Facts: Coach of the Spartan Football Team, Hubba Bubba, is under a contract of 5 years with the University on a payment of $2.5 million per year, out of which 3 years remain. He might also earn $750,000 bonus a year based on the win-loss record, with the contract including a buy-out clause under which the coach has to pay Spartans to $2,000,000 in case he leaves Spartans to accept another position anywhere.
Issue: Coach of the Spartan Football Team, Hubba Bubba, has received invitation from the Mega State University (MSU) for coaching its players, under a Contract of $5 million a year plus incentives under a 7 year guaranteed contract for Bubba, along with the payment of buyout of $2 million.
Answer: If MSU pays the Spartans the $2,000,000 buy-out, the Net Income in the hands of Bubba at the end of the Next 3 Years equals to = $ (5,000,000 + 2,000,000 – 7,500,000 – 750,000) = (-) $ 575,000.
Rationale: Since, the Income from Spartans for the next 3 years is not supposed to be received, it has been deducted, and the Income from the MSU (Mega State University) has been added. The resulting Income comes to Negative. As far as taxation aspect is concerned, the tax would be imposed on the income generated from the Spartan or Mega State University (MSU), whichever is selected. Coaching services or commercial training were combined under the Taxable Services category u/s Section 65 (105) (zzc) w.e.f. 1/7/2003 as per Notification No. 7/2003-ST dated 20/6/2003. Specific exemptions have been granted w.e.f. 1/7/2003 by the Government exercising powers u/s 93 of the Finance Act as per the Notification No. 10/2003-ST dated 20/6/2003 for taxable services offered from any Commercial Training or Coaching Centre, pertaining to Coaching or Commercial Training, as a primary part of a curriculum or course for various other institutes or establishments, resulting in the issuance of diploma or certificates or qualification or degree as per law existing at present.
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