ITAT Allows Full Depreciation on Rajasthan Royals IPL Franchise Rights; Rejects Ad-hoc Web Support Disallowance:

The appellant, Royal Multisports Pvt. Ltd. (formerly Jaipur IPL Cricket Pvt. Ltd.), owner of the Rajasthan Royals IPL franchise, filed returns declaring nil income for Assessment Years 2010-11 to 2014-15. During scrutiny, the Assessing Officer (AO) restricted depreciation claimed under Section 32 on the Rs.268 crore franchise rights acquired from the BCCI by allowing depreciation only on the annual installments actually paid instead of the entire acquisition cost.

The AO also disallowed cash payments made as per diem allowances to professional players and support staff under Section 40A(3). Further disallowances were made under Section 37(1) in respect of payments routed through Agilysis IT Services towards business research, director remuneration, web support services, and reimbursements relating to travel, security and marketing expenses. While the CIT(A) largely upheld the additions, it reduced the web support disallowance to an ad-hoc 25%. Aggrieved, the assessee approached the ITAT.

The Income Tax Appellate Tribunal partly allowed the appeals for statistical purposes. Relying on the Special Bench decision rendered in the assessee’s own case, the Tribunal held that IPL franchise rights are intangible assets eligible for depreciation under Section 32(1)(ii), and depreciation must be computed on the entire actual cost of Rs.268 crore rather than being confined to the installments paid during the year.

However, it upheld the disallowance under Section 40A(3), observing that the statutory limit applies to the aggregate cash payment made to a person in a day and not to the daily accrual of allowances. Since the players and support staff had access to banking facilities, the exceptions under Rule 6DD were held to be unavailable.

On the expenditure disallowances under Section 37(1), the Tribunal sustained the disallowance of business research fees and additional director remuneration paid through Agilysis IT Services, noting the absence of identifiable deliverables or evidence of distinct services. At the same time, it deleted the ad-hoc 25% disallowance relating to web support expenses, holding that tax liability cannot rest on arbitrary estimates or conjectures without supporting material.

The Tribunal also deleted the disallowances relating to consolidated security arrangements for brand ambassador Shilpa Shetty and manager Manoj Badale, reiterating that the Revenue cannot substitute its commercial judgment for that of the assessee. However, issues concerning hotel expenses incurred in South Africa and cost-to-cost marketing reimbursements made to Blenheim Chalcot Management Ltd. under the India–UK DTAA were restored to the Assessing Officer for fresh factual examination.Royal Multisports