An internal report by the income-tax departments international taxation wing has said that the World Sports Group (WSG), the marketing agency of the Indian Premier League (IPL), has to pay income tax on the facilitation fee of Rs425 crore, which works out to roughly Rs125 crore.

The department has still to get a copy of the agreement between WSG and the IPL.

The findings were prima facie, based on documents of the WSG-Multi Screen Media (MSM) deal taken by I-T sleuths last week, during a search of WSG offices and the Bandra residence of WSG CEO Venu Nair.

Tax officials said WSG is a Mauritian company that has a permanent establishment in India, and Nair is the companys representative in Mumbai.

They cited the Mumbai bench of the income-tax appellate tribunal in the case of JCIT vs State Bank of Mauritius Ltd, that held that a foreign company having permanent establishment in India cannot be taxed at the rate applicable to a domestic company in view of the insertion of explanation 1 to section 90 of the Income-Tax Act, 1961 by the Finance Act 2001, with retrospective effect from April 1, 1962.

Accordingly, it will have to pay tax at the rate prescribed in the Finance Act (a higher rate), even if a taxpayer is covered by the India-Mauritius tax treatys provisions.

In this case, though WSG is covered under the tax treaty, it has to pay tax, as from the records it shows they have not paid tax in Mauritius.

The facilitation fee paid by MSM to WSG (Mauritius) was apparently transferred to the personal holding account of WSG founder Seamus OBrien, and not to the company account. But the company fronting the transaction, Park House Holding, and registered in the British Virgin Islands, was routed from WSG Mauritius, said a senior official.

WSG said they were advised that the tax was not payable in India on account of the facilitation fee. I-T department officials argued that if income was generated in India, tax had to be levied on it, irrespective of the transactions location.