Sweat equity, share buy without consideration to attract gift tax.
The Income Tax (I-T) Department has started a three-pronged scrutiny of the material collected during the surveys conducted in the offices of the Indian Premier League (IPL) and its commissioner, Lalit Modi.
“The surveys can be termed as a fact-finding mission, which has been triggered following queries raised by the parliamentary standing committee, and related developments. So, the report of the Department of Revenue will be submitted to the parliamentary committee,” a source said.
Officials said the first thing that was being looked at was the broader issue of taxation of profits of the income earned by the organisers of IPL over the last three seasons. Since IPL is a wing of the Board of Control for Cricket in India (BCCI), the profits earned by the cricket board, and other such charitable organisations involved with the event, are to be seen.
This aspect has gained importance after charitable organisations were made taxable in the previous Budget to the extent of their income coming from commercial purposes.
The officials, however, added that so far BCCI has been contesting the demand raised by the I-T Department on its income earned through commercial ventures.
The sources maintained that the I-T surveys were planned after the parliamentary committee’s observations. In addition, there were inputs from the enforcement directorate and other regulatory bodies. They said it was a coincidence that the events coincided with the controversy over the ownership of the Kochi franchise.
Teams, comprising officials from the I-T department, conducted surveys in three premises yesterday. Surveys and meetings in Modi’s Worli office went on till early this morning.
Officials said based on facts available so far, the shares which were gifted, or acquired in lieu of the goodwill of the brand ambassadors or celebrities, without exchange of money — as is the case with Sunanda Pushkar — will amount to sweat equity or deemed salary. This will be subjected to gift tax.
They, however, added that these aspects will be clear once the scrutiny of the terms of contract of IPL with such individuals is completed.
The second element of the probe focuses on four IPL teams. Officials said the department wanted to look into their I-T returns and their self-assessment returns for the first three editions of the league. This will help the authorities ascertain if the team owners have deducted tax, while making payments to team members and others. In this regard, the returns filed by all team owners, players and other related parties and individuals will be scrutinised.
The tax department in Mumbai had earlier set up a committee into aspects related to tax deducted at source (TDS) for payments related to IPL.
The third element of the probe is the investment pattern of the funds in IPL. This is being done from the point of view of ascertaining the source of funds. The idea is to assess if there is undisclosed income and check for instances of mis-declaration of funds, officials said.
