Franchise fees paid to BCCI Not Capital Expenditure; ITAT Grants Relief for Multiple Years

The assessee, M/s Indiawin Sports Pvt. Ltd., runs its business through owning and running the Mumbai IPL team. In respect of AYs 2016–17, 2017–18, and 2018–19, the AO disallowed the deduction in respect of franchise fees paid to BCCI for playing in the IPL, treating them as capital expenditure. Further, 10% of the expense on hospitality was disallowed on an ad hoc basis.

Before the CIT(A), the disallowances made in the income tax assessment order were deleted based on the earlier decisions of the tribunal in the same assessee’s case that franchise fees would be treated as revenue expenditure and hospitality expenses would be business expenses.

Central Issue: Whether franchise fees paid to BCCI for IPL participation are capital or revenue expenditure?

Tribunal’s Ruling: All appeals preferred by the Revenue have been dismissed. As per the binding precedent in the present case, the Tribunal found that the franchise fees charged by the assessee are revenue in nature. Mere pendency of an appeal before the High Court cannot detract from the binding nature of coordinate benches’ decisions.

As regards hospitality expenditure, it is well settled that there could be no ad-hoc disallowance where the expenses are clearly attributable to business operations. Since identical disallowances were set aside in earlier years and no special circumstances were proved, the deletion of the same by CIT(A) has been found justifiable. Thus, all appeals preferred by the Revenue in the Assessment Years 2016–17, 2017–18, and 2018–19 have been dismissed.

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