BCCI under a cloud

Published: August 31, 2011 - 12:05 Updated: December 1, 2011 - 16:00

The parliament committee on finance has severely criticised the cash-rich BCCI for financial irregularities and even suggested the government to investigate the matter. Hardnews was the first to report about the irregularities and how the IT department went soft on the board
Akash Bisht Delhi 

On the second day of the second Test at Nottingham between India and England, Stuart Broad troubled Indian batsmen with his impeccable line and length. During the course of the day, Broad went on to claim the first Test hat-trick of his international career. The tall, lanky bowler was over the moon and so were his team mates and the discerning audience. However, the mood would have been a shade different and the feat could have eluded Broad for a little longer, had the umpire seen the ball hit Harbhajan Singh’s bat before hitting his pad. Harbhajan was Broad’s second victim. 

The decision was controversial, but what added fuel to fire was when former England captain Naseer Hussain criticised the Indian board for not fully utilising the Decision Review System (DRS). Referring to Harbhajan’s dismissal, Hussain called the exclusion of LBW from the review system a “disgrace”. 

These words, for obvious reasons, didn’t go down well with the powerful Board of Control for Cricket in India (BCCI) which fielded its loyal orator to take on Hussain. Later, Ravi Shastri, reacting to Hussain’s comment, said, “They (England) are jealous about the way Indian Premier League (IPL) is going, jealous that India is No 1 in world cricket, jealous of the fact that India are world champions. They are jealous because of too much money being made by BCCI. Bottomline is that they have never been No 1 in the world in Test cricket.” 

Echoing an established belief, media reports revealed that experts like Shastri and Sunil Gavaskar are on the BCCI’s payroll as centrally contracted commentators. Obviously, Shastri had to toe the official BCCI line as he is being paid to air the board’s view at all times, especially when the board is in distress. Reportedly, both of them draw an astounding annual income of Rs 3.6 crore respectively from the cash-rich board with overwhelming money power. 

However, the contentious point lies in Shastri’s words: how the English board is peeved with BCCI’s monstrous financial clout. In the past, BCCI has been successful in arm-twisting other boards of the International Cricket Council (ICC), with its bag full of cash whenever India played any team. “Many countries that play cricket are frightened to death of India’s financial power. You’ve got to understand that before you get to voting on anything at the ICC,” remarked former England captain Geoffery Boycott, on ESPN Cricinfo’s fortnightly audio show Bowl at Boycs. He was referring to BCCI’s decision to use DRS. “The stakes are very high, especially when you take television rights into consideration. Cash-strapped boards have no option, but to support India for the revenue it gets them,” said a former BCCI official. 

However, despite its financial clout, a recent report by a parliamentary standing committee on finance, headed by BJP leader Yashwant Sinha, made a shocking revelation wherein it indicted BCCI of evading tax on the pretext of being involved in the charitable act of promoting cricket across the country. 

The report also divulges details of financial irregularities during the conduct of the IPL in which many rules were flouted. Ironically, not many know that the world’s richest board sought tax exemptions on the pretext of being involved in a ‘charitable’ activity. “It’s bizarre that BCCI had to file for tax exemption on the basis of promoting a charitable cause when it is neck deep in commercial ventures that have brought unprecedented and huge financial gains,” said the former board official. 

Reportedly, members of the standing committee cryptically asked top BCCI officials, “How do cheergirls promote the cause of cricket? Why are players auctioned like ‘gladiators’ in the IPL system of cricket?” 

The committee noted that tax exemption to the tune of Rs 225.28 crore was granted to BCCI for the assessment period from 2004-05 to 2006-07 on the basis of a Central Bureau of Direct Taxes (CBDT) circular of 1984. The circular claims that promotion of sports is covered by the definition of a ‘charitable’ activity. Strikingly, the registration granted to BCCI for charitable activity was withdrawn on December 28, 2009, with effect from 2007-08. Despite this, the BCCI went on to claim tax exemption of Rs 377.33 crore and Rs 216.64 crore for 2008-09 and 2009-10, respectively, on similar grounds. “The committee Is thus constrained to conclude that the income tax department has been very lenient on BCCI, allowing them to enrich their coffers at the expense of the exchequer,” reads the report. 

The decision torevoke the charitable clause under Section 12A of the Income Tax Act was based on the information that during the assessment year 2007-08 BCCI changed the objects of its own constitution, wherein the board decided to award sponsorship to sportspersons in games other than cricket. Hence, the committee raised questions on why the income tax department ignored the crass commercialisation of cricket that was bringing huge gains to BCCI. 

Meanwhile, the income tax department claimed that BCCI never intimated them about the change in their objectives. In response, BCCI said that every year, during the assessment period, the latest copy of the BCCI constitution was filed with the concerned department. Coming down heavily on the IT department, the report reads: “It is quite evident that the IT department has been rather inconsistent in bringing BCCI into the taxability net.” 

Responding to this charge, a senior official of the ministry of finance said, “What do we do now? The chairman of the committee is himself now pursuing the cause of exemptions, and is believed to have been influenced by the most powerful man in international cricket — Sharad Pawar.” He suggested that a lot of powerful people are associated with BCCI, and they have the political clout to manipulate the system. 

Additionally, what baffled the committee even more were the financial dealings of the brazenly commercial wing of the BCCI (read: IPL). The BCCI, while filing its returns to the IT department, has claimed ‘nil’ income for 2008-09 and an income of Rs 14.86 crore for 2009-10. However, the assessment by the revenue department reveals that the board’s gross revenue earned from IPL works out to be Rs 661.78 crore for 2009-10.  

More uncannily, IPL franchisees have reported huge losses for 2008-09 and 2009-10, with most claiming the same for the 2010-11 IPL season as well. However, a report brought out by equity research firm India Infoline (IIFL) claims that all the eight franchisees reportedly made profits in Season 2. In Season 1 of IPL, the report suggests that profits were made by Rajasthan Royals, Kolkata Knight Riders and Chennai Super Kings. 

These profits were reported despite the common belief that holding the tournament inSouth Africacould turn disastrous for the franchisees. In another report, IIFL has said that BCCI could make Rs 1,000 crore plus from the recently concluded IPL 4. “The profits would only rise, and that’s why you see franchisees invest so much money. Some franchisees have marketed themselves better and are already earning profits,” said Amit Mathur, CEO, Delhi Daredevils. 

The standing committee goes on to add that BCCI-IPL was liable to pay service tax of Rs 160.28 crore on franchisee fees, business consultancy services, sale of space for advertisements, game rights and so on. However, after more than 102 show cause notices (till February 1, 2011), BCCI managed to pay a paltry sum of Rs 5 crore, and this, despite the fact that this service tax would have been realised by BCCI from franchisees, vendors, media and others. 

The committee has also raised the issue of Foreign Exchange Management Act (FEMA) violations in the context of the ownership of IPL franchisees, nature of foreign investment, and valuation of shares and transfer in respect of some franchisees. The committee was informed that Enforcement Directorate (ED) has already started investigations in this regard, and has also added other components to the scope of investigation. 

The issue of foreign investments in various franchisees has been discussed extensively in the report. “The committee gathers that the investments made by certain IPL franchisees, namely Rajasthan Royals, Kolkata Knight Riders, Kings XI Punjab and Mumbai Indians have been routed from outside India through entities located in countries such as Mauritius, Bahamas, British Virgin Island etc,” reads the report. Strangely, these franchisees never sought approval of the Reserve Bank of  India, Foreign Investment Promotion Board and other concerned agencies. 

When the committee asked BCCI whether it was aware of such violations, the board toed its usual line and pleaded innocence on the pretext of ignorance. In its reply, BCCI told the committee, “It has to be noted that all the original agreements of the franchisees, including the bid documents, were in possession of Mr Lalit Modi. The BCCI have no way of knowing the beneficial owners of these entities. In fact, even today BCCI has no proof of beneficial owner of all such foreign entities who have invested in the franchisees…” 

Interestingly, investigations haverevealed that as per the BCCI constitution, no extraordinary powers were granted to Modi and the majority of decisions were taken by majority vote. Also, the minutes of the meetings of the IPL governing council do not suggest any such extraordinary clout of Modi and other members. 

The committee was apprised of certain cases where the investments have been made by someone, but shares of corresponding investments have been issued under the name of others. Even the expenses incurred in holding Season 2 of IPL in South Africa are under the ED’s scanner. 

Also, there are strong possibilities of money having been moved through thehawalachannel and severalbenaamicompanies based out of India having invested in franchisees. “The money may have been moved illegally, in a circuitous route from India, to establish these companies, and then routed back by these companies into the IPL clubs,” reads the report. 

Even the dubious chronology of events for awarding media rights is under the scanner. Most of these processes took place between March 14 and 15, 2009. The contract was constantly terminated and revoked between these dates, before it was finally awarded to MSM India. 

Even the issue of Rs 45 crore exemption granted to ICC on the revenues generated by the massively lucrative 2011 World Cup has come under severe criticism. Not convinced with the tenability of the tax exemption, the committee noted that the World Cup received huge sponsorships and was patronised by the corporate sector in a big way, and went on to call the exemption devoid of any merit. 

With a commercial cash cow like IPL gaining more popularity across the country, it is widely believed that the format is here to stay, and so would the dubious deals and the network of financial bungling. “There is a demand for IPL and everyone wants to be a part of the format for lucrative returns. It’s a commercial construct and operates on market logic. These are not isolated incidents and, as far as tax exemption is considered, I think, it would be tough for BCCI to escape it,” says Amit Mathur.     

The parliament committee on finance has severely criticised the cash-rich BCCI for financial irregularities and even suggested the government to investigate the matter. Hardnews was the first to report about the irregularities and how the IT department went soft on the board
Akash Bisht Delhi

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