CBDT should issue suitable instructions to remove any controversy that may arise about taxability of prizes in cash or kind by the Government & private bodies/enterprises to the Olympic contingent
The Indian Contingent at Tokyo Olympics won laurels & created History for our country and held our flag high. The Central/State Governments have announced prize in cash & kind to the medalists. CSK, BCCI & certain business organisations have also declared prizes to the winners and more will follow suit.
A question arises in the mind of their fans and admirers is whether these benevolent prizes shall be taxable in the hands of the recipient athletes/players?
It would be trite to refer to Section 10(17A) in the Income- Tax Act, which reads as under:
(17A) any payment made, whether in cash or in kind,-
(i) in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf; or
(ii) as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest;
It would be apposite to refer to Circular No. 447 dated 22nd January, 1986 issued by CBDT in this regard which reads as under:
” The Central Board of Direct Taxes had occasion to consider the question whether the award received by a sportsman, who is not a professional, will be taxable in his hands or not. In the case of a sportsman, who is a professional, the award received by him will be in the nature of a benefit in exercise of his profession and, therefore, will be liable to tax under the provisions of the Income-tax Act. However, in the case of a non-professional, the award received by him will be in the nature of a gift and/or personal testimonial. In view of this, it is clarified, that such awards in the case of a sportsman, who is not a professional, will not be liable to tax in his hands as it would not be in the nature of income. The question whether a sportsman is a professional or not will depend upon the facts and circumstances of each case to be decided by the Assessing Officer.”
With several amendments in Income Tax, CBDT felt that the position of Law has undergone a change and CBDT issued a Circular no. 2/2014 dated 28 January, 2014 which clarifies taxability of awards for sportsmen under section 10(17A) of the Income Tax Act. The said Circular reads as under:
“The Central Board of Direct Taxes had issued Circular No. 447 (hereinafter called “the Circular”) on 22nd January, 1986 clarifying that awards received by a sportsman, who is not a professional, will not be liable to tax in his hands as the award will be in the nature of a gift and/or personal testimonial.
2. The said Circular was applicable in a tax regime when gift was not taxable in the hands of the recipient and with the fundamental change in the manner of treatment of gift by amending the definition of income under sub-section (24) of section 2 by introduction of sub-clauses (xiii), (xiv) and (xv) therein and insertion of clauses (v), (vi) and (vii) in sub-section (2) of section 56 of the Income-tax Act, 1961 (‘Act’), the gifts became taxable in the hands of recipient w.e.f. 1-4-2005. The said Circular No. 447 had therefore become inapplicable with the change in law and is to be treated as overridden by the aforesaid statutory provisions w.e.f. 1-4-2005.
3. Further, in terms of provisions of clause (17A) of section 10, Central Government approves awards instituted by Central Government, State Government or other bodies as also the purposes for rewards instituted by Central Government or State Government from time to time. Tax exemption can be sought by eligible persons in respect of awards or rewards covered by such approvals.”
From the reading of the aforesaid section and the Circulars issued in this regard, the award of prize money or prize in kind received by from State/Central Government is not taxable in the hands of the recipient. In case, there appears any doubt, the State Government can get the same approved by the Central Government in public interest.
There appears a misconception that Rs. 50 lakhs awarded by the Haryana Government to the Indian women’s hockey team would not be tax-free but the Law & the Circulars do not call for this interpretation. The award by the State Government is for their commendable performance and for bringing honour to our nation.
Having said that the prizes like an SUV announced by Anand Mahindra for Neeraj Chopra does not become tax-free in his hand. BCCI & CSK should move to CBDT for due approval for making the prize in cash or kind tax-free for the recipients.
To put an end to the controversy, it is incumbent on the CBDT to issue suitable instructions so that the sportsperson & their coaches are saved from unwanted litigation.
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