The income-tax (I-T) department is all set to send a notice to MSM, formerly known as Sony Entertainment Television (SET), in connection with the Rs 425-crore ‘facilitation fee’ it paid to World Sport Group ‘s (WSG) Mauritius arm.

The notice, said tax department officials, will be under Section 201-1A of the Income-Tax Act that gives tax authorities the right to call for explanation as to why tax was not deducted on the money remitted and the reasons for not doing so.

The Rs 425-crore fee was part of the $1.63-billion MSM had agreed to pay for the telecasting rights of IPL for nine years. Under the agreement the “facilitation fee” was to be paid to the Mauritius-based associate of WSG.
According to a statement issued by MSM, the fee to WSG Mauritius was for:

The original option fee of $25million (Rs115 crore approximately) to extend the rights.

An additional fee over the nine years of the contract of Rs 310 crore. These fees were to compensate WSG Mauritius for returning its rights for IPL season II – 2010 to BCCI in favour of MSM and were necessary if MSM was to secure the rights to IPL season two-ten.

But the potential rating incentive at the end of year five of $35 million (Rs 160 crore) under the agreement dated January 21, 2008, was eliminated, and as a consequence of these commercial negotiations the net incremental amount attributable to WSG Mauritius giving up its IPL Indian subcontinent rights was Rs150 crore.

The “payments made to BCCI and WSG Mauritius have been in accordance with applicable laws and as per established international cross border banking norms and procedures,” said MSM.

One of the big four global accounting firms had advised MSM that tax was not payable in India on account of the ‘facilitation fee’. The I-T department’s rationale for taxing such transactions is that if an income is generated in India, tax has to be levied on it, irrespective of the location of the transaction.

In such cross-border transactions, tax is required to be paid by the recipient and therefore tax has to be withheld by the payer before making the payment. In this case, WSG was the recipient and MSM the payer. The WSG-MSM agreement, a copy of which is now being examined by the I-T department, was signed just before the beginning of IPL 2 last year.

The agreement was put in place after scrapping an earlier one in which it was agreed that $938 million would be paid for the telecasting rights.

The Directorate of International Taxes, the division of I-T department that exclusively deals with cross-border transactions, is also exploring the possibility of levying tax on the income part of the $1.63 billion transaction. The expenditure incurred by the party—this case WSG—is taken into account while determining the income.

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0 Comments

  1. Tira.T says:

    It is suggestive that the IT deptt. is now making its strategy known to one and all, thus making it an open book. If investigations are made through the media by beating drums, what exactly is the meaning of “investigation”? Will the FINMIN’s topmost officers and the Hon’ble FM and the CBDT kindly clarify this matter for the benefit of the ordinary, simple, unsuspecting and guileless public? Or, is it the new policy of the govt. to announce in advance each future step in the investigation process? If so, it must be a novel idea by way of giving every tax-payer really proper advance notice of the ITOs’ intentions. In actual practice though the experience of ordinary tax-payers is different-everything is done surreptitiously and behind their back, like attaching bank accounts without serving demand notice or even before the demand becomes due or without taking cognizance of the stay petitions/stay orders of even High Courts, etc. May be, then these exceptions are made only in the cases of very big people like the IPL, BCCI, Film producers/actors/directors, big industrial-business-media houses (who are represented on the PM’s economic advisory panels, or those who make very large donations to ruling political parties, etc.

    After all, in a rule of law all are not necessarily equal and some are more equal than others.

  2. aftab Sheikh says:

    As per I-T if income is generated in India then TAX is payable irrespective of location but is this facilitation fee “Income”?

    suddenly the talks of wrongdoing and kickbacks has vanished…

    If the I-T Department and Media is not sure about these laws then its better for them not to disturb the peace of the nation.
    Electronic Media needs TRP and Congress Govt wants to take revenge of Shashi Tharoor

    India is proud of IPL please let us enjoy the Final

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