Tendulkar, England-India Test Match, World Cup Championship — all these references to present day cricket will be enough to send the young and old alike into a tizzy. But does anyone care about the fiscal policy needed in promoting cricket? Is there a tax obligation behind these cricket matches?

There is no problem about taxing individual sportsmen in India. The highest taxpaying individual from Mumbai is neither an Amitabh nor an Ambani. It is our own Sachin. The Board of Control for Cricket in India (BCCI) has an exalted status. So does international cricket. But IPL isn't so fortunate.

The Tamil Nadu Government is seriously contemplating levy of entertainment tax on gate collections from IPL in the past four years. Why wasn't it thought of even earlier?

Cricket enthusiasts will argue that, but for IPL, India wouldn't have heard of our own Abhinav Mukund, Murali Vijay, Ravichandran Ashwin and Anirud Srikanth. But is that a reason for exempting IPL itself from taxation? The matter isn't res integra .

The International Cricket Council (ICC) conducts the World Cup Championship. In 1993, the ICC chose Pakistan, India and Sri Lanka to co-host the World Cup event in 1996. These countries had made a financial bid of £50,000 to the ICC.

They were concerned with tournaments conducted in the respective countries and the surplus or deficit arising from the tournament should be accounted for to the ICC. A committee, PILCOM, was formed, comprising representatives of BCCI, the Sri Lankan Board and the Pakistan Board, besides the ICC.

PILCOM opened a bank account in London for pooling receipts and expenses for the sake of convenience. BCCI appointed its own committee, INDCOM, for discharging its responsibilities and functions.

INDCOM was to settle disbursement of administrative expenses of teams, umpires and referees' fees and prize money in respect of matches played in India. PILCOM transferred amounts from the London Bank account to the foreign currency account of INDCOM with the IOB.

The question arose as to whether tax was deductible at source in respect of these payments.

Calcutta HC ruling

The Calcutta High Court went into the question in great detail. It examined the provisions of Sections 2(24), 5, 9, 115BBA, 194E, 194 and 201) of the Income-Tax Act, 1961, which made it clear that a foreign cricket team playing in India by virtue of agreement is liable to be taxed on prize money, quite irrespective of whether the team wins or loses the match. Such prize money is income liable for Indian income tax. Section 9(1) (i) would also be applicable.

Section 115BBA levies a 10 per cent tax on the income of a foreign cricket team participating in an Indian cricket match. INDCOM had paid a lump sum amount to the team manager without tax deduction. The court ruled that no deduction is admissible towards expenditure for calculation of income under Section 158BBA.

The alleged administrative expenses really formed part of the prize money allotted to the teams.

The Double Taxation Avoidance Agreement that India had entered into with Australia, Kenya, New Zealand, Holland and Sri Lanka did not exempt the operation of the provisions of the Indian Act, if tax is payable under Section 115BBA or 194E.

On the other hand, payments made to the umpires or match referees didn't fall within the purview of Section 115BBA, because they were neither sportsmen nor non-resident sports associations / institutions. There was no liability to deduct tax in their cases.

Tax on ad income

The case of PILCOM was also decided in favour of Revenue. Section 158BBA levies a 10 per cent tax on non-resident sportsmen receiving income either from participation in the game or from advertisement or from contribution of articles to newspapers.

The section also covers guarantee money. Guarantee money relates to non-resident sports associations.

The court explained that Section 158BBA is completely independent from other sections and has nothing to do with accrual or arising of income in India. PILCOM was considered an ‘association of persons' or body of individuals; so were the ICC and other cricket institutions.

Arguments based on extra-territoriality of the Indian Income Tax Act were rejected on the basis of the Supreme Court ruling in Eli Lilly and Co., India (P) Ltd., 312 ITR 225.

The court ruled that the right to conduct cricket matches constituted property within the ambit of Section 9(1) (i). It also pointed out that board circulars cannot be ‘ de hors' the provisions of the statute.

Section 10(39) exempts specified income arising from any international sporting event held in India to persons notified by the Central government, if the sporting event involves participation in more than two countries and is approved by the international body regulating the international sport. The question has often arisen: should cricket be given the status of a national game just like the peacock is our national bird?

(The author is a former Chief Commissioner of Income-Tax.)

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