Will the former cricket board official-turned-finance minister change his stance and force the board to pay up its tax dues of Rs. 2,500 crore?
By Alam Srinivas
Less than a year ago, he was a negotiator for the Board of Control for Cricket in India (BCCI) to sort out the latter’s tax issues with the finance ministry. Today, he is the man who will make the choices as the country’s finance minister. Less than 12 months ago, he pleaded with the tax officials to continue exemptions given to the BCCI in the past. Today, the taxmen will dance to his financial tune. Will the past influence Arun Jaitley’s BCCI-related decisions?
It seems that the “conflicts of interest” within the BCCI have spread to the finance ministry. The Supreme Court will consider issues related to N Srinivasan, the stepped-aside president of BCCI whose son-in-law was allegedly involved in match fixing. But will the new FM, and former vice president of BCCI, go after the board or give it a reprieve? Whose side will he bat for?
Jaitley will be the third umpire in three BCCI cases. First, as the FM, he will decide whether the board continues to enjoy its tax incentives, or pay the Rs. 2,300 crore demanded by the income tax (IT) department? Second, as a senior minister in this regime, he can influence the future of the still-to-be-ratified Sports Development Bill, which said BCCI was a “public authority”. Third, as the FM, he will determine whether the board pays the Rs. 155 crore service tax on earnings from the IPL.
Income tax muddle
In 1984, the finance ministry clarified that “promotion of sports” was a “charitable activity” and exempted the BCCI from paying taxes on its income. The board was registered with Director of Income Tax (Exemption), Mumbai, under Section 12A of the Income Tax Act, and the incentive was given under Section 11. This continued for over two decades; the BCCI did not pay tax of Rs. 56 crore in the assessment year 2004-05, Rs. 33.64 crore in 2005-06 and Rs. 125.64 crore in 2006-07.
On June 1, 2006, the BCCI amended its “objects”, which is a list of its current and proposed activities. The changes allowed the board to participate in other sports. It could award sponsorships to players in other games, and contribute to sports institutions like the National Sports Development Fund.
Tax officials felt that this move de-registered the BCCI under Section 12A. The logic was that the 1984 registration implied it was granted for the “objects” that were then submitted to the IT department. With the June 2006 changes, the registration became null and void and the tax exemption, which was based on the registration, stood withdrawn.
Since IPL’s first season in 2008, IT authorities felt that the BCCI’s revenues were “commercial”, and stemmed from “entertainment”. With the commercialization of cricket, it said that the board’s activities were in the nature of business. The huge increase in the BCCI’s revenues indicated that it was no longer involved in “charitable” activities, but had become corporatized.
Therefore, the board was asked to pay tax on its revenues from the assessment year 2007-08. According to media reports, the tax slapped on BCCI for the past seven years was Rs. 2,300 crore.
The board contested the IT department’s claim. Its logic was that other sports bodies were exempt from tax; its investment in non-cricket games could not lead to de-registration. Seventy percent of its revenues were shared with state cricket associations and players. Even if the IT department withdrew the exemption, it could only tax the remaining 30 percent income.
Minor victory
The BCCI won a minor victory when the Madras High Court ruled that the exemption given to Tamil Nadu Cricket Association (TNCA) could not be revoked. The arguments given by the IT department were similar to those that it applied to the BCCI. The court said that TNCA’s activities could not be termed commercial because it received money from the BCCI, and earned revenues from matches organized on behalf of the board. “We do not think (that) by the volume of receipt one can draw the inference that the activity is commercial,” said Justice Chitra Venkataraman.
But this October 2013 order raised other pertinent questions. If TNCA could enjoy tax exemptions because it received money from the BCCI, could the latter be given the same tax break? Wouldn’t one of the two parties have to pay taxes? The answer lay in the high court judgment.
Justice Venkataraman concluded that to revoke the registration under Section 12A, the IT authorities would have to prove that the “activities (of the association or board) are not fitting with the objects of the association and that the dominant activities are in the nature of trade, commerce and business”. The judge added that what was important was to see “whether the activities are genuine or carried out in accordance with the objects of the association”. In BCCI’s case, contrary to the TNCA, the objects were amended in June 2006. This fact may turn the legal tables on the board.
Jaitley’s role
As the former vice president of BCCI, Jaitley’s role in the IT case was revealed in the draft minutes of the meeting of the board’s working committee, held on July 28, 2013, at Hotel Taj Bengal, Kolkata. They read: “Mr Arun Jaitley and Mr Rajeev Shukla reported that they had met the authorities in the Finance Ministry and made a presentation on Income Tax and Service Tax issues…. Mr Arun Jaitley further informed the House that the authorities had assured to look into the issues….”
The minutes for the meeting, held at the same venue on September 1, 2013, said:
“Mr Srinivasan explained that in order to get over the income tax and service tax issue, it was necessary that the Board enters into an agreement with all the State Units wherein the Board clarifies that the subsidy given to the State Units was against certain services rendered…. He also informed that Mr Rajeev Shukla and Mr Arun Jaitley had spoken to the Finance Ministry and the response was awaited.” Shukla did not speak to India Legal.
One can argue that the BCCI’s IT case is in the courts and the FM will have no role to play in the matter. But he can influence the Central Board of Direct Taxes (CBDT) to issue fresh rules, or re-look at such cases.
Under the scanner
The BCCI has stalled attempts by legal activists and governments to make it transparent. It took the excuse that it was registered as a private society and not open to public scrutiny. Despite criticism, the board continued to hide its decision-making process and finances. This was evident from the draft minutes of its working committee meeting on July 28, 2013.
The chief information commissioner (CIC) asked the board to appear before it on July 25, 2013, along with documents related to land allotment, tax concessions and others. At the meeting, the board members took the stance that “as per the earlier decisions of the CIC, RTI (Right to Information Act) does not apply to the BCCI…. Further, the Board filed a writ petition in the Hon’ble Madras High Court. The Hon’ble High Court granted stay on the proceedings called by CIC….”
But the fear within the BCCI was the proposed sports bill, which threatened to force sports authorities, including the BCCI, to become transparent.
It was in this context that Jaitley told the working committee in July 2013 that the “sports ministry has appointed a committee to redraft the original sports bill…. He further informed that one of the major issues with the revised draft is that the National Sports Federations are to be treated as ‘Public Authority’ and therefore open to RTI. The members requested Mr Arun Jaitley to go through the Draft Sports Bill and advise the BCCI.”
Jaitley’s advice was in vain, as the redrafted bill did bring the BCCI under RTI. The bill is yet to be ratified by parliament. In 2011, when a similar bill was planned, politicians from most political parties opposed it. As expected, the BCCI criticized it. It was successful in nipping the bill in the bud because most of its members, and those of the state cricket associations, are politicians.
In a recent interview, the new sports minister, Sarbananda Sonowal, said that there needs to be “more discussion” on the bill. It is a question of involving all stakeholders—players, trainers, coaches and federations. “We should take their view on any kind of initiative in the future,” he added. The billion dollar question is: What position will Jaitley take during a parliamentary debate on it?
Servicing new taxes
In a written submission, the finance ministry told the Parliament Standing Committee on Finance (2011) that the BCCI had to pay
IPL-related service tax on franchise fees it earned from team owners, payments to consultants like IMG (UK), and income from sale of game rights (telecast, live streaming, etc). However, the ministry was “concerned with the evasion of service tax in relation to the IPL,” said the Committee’s 38th report (August 2011).
BCCI paid a service tax of Rs. 64 crore in 2008-09 and Rs. 94 crore the next year. Between April and December 2009, 24 showcause notices were issued for Rs. 70.62 crore of unpaid service tax. This included a showcause notice for Rs. 36.53 crore, which was related to telecast rights. By February 1, 2011, “a total of 102 showcause notices demanding a duty of Rs. 160.28 crore have been issued, out of which Rs. 5 crore have been recovered…,” the ministry told the Standing Committee.
It was against this background that the BCCI sought Jaitley’s help to resolve the issue, as was evident from the draft minutes of the board’s working committee meetings in July and September 2013. How will the finance ministry now pursue this issue?
Clearly, a small period of Jaitley’s new innings will be spent on negotiating these doosras, carom balls, and knuckle balls.