The Mumbai Bench of the Income Tax Appellate Tribunal has held that depreciation on IPL franchise rights must be calculated on the entire contractual cost of ₹268 crore and cannot be restricted to the ₹26.80-crore installment actually paid during the relevant financial year.
The bench of Kavitha Rajagopal (Judicial Member) and Jagadish (Accountant Member) observed that the timing or mode of payment does not determine the “actual cost” of an asset when the franchise rights have been acquired in their entirety and the purchaser has incurred a legally enforceable obligation to pay the agreed consideration.
Buy Now: Income tax E-Compilation – August 2026
The appellant/assessee is engaged in the sports and media business and owns the Rajasthan Royals franchise in the Indian Premier League. The company was incorporated in 2008 after acquiring franchise rights from the Board of Control for Cricket in India.
Under the franchise agreement, the company acquired the exclusive right to own and operate the Rajasthan Royals team, participate in the IPL, commercially exploit the franchise and receive its share of central media, sponsorship, merchandising and other revenues.
The total franchise consideration was approximately ₹268 crore. The payment arrangement included a league deposit of ₹80.40 crore payable over 10 years and franchise consideration of ₹187.60 crore payable in 10 annual instalments of ₹18.76 crore each. From the eleventh year onwards, the company was required to pay 20% of its franchise income to the BCCI.
The company paid the first annual instalment of approximately ₹26.80 crore. However, it capitalised the entire contractual liability of ₹268 crore as the cost of an intangible asset and claimed depreciation at 25%, amounting to approximately ₹67 crore.
The Assessing Officer accepted that the IPL franchise rights constituted an intangible asset eligible for depreciation under Section 32(1)(ii) of the Income Tax Act. However, the officer rejected the company’s calculation of the actual cost of the asset.
According to the Assessing Officer, the future instalments were linked to subsequent events, including the conduct of IPL matches in the respective years. The officer also referred to the extensive regulatory and commercial control retained by the BCCI, restrictions on the transfer of franchise rights and the BCCI’s power to terminate the franchise agreement.
On that basis, the officer held that the future liability had not crystallised at the time of signing the agreement. Depreciation was consequently restricted to 25% of ₹26.80 crore, resulting in an allowable deduction of ₹6.70 crore. The balance depreciation claim of approximately ₹60.30 crore was disallowed.
The Commissioner of Income Tax (Appeals) upheld this treatment and rejected the company’s alternative argument that the annual franchise payment should be allowed as revenue expenditure under Section 37(1).
The company argued that the entire franchise right had been acquired immediately upon execution of the agreement. The annual payment schedule was merely a mechanism for discharging the purchase consideration and did not mean that portions of the franchise were acquired separately every year.
The company submitted that it exercised complete commercial control over the franchise, earned revenues generated from it and bore the associated business risks. It contended that the regulatory rights retained by the BCCI did not dilute its ownership of the commercial franchise rights.
The Tribunal noted that the issue had already been examined by a Special Bench in the company’s own case. Following that ruling, the Bench held that the IPL franchise rights constituted a valuable commercial and business right and qualified as a “franchise” or, in any event, as another business or commercial right of a similar nature under Section 32(1)(ii).
The franchise agreement, the Tribunal observed, granted a bundle of enforceable and exclusive commercial rights, including the right to own and operate an IPL team, participate in the tournament, enter into sponsorship and media arrangements and commercially exploit the franchise.
On the question of valuation, the Tribunal rejected the Revenue’s contention that depreciation should be confined to the instalment actually paid during the year.
It held that the expression “actual cost” under Section 43(1) refers to the entire consideration agreed to be paid for acquiring an asset. The actual cost does not depend upon whether the consideration is paid immediately, deferred or discharged through instalments.
The company acquired the franchise right in its entirety upon execution of the agreement and simultaneously incurred a legally enforceable obligation to pay the agreed consideration. Accordingly, the entire ₹268 crore constituted the actual cost of the intangible asset.
The Tribunal further observed that under the mercantile system of accounting, once the liability to pay the purchase consideration is incurred and the asset is brought into existence for business purposes, the entire acquisition cost must be considered while calculating depreciation.
The Tribunal clarified that allowing depreciation on the entire contractual cost would not make subsequent developments irrelevant.
If the franchise consideration is later reduced, waived, refunded, remitted or otherwise modified because of cancellation of matches or any other contractual contingency, the actual cost and written-down value of the asset may be adjusted in accordance with the Income Tax Act. Depreciation for subsequent years would then have to be calculated on the revised written-down value.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
