Ita/193/2017 Of Pr. Commissioner Of Income Tax v. M/S. Gmr Sports Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH DAY OF MARCH 2027 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’/BLE MR. JUSTICE M.G.S. KAMAL ILT.A. NO.193 OF 2017C/W LT.A. NQ.194 OF 2ZO1LLT.A. NQ.195 OF 2ZO1LI1.T.A. NO.196 OF 201 LT.A. NOQ.193 QF 2Q17 BETWEEN: 1.|PR. COMMISSIONER OF INCOME TAX CENTRAL, BMITC COMPLEX KORMANGALA, BANGALORE. 2.|DY, COMMISSIONER OF INCOME TAX| CENTRAL CIRCLE-2(2) BMTC COMPLEX, KORAMANGALA BANGALORE. (BY MR. SANMATHI E.I. ADV.,). _... APPELLANTS AND* M/S. GMR SPORTS PVT. LTD BIRLA TOWERS, 25) BARAKHAMBHA ROAD NEW DELHI-110001. (BY MR. K.P. KUMAR SR. COUNSEL FORMR. BALARAM R. RAO, ADV.,). ~. RESPONDENT THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 29.07.2016 PASSEDIN 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 BYTHE 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|PROCEEDINGSNO. ITANO.1488/BANG/2014 FOR ASSESSMENT YEAR 2009-10, ASSOUGHT 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. LT.A. NOQ.194 QF 2Q17 BETWEEN: 1.|PR, COMMISSIONER OF INCOME TAX CENTRAL, BMITC COMPLEX KORMANGALA, BANGALORE. 2.|DY, COMMISSIONER OF INCOME TAX| CENTRAL CIRCLE-2(2) BMTC COMPLEX, KORAMANGALA BANGALORE. (BY MR. SANMATHI E.I. ADV.,). .... APPELLANTS AND" M/S. GMR SPORTS PVT. LTD.BIRLA TOWERS, 25)BARAKHAMBHA ROADNEW DELHI-LILOOOL. (BY MR. K.P. KUMAR SR. COUNSEL FORMR. BALARAM R. RAO, ADV.,). ~. RESPONDENT THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 29.07.2016 PASSED IN C.O.NO.114/BANG/2015 IN ITA NO.1488/BANG/2014 FOR THEASSESSMENT YEAR 2009-10, PRAYING TO:(i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE 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|LITANO.1488/BANG/2014 FOR ASSESSMENT YEAR 2009-10, ASSOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER.RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. 1LT.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 BANGALORE. (BY MR. SANMATHI E.I. ADV.,). _... APPELLANTS AND" M/S. GMR SPORTS PVT. LTD.BIRLA TOWERS, 25)BARAKHAMBHA ROADNEW DELHI-110001. (BY MR. K.P. KUMAR SR. COUNSEL FORMR. BALARAM R. RAO, ADV.,). ~. RESPONDENT THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 29.07.2016 PASSEDIN ITA NO.1489/BANG/2014 FOR THE ASSESSMENT YEAR 2010-11, PRAYING TO: (1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE 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|PROCEEDINGSNO. ITANO.1489/BANG/2014 FOR ASSESSMENT YEAR 2010-11, ASSOUGHT FOR IN THIS APPEAL AND TO GRANT FOR SUCH OTHER.RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.| 1LT.A. NO.196 OF 2017 BETWEEN: 1.|PR. COMMISSIONER OF INCOME TAX CENTRAL, BMITC COMPLEXKORMANGALA, BANGALORE. KORMANGALA, BANGALORE. 2.|DY, COMMISSIONER OF INCOME TAX|CENTRAL CIRCLE-2(2)CENTRAL CIRCLE-2(2) BMTC COMPLEX, KORAMANGALA BANGALORE. (BY MR. SANMATHI E.I. ADV.,). .... APPELLANTS AND" M/S. GMR SPORTS PVT. LTD.BIRLA TOWERS, 25)BARAKHAMBHA ROADNEW DELHI-LILOOOL. (BY MR. K.P. KUMAR, SR. COUNSEL FORMR. BALARAM R. RAO, ADV.,). .., RESPONDENT 1LT.A. NO.196 OF 2017 BETWEEN: 1.|PR. COMMISSIONER OF INCOME TAX CENTRAL, BMITC COMPLEXKORMANGALA, BANGALORE. KORMANGALA, BANGALORE. 2.|DY, COMMISSIONER OF INCOME TAX|CENTRAL CIRCLE-2(2)CENTRAL CIRCLE-2(2) BMTC COMPLEX, KORAMANGALA BANGALORE. (BY MR. SANMATHI E.I. ADV.,). .... APPELLANTS AND" M/S. GMR SPORTS PVT. LTD.BIRLA TOWERS, 25)BARAKHAMBHA ROADNEW DELHI-LILOOOL. (BY MR. K.P. KUMAR, SR. COUNSEL FORMR. BALARAM R. RAO, ADV.,). .., RESPONDENT THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 29.07.2016 PASSEDIN C.0O.NO.115/BANG/2015 IN ITA NO.1489/BANG/2014 FOR THEASSESSMENT YEAR 2010-11, PRAYING TO: (i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE 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.115/BANG/2015 IN|LITANO.1489/BANG/2014 FOR ASSESSMENT YEAR 2010-11, ASSOUGHT 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 underSection 260-A of tne Income Tax Act, 1961 (hereinafterreferred 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 Year2009-10 whereas ITA Nos.195/2017 and 196/201/7 pertain totne Assessment Year 2010-11. Since common question of |law arises for consideration in these appeals, they were headanalogously and are being decided by this common|judgment. The appeals were admitted on the followingcommon substantial question of law: "Whether on the facts and circumstances of the|case, the Tribunal is rignt in law in holding thatthe depreciation should be granted on totalfrancnisee cost in tne first year itself on accrual basis, not on the franchisee fees paid during theyear 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 theingredients of section 32 of the Act are notsatisfied in case of assessee to give relief on.entire amount wnicn 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 brieflystated are that in the year 2008, Board of Control for Cricketin India (BCCI) announced that tne T20 cricket leaguenamely Indian Premier League’ shall be held. In pursuancethereof, tenders were invited i.e. bids to form cricket teamsfor eight regions in India on a franchise basis. The assesseeis a hnolding company i.e. G.M.R. Holdings Pvt. Ltd.Participated in the said tender and won the franchise forDelIni region. The assessee was incorporated as a specialpurpose vehicle to operate as a franchise and a franchiseagreement dated 10.04.2008 was entered into with BCCI. Asa consideration for right to operate the francnise, thne assessee was paid a sum of Rs.3,36,00,000/- as franchiseefees which was to be paid over a period of 10 years in 10|yearly installments between the period from 2008 to 2017.Thus, tne assessee was required to pay a sum oOfRs.33,60,00,000/- eacn year along with applicable servicetax. assessee was paid a sum of Rs.3,36,00,000/- as franchiseefees which was to be paid over a period of 10 years in 10|yearly installments between the period from 2008 to 2017.Thus, tne assessee was required to pay a sum oOfRs.33,60,00,000/- eacn year along with applicable servicetax. 3. For the Assessment Year 2009-10, the assessee filedreturn of income on 29.09.2009 and declared a loss ofRs.45,58,78,981/-. While computing the total income for theAssessment Year, the assessee claimed a deduction ofRs.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 isfor the acquisition of business rights which is an intangibleasset in terms of Section 32(1)(il) 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/- wasallowed and the claim for depreciation was disallowed in|respect of balance amount of Rs.28,31,4/7,200/-. Theassessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 31.07.2014directed the Assessing Officer to treat the franchise fees asrevenue expenditure and delete the addition. It was held bythe Commissioner of Income Tax (Appeals) that in terms ofSection 43(5) of the Act, the assessee is otherwise eligible toclaim depreciation on full amount of actual cost of|Rs.3,36,00,000/-, which has been incurred in terms offranchise agreement and only payment has been deferred in10 annual equal installments. The revenue filed an appeal|whereas the assessee filed a cross-objection against theorder passed py the Commissioner of Income Tax (Appeals).The Tribunal, vide impugned order dated 29.07.2016, hasallowed the cross-objection preferred by the assessee andhas dismissed the appeal preferred by the revenue. In theaforesaid factual background, these appeals have been filed. 4 Learned counsel for the revenue submitted that the|assessee under the franchise agreement is required to payRs.3,36,00,000/- on the eve of match and the amount underthe agreement is divided in 10 equal installments. It isfurtner.suDmittecdthattneaSsSeSsSsnadpaid Rs.3,36,00,000/- only in the relevant Assessment Year andthe balance amount was not paid. Therefore, the assesseeWaS|entitled CO depreciation|for.anaMOUnNTOf|Rs.3,36,00,000/- only. It is further submitted tnat the.assessee is not eligible for depreciation on the entire amountof Rs.3,36,00,000/-. It is also urged that the Tribunal oughtto have appreciated that the assessee is not entitled todepreciation on the entire amount of franchise fee as theSame was not paid. It is also pointed out that the paymentunder the agreement to the tune of Rs.3,36,00,000/- has notbeen treated as an asset in the balance sheet by theassessee. It is further submitted that the franchiseecontinues 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 alsopointed out that if there is a breach of payment obligation,then the franchise agreement is liable for termination. It isalso contended that from the terms and conaitions of tne|agreement, it is evident that the rights enjoyed by the|francnisee are only subject to payment. It is also urged tnatthe mandate contained in Section 32(1)(ii), Section 43 and Section 43B of the Act has not been satisfied. It is further|submitted that the franchise fee paid by the assesseeprovides the benefit of enduring nature and is not a fee forplaying the IPL matches. It is also contended thnat thefranchise fee payment creates an intangible asset beinglicence or francnisee akin to licence or franchisee referred tounder Section 32(1)(il) of the Act. It is also urged that|depreciation means a systematic allocation of the depreciableamount of an asset over its useful life. In Support ofaforesaid submission, reliance has been placed on the|decisionOT theSupremeCourtinCivilAppealNo.1709/2008 dated 03.03.2008and decision of |ITAT,|BombayBenchIn|ITA.1307/Mum/ 2013dated29.17.2017 5. On the other hand, learned Senior counsel for theassessee submitted tnat wnen tne assessee was declared a|successful bidder, it had to pay a sum of Rs.3,36,00,000/- tothe BCCI to acquire the franchise rights and the franchiseagreement enabled the assessee to make payment of bidamount in 10 equal installments. It is also submitted that it is an admitted position that the franchise rights is an|intangible asset which is eligible for depreciation underSection 32(1)(il) of the Act and the only issue involved in|these appeals is whether the depreciation nas to be allowedon the entire bid amount of Rs.3,36,00,000/- or only on theamount of installment paid during the relevant year. It isalso submitted that the Tribunal has rightly held that thedepreciation under Section 32(1)(ii) of the Act has to beallowed On)tne|entireCOSTOT|francnise|rignts|of.Rs.3,36,00,000/- as against franchise fee installment paidduring the particular year of Rs.33,60,000/- applicable totax. It is also submitted that the Commissioner of IncomeTax (Appeals) had also upheld the aforesaid finding in|paragraph 6.10 of the order. It is also urged that the actualcost of the asset is the total amount incurred or laid out fortne capital asset by an assessee and not merely the amountpaid by the assessee in any year. It is also submitted that|the termination of francnise agreement was a mere|possibility whicn has no bearing on the coming into existenceof the asset. It is also argued that the intangible asset cameinto existence in the year in which franchise agreement was executed. It is also urged that the revenue can look into thecorrectness of the written down value in a subsequent year.It is further submitted that the substantial question of lawinvoived in this appeal is required to be answered in favourof the assessee and against the revenue. In Support of |aforesaid submission, reliance nas been placed on thnedecision of the Supreme Court in'SAHARANPUR ELECTRICSUPPLY CO, LTD. Vs. COMMISSIONER OF INCOME-TAX(1992) 60 TAXMAN 412 (SC)and decision of Bombay Hign |Court in"PRINCIPAL COMMISSIONER OF INCOME TAX-3Vs. 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 proceedingfurther, we may refer to the relevant extract of the orderpassed by tne Tribunal wnicn reads as under: "18. We find that this issue is covered by thedecision of Chennai ‘Corporation Bench in ITANos.1343/Mds/2010, 604 & 1299/Mds/2012, 237,|238 & 239/Madas/2015 for the asst. years 2007-082008-09,2009-10,|2010-11, 2OLI-17 dated 1.1.2016. Tne relevant portion is reproduced|below: xXxXX 19. Respectfully following the ratio of the.above decision, we allow ground 2 raised by|department. Ground 3, 4, 5 of department are.dismissed 6. We have considered the submissions made on both.sides and have perused the record. Before proceedingfurther, we may refer to the relevant extract of the orderpassed by tne Tribunal wnicn reads as under: "18. We find that this issue is covered by thedecision of Chennai ‘Corporation Bench in ITANos.1343/Mds/2010, 604 & 1299/Mds/2012, 237,|238 & 239/Madas/2015 for the asst. years 2007-082008-09,2009-10,|2010-11, 2OLI-17 dated 1.1.2016. Tne relevant portion is reproduced|below: xXxXX 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, itis evident that the Tribunal has neither taken note of relevant|Statutory provisions nor has assigned any reasons as to nowthe order of Chennai Bench of the Tribunal is applicable tothe 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 findingautnority has to assign reasons in support of its decision.The impugned order therefore is cryptic and cannot besustained in the eye of law. The same is therefore quashedand the matter is remitted to the Tribunal for afresh|consideration of matter on merits by a speaking order in thelight of relevant statutory provisions expeditiously. ���������������������������������������������������������������� ������������������������������������������ !������������������������������������������� ������������ ����������� "#�