only on the amount of installment paid during the relevant year. It is also submitted that the Tribunal has rightly held that the depreciation under Section 32(1)(ii) of the Act has to be allowed on the entire cost of franchise rights of Rs.3,36,00,000/- as against franchise fee installment paid during the particular year of Rs.33,60,000/- applicable to tax. It is also submitted that the Commissioner of Income Tax (Appeals) had also upheld the aforesaid finding in paragraph 6.10 of the order. It is also urged that the actual cost of the asset is the total amount incurred or laid out for the capital asset by an assessee and not merely the amount paid by the assessee in any year. It is also submitted that the termination of franchise agreement was a mere possibility which has no bearing on the coming into existence of the asset. It is also argued that the intangible asset came into existence in the year in which franchise agreement was

12 executed. It is also urged that the revenue can look into the correctness of the written down value in a subsequent year. It is further submitted that the substantial question of law involved in this appeal is required to be answered in favour of the assessee and against the revenue. In support of aforesaid submission, reliance has been placed on the decision of the Supreme Court in 'SAHARANPUR ELECTRIC SUPPLY CO. LTD. Vs. COMMISSIONER OF INCOME-TAX' (1992) 60 TAXMAN 412 (SC) and decision of Bombay High Court in 'PRINCIPAL COMMISSIONER OF INCOME TAX-3 Vs. V.HOTELS LTD.' (2020) 119 TAXMANN.COM 487 (BOMBAY). 6. We have considered the submissions made on both sides and have perused the record. Before proceeding further, we may refer to the relevant extract of the order passed by the Tribunal which reads as under: "18. We find that this issue is covered by the decision of Chennai 'Corporation Bench in ITA Nos.1343/Mds/2010, 604 & 1299/Mds/2012, 237, 238 & 239/Mds/2015 for the asst. years 2007-08, 2008-09, 2009-10, 2010-11, 2011-12 dated

13 1.1.2016. The relevant portion is reproduced below: Xxxx 19. Respectfully following the ratio of the above decision, we allow ground 2 raised by department. Ground 3, 4, 5 of department are dismissed." Thus, from perusal of the aforesaid relevant extract, it is evident that the Tribunal has neither taken note of relevant statutory provisions nor has assigned any reasons as to how the order of Chennai Bench of the Tribunal is applicable to the instant case. The order passed by the Tribunal is bereft of any reasonings and suffers from the vice of non- application of mind. The Tribunal which is a final fact finding authority has to assign reasons in support of its decision. The impugned order therefore is cryptic and cannot be sustained in the eye of law. The same is therefore quashed and the matter is remitted to the Tribunal for afresh consideration of matter on merits by a speaking order in the light of relevant statutory provisions expeditiously.

14 Therefore, it is not necessary for us to answer the substantial question of law involved in these appeals. In the result, the appeals are disposed of. Sd/- JUDGE Sd/- JUDGE RV

PR COMMISSIONER OF INCOME TAX vs. M/S GMR SPORTS PVT LTD