ITAT Mumbai Upholds Full Depreciation on Rs. 268 Crore Rajasthan Royals Franchise Rights: Royal Multisports Pvt Ltd vs ACIT
Overview of the Dispute
The Mumbai Bench of the Income Tax Appellate Tribunal adjudicated a batch of appeals filed by Royal Multisports Pvt Ltd — the entity behind the iconic Rajasthan Royals IPL franchise — spanning Assessment Years 2010-11 through 2014-15. Given the significant overlap in legal questions across these years, the Tribunal disposed of all appeals through a consolidated order.
The central controversy revolved around the quantum of depreciation admissible on franchise rights acquired from the Board of Control for Cricket in India (BCCI) under the Franchise Agreement. Several ancillary issues concerning cash payment disallowances, unexplained business expenditures, reimbursements, and security expenses were also placed before the Tribunal.
Background and Factual Matrix
Nature of the Assessee's Business
Royal Multisports Pvt Ltd is engaged in the domain of sports and media and is the franchise owner of the Rajasthan Royals in the Indian Premier League. The assessee filed its return of income for the relevant years declaring nil income.
How the Franchise Rights Were Treated
The assessee entered into a Franchise Agreement with BCCI, under which the total franchise consideration was fixed at Rs. 268 crore, payable in structured instalments over ten years. The assessee capitalized the entire contractual obligation as an intangible asset on its books and proceeded to claim depreciation on the full amount under Section 32(1)(ii) of the Income Tax Act, 1961.
Position Adopted by the Assessing Officer
During scrutiny, the Assessing Officer took the view that the franchise consideration was inherently contingent and indeterminate because:
- Annual payments were conditional upon IPL matches actually being conducted
- From the eleventh year onwards, payments were linked to 20% of the franchise income — rendering the total cost uncertain at inception
- The assessee did not enjoy unrestricted ownership since BCCI retained significant controls, including restrictions on transfer and exploitation of the franchise
On this basis, the Assessing Officer concluded that only the amount of franchise fee actually paid during the relevant previous year could be treated as the cost of the asset. This approach resulted in a disallowance of depreciation amounting to Rs. 38.525 crore for Assessment Year 2010-11 alone.
The Assessing Officer also rejected the assessee's alternate plea that the annual franchise payment of Rs. 26.80 crore should be allowed as revenue expenditure under Section 37(1), noting that both parties had consistently treated the franchise rights as a capital asset.
Issue-Wise Analysis and Tribunal's Findings
Depreciation on Franchise Rights — The Core Question
Special Bench Decision as Precedent
The Tribunal observed that this precise controversy had been authoritatively settled by the Special Bench of the Tribunal in the assessee's own case, vide order dated 31.10.2025. Following that ruling, the present Bench applied the same ratio to all assessment years under consideration.
The Special Bench had categorically held:
"There is, thus, no dispute that the assessee acquired the right to operate a Franchise and to be member of the League at the time of signing of the Franchise Agreement, which constitutes a 'licence' or 'Franchise', being an item of intangible asset described in section 32(1)(ii) of the Income Tax Act, 1961. The franchisee payments, representing the expenditure incurred for acquiring and enjoying such rights, accordingly partake the character of capital expenditure, eligible for depreciation under the aforesaid provision."
Depreciation on the Entire Actual Cost
The Special Bench expressly rejected the Assessing Officer's approach of limiting depreciation to the annual instalment paid. It held:
"In respect of Question No. 2, the depreciation shall be allowed on the entire franchise fee of Rs. 268 crores, being the actual cost of the intangible assets so acquired during the financial year and not on Rs. 26.80 crores actually paid during the financial year subject to necessary adjustment as warranted in subsequent financial years as observed by us in para 125 herein above."
Mechanism for Subsequent Adjustments
The Special Bench also addressed situations where the actual cost of the asset may require revision in subsequent years: