SRK wins tax case; ITAT allows Rs 10 cr. deduction for securing IPL team sponsorship for Star India

Facts:

a) Shah Rukh Khan (SRK) had entered into a service agreement with Star India Pvt. Ltd. (‘Star India’) for hosting of ‘KBC’.SRK had received advance of Rs.72 crores for two seasons of KBC and the same had also been offered to tax on receipt basis.

b) After the production of the episodes for first season of KBC, the Star India decided not to produce the second season for commercial reasons. So, it wanted to recover the value of the unutilized amount from the SRK for non-shooting of the second season of KBC.

c) SRK agreed to secure for Star India a sponsorship association with KKR IPL Team. For securing such sponsorship, he paid Rs.10 crores to Knight Riders Sports Pvt. Ltd. and in return sponsorship rights were awarded to Star India

d) SRK claimed deduction of such expenditure while computing his business income while Assessing Officer (AO) disallowed such expenditure as he was of the view that SRK was under no obligation to refund any amount to Star India.

e) CIT (Appeals) affirmed order of AO, aggrieved by the order of CIT, SRK filed the instant appeal before the Tribunal.

Tribunal held in favour of SRK as under:

1) It is not the legal necessity to spend the expenditure which is determinative of its allowability; rather, it is the existence or otherwise of commercial expediency which guides the allowability of expenditure under Section 37(1).

2) From the point of view of commercial expediency, it is abundantly clearly that assessee had a long-standing professional relationship with Star India Pvt. Ltd. and there is a nexus between the impugned expenditure and the purpose of business.

3) It was not for the Revenue to prescribe what expenditure should an assessee incur and under what circumstances.

4) In the instant case, there was no challenge to the bonafides of the expenditure incurred. Therefore, same could be understood to had been incurred wholly and exclusively for the purposes of business.

5) Accordingly, the order of the CIT(A) was set-aside and the AOwas directed to delete the addition of Rs.10 crores. - [2017] 79 taxmann.com 227 (Mumbai - Trib.)