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IPL likely to generate Rs200 crore in taxes
July, 12th 2008

The Indian Premier League or IPL, the Twenty-20 cricket league started by the Board of Control for Cricket in India, was enough of a commercial success to generate up to Rs200 crore in income tax, according to the countrys tax department which is, given the magnitude of the payments involved, preparing a reporton the tax and accounting rules individuals and companies that own IPL teams will have to follow.

Saroj Bala, member (revenue), the Central Board of Direct Taxes, said the owners of five of the eight IPL teams had paid taxes of about Rs60 crore by 31 March, the last day of the previous financial year.

Though IPL started its first season in April, club owners, or IPL franchisees, had deducted tax at source where pre-season payments had been made. The tax collections this financial year could be between Rs160 crore and Rs200 crore, she added.
Tax officials expect IPL to trigger some interesting debates on tax rules.
One of these involves player transfers.

According to Bala, the tax departments internal committee is expected to suggest standard guidelines on transfers as it is a new development in India. Typically, the operational structure of the tax system empowers an assessing officer to dispute an assessees calculation of tax liability.

As club owners are spread across eight Indian cities and will be assessed by different officers, standard taxation guidelines might help avoid different interpretations by assessing officers, tax consultants said.

If a player is transferred, the most likely dispute between club owners and tax department could be on the way the players figure in an owners account books, consultants said. If a player is classified as a stock-in-trade and a profit made on the transfer, it will be classified as business income against which some deductions are allowed.

Alternatively, if a the player is classified as a capital asset and transferred at a profit, it might attract capital gains tax, which would change the club owners tax liability.

The issue might finally turn out be less complicated. According to Gaurav Taneja, national tax director at audit and consulting firm Ernst and Young, central to the matter is that a club owner can transfer only a contract with a player to another club.

Indian tax history has a precedent here in form of companies transferring distribution licences which essentially involves transfer of contracts, he added.

"I would not say it is very complicated. (But) I would be happy if they (the government) come up with a standard set of protocols," Taneja said.

 
 
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