Section 10(17A) Taxability of Awards, Taxability in case of Professional and Non-professional Sports persons (Circular No.447 dated 22nd January, 1986)
Section 10(17A ) states that 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 :-
Will be exempt.
Circular No. 447 dated 22nd January, 1986 reads as under:-
“Subject : Taxability of awards for sportsmen – Clarification regarding.
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 cases 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.
In cases where such receipt is in the nature of gift, the chargeability to gift-tax will be considered separately.”
The section and circular mentioned above have been a matter of debate and multiple interpretations regarding the applicability of the given section in different matters have been made. The taxability of the amount in various cases has been a subject matter of appeals before numerous learned authorities who have passed various judgements defining what constitutes as income under Section 2(24) and whether an award will be considered taxable or not depending upon the authority from whom it was received and nature of the gift.
Moreover, the exemption of the amount will be as per Section 10(17A) or the circular.
The relevant issue has been explained with the two case laws which are both directed towards the taxability of gifts.
1. Delhi High Court
Aroon Purie vs Commissioner Of Income Tax on 27 March, 2015
The present appeal under Section 260A of the Income Tax Act, 1961 („Act‟ for short) has been filed by the assessee challenging the order dated 08.04.2002 in ITA No. 531/Delhi/1995, whereby the Income Tax Appellate Tribunal („Tribunal‟ for short) has set aside the order of the Commissioner of Income Tax (Appeals) and affirmed the finding of the assessing officer that Rs.1 lakh received by the assessee from B. D. Goenka Foundation is income so as to be taxable. The year of assessment with which we are concerned in this appeal is 1991-92.
The following substantial questions of law fall for our consideration in this appeal:-
“1. Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in holding that the receipt of Rs.1 lakh by the appellant as an award given to him by B. D. Goenka Foundation for his excellence in journalism was in the nature of income liable to tax in the hands of the assessee.
2. Whether on the facts and in the circumstances of the case the ITAT was right in holding that the receipt of the amount of Rs.1 lakh by way of an award from B. D. Goenka Foundation was taxable as assessee’s income as the said institution was not covered by section 10(17A) of the I.T. Act.”
3. The brief facts are that the appellant at the relevant time was Editor in Chief of the English magazine i.e. India Today. According to him, he derived income from salary, interest, dividend and property. He filed return for the previous year relevant to the assessment year 1991-92 declaring an income of Rs. 5,47,190/-. The return was accompanied by financial statement of accounts. From the assessment order it is observed that while perusing the details given in the return, the Assessing Officer noted, the assessee had claimed an exemption for sum of Rs.1 lakh received by him as B. D. Goenka Award for excellence in Journalism. During the proceedings, the assessee counsel‟s attention was drawn towards Section 10(17A) of the Act, which provides that if any payment is made in cash or in kind in pursuance to an award instituted in public interest by the Central Government or any State Government or by any other body approved by the Central Government or as a reward by the Central Government or any State Government then such a award/reward is exempted. According to the assessee, the award was not for any services rendered but in the nature of testimonial and expression of recognition by an institution of eminence of a person in the field of Journalism. The assessee relied upon the following judgments in support of his case:
(i) (1978) 114 ITR 253 (Mad.), S. A. Ramakrishnan vs. CIT,
(ii) (1986) 160 ITR 534 (Mad.), C.P. Chitrarasu vs. CIT
(iii) (1988) 171 ITR 447 (Mad.), CIT vs. M. Balamuralikrishna
(iv) (1984) 148 ITR 333 (Mad.), CIT vs. Dr. B.M. Sundaravadanan
On an appeal, the Commissioner of Income Tax (Appeals) agreed with the appellant assessee and allowed the appeal by holding as under:-
“I have carefully considered the submissions made. I find merit in the arguments advanced. The award given to the appellant was an open one, instituted by B. D. Goenka Foundation, an independent entity, and there is nothing on record to show that for getting the award there has been any rendering of services by the appellant to the Foundation. It also cannot be inferred that the appellant was having an expectation of the award, much less to say that any regularity in receipt from the Foundation was even remotely probable. It is not every receipt that can be held chargeable to tax but in order to be so chargeable it must fall within the expression “income” as contemplated in the I.T. Act. On the facts and in the circumstances of the case, I quite agree with the Ld. A.R. that the receipt in question cannot be construed to par-take the character of income and therefore the question whether it is taxable or exempt would not be relevant. To conclude this issue, therefore, I hold that the receipt cannot be construed to be an income component in the hands of the appellant and therefore its inclusion in the total income is not justified and the same is accordingly deleted from the total income as computed in the impugned order. The appellant will accordingly be entitled to a consequential relief of Rs.1 lakh.”
Sub-section (24) to Section 2 of the Act seeks to define the term „income‟ but does not expressly and particularly define the said expression. It only stipulates what would be included in the said term. The phrase that is used before the specific Clauses is ‘income includes’ Section 2 (24) provides for an inclusive definition and is not exhaustive in its scope. Therefore, whatever would be income under law and the express stipulations is income. What falls and is covered under different Clauses of sub- section (24) is certainly income, even if the said receipts would not be income as understood in law. The word „income‟ has widest and broadest connotation and means what would constitute income in law and otherwise declared as income in the different clauses of the sub- section (24) to Section 2 of the Act.
Sub-section (24) to Section 2, therefore, adopts a dual approach; „income‟ means what would be included and is treated as income, and in addition certain specific/specified categories of receipts or earnings are to be treated or are deemed to be income. Nevertheless all receipts or incomings are not income and aren‟t exigible to tax. A capital receipt is not taxable income.
In the considered opinion of this Court, the correct legal position is that Section 10 exclusively deals with the exempt income not eligible to tax and should not per se be relied upon to ascertain whether the receipt would be a revenue receipt i.e. income chargeable to tax under sub-section (24) to Section 2 read with the charging provisions. The question of exemption under Section 10 would only arise if at the first instance, the receipt is found to be a revenue receipt. It would be incorrect to first examine whether a particular receipt has been exempted and then on the said reasoning and ratio proceed to decipher and hold that the amount/receipt is income for the purposes of the Act i.e. the Income Tax Act. In International Instruments vs. CIT, (1982) 133 ITR 283 (Kar.), it has been held that “A receipt may not be „income‟ at all within the proper connotation of that term and yet may come within the express exemption in this section, due to the over- anxiety of the draftsman to make the fact of non- taxability clear beyond possibility of doubt.” Just because a certain receipt is not exempt under Section 10, it doesn‟t follow that it is a revenue receipt and hence income. Relevant in this regard would be to also quote Dilip Kumar Roy (supra), wherein it was held:
“It is well settled that by Sections 3 and 4 of the Act, the Act imposes a general liability to tax upon all income, but the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon the assessee. Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision.”
In G.R. Karthikeyan (supra), the Supreme Court has made an observation that when a particular “income” or “receipt” is exempt to a limited extent, it may be a relevant factor for determining the meaning of the expression “income”. However, this statement should not be read in isolation, bereft of the context in which it was made. The entire paragraph quoted above (see paragraph 39 above) clearly illustrates that the main thrust there was on highlighting that the term „income‟ is of widest amplitude and should be given a natural and grammatical meaning. Casual „income‟ is income. Once, it is settled, that the receipt is income, partial exemption would necessarily indicate that the non- exempt part is taxable.
In view of the aforesaid discussion, the substantial questions of law mentioned above, are answered in favour of the appellant- assessee and against the Revenue. Rs. 1 lakh received by the appellant- assessee as an award from B.D. Goenka Trust for Excellence in Journalism would be a capital receipt and hence not income taxable under the Act, i.e. Income Tax Act, 1961. There shall be no order as to costs.
The Supreme Court rightly ruled that it shall first be established whether the income received by the assessee is revenue or not and then it shall be established whether it is exempted or not. Moreover, if an income is not exempt under Section 10, it does not mean that it will be a revenue receipt and hence income. Moreover, whenever there is a receipt to the assessee, the burden of proving it as income lies upon the department. However, where there is a receipt in the nature of income, the burden of proving that it is not taxable lies upon the assessee. The receipt in the relevant case will be considered as Capital Receipt and hence not taxable.
2. Income Tax Appellate Tribunal – Delhi
Abhinav Bindra, Dehradun vs Assessee on 21 February, 2013
This appeal by the assessee is directed against the order of learned CIT(A)-I, Dehradun dated 21st February, 2013 for the Assessment Year 2009-10.
2. The assessee has raised the following grounds of appeal:-
“1. That order passed u/s 250(6) of the Income Tax Act, 1961 is against law and facts on the file in as much as the ld. Commissioner of Income Tax (Appeals) was not justified to uphold the action of the ld. Assessing Officer in treating a sum of Rs. 63,10,601/- received from various trusts and associations by way of gifts/awards on winning of the Olympic Medal as taxable under the head “Income from other sources” as gifts received under the provisions of section 56(2)(v).
2. That he was further not justified to arbitrarily enhance the assessed income by Rs.2,34,00,000/- received by the appellant from various Governments without giving any opportunity before taking such an action.
3. That the ld.CIT(A) gravely erred in not adjudicating on the detailed written submissions made during the course of hearing vide which it was submitted that the entire receipts received by the appellant were in the nature of capital receipts.
4. That principles of natural justice were grossly violated in as much as neither any reasonable opportunity before enhancing the income was given nor the details written submissions made, were considered while adjudicating the appeal.”
3. The facts of the case are that the assessee is a sportsperson viz., shooter of international repute who won medals in various international events including Asian Games, Commonwealth Games, World Championships and also won gold medal in Olympic Games at Beijing in 2008. During the accounting year relevant to the assessment year under consideration, the assessee received awards/prizes/gifts amounting to 4,81,63,380/- which were divided in four categories as under:-
|From local authority||500000.00|
From Trust/assessment/funds recognized u/s 10(23C) 17952779 or registration u/s 12AA of the I.T.Act From other persons 6310601 Total 48163380
Circular No.447 dated 22nd January, 1986 reads as under:-
“Subject : Taxability of awards for sportsmen – Clarification regarding.
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 5 ITA-2219/Del/2013 testimonial. In view of this, it is clarified that such awards in the cases 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.
2. In cases where such receipt is in the nature of gift, the chargeability to gift-tax will be considered separately.”
From the above Circular, it is evident that the CBDT has distinguished between the sportsman who is a professional or who is not a professional. In the case of a professional sportsman, the award received by him will be in the nature of benefit in exercise of his profession and therefore will be liable to tax under the provisions of the Income-tax Act. But, in the case of a non-professional, the award received by him will be in the nature of a gift and/or personal testimonial and it will not be liable to tax in the hands of the sportsman because it would not be in the nature of income. Therefore, the first thing while considering the applicability of the Circular is to consider whether the assessee is a professional sportsman or not a professional sportsman.
He is pursuing it as his hobby and not as a professional sportsman :-
“(1) By way of a brief background it may be mentioned that the assessee Shri Abhinav Bindra is an “Amateur” Shooter of international repute who, by virtue of his skills, honed and perfected after years of sustained hard-work, and perseverance, has brought and won medals at various international events including the Asian Games, Commonwealth Games and World Championships, the crowning glory of which has been the first individual Gold medal ever won by an Indian in the history of Olympic Games at Beijing Olympics in 2008. It is worthwhile, 6 ITA-2219/Del/2013 relevant and important to mention here that while this sport is regulated at the national level by the National Rifle Association of India (NRAI) and at the international level by the International Shooting Sports Federation (ISSF), Headquartered at Munich, Germany, shooting retains the character or an amateur sport pursued by individuals as a hobby or passion or by army-men in which case it bears a marked convergence with their career pursuits. Even in the case of the Assessee he was pursuing it as hobby, akin to painting, sculpting, wherein he achieved a high level of perfection after years of dedicated and sustained hard work. At no stage has the Assessee pursued the hobby with the prospect of monetary gain or as a professional of which the possibilities in this sport are virtually non- existent.”
Now, the second question would be whether the above Circular still holds good after the amendment in Section 10(17A) and insertion of Section 56(2)(v). It has been stated by the learned counsel that the above Circular has not been withdrawn so far despite the amendment in Section 10(17A) as well as insertion of Section 56(2)(v). Circular No.447 dated 22nd January, 1986, in the case of a non-professional sportsman, the award received by him will be in the nature of a gift and/or personal testimonial which will not be liable to tax in his hands as it would not be in the nature of income. The learned DR has contended that the 7 ITA-2219/Del/2013 above Circular would not be applicable after the modification of Section 10(17A) and 56(2)(v). So far as Section 10 is concerned, this is Chapter III which begins with the heading “Incomes which do not form part of total income”. Thus, Section 10 would be applicable in respect of income which is to be excluded because of Section 10. However, in respect of a receipt which is not in the nature of income, the entire Section 10 is not applicable and, therefore, any amendment in Section 10(17A) is of no consequence
Section 14 provides the various heads under which income has to be computed and Item No.F which is ‘income from other sources’ is a residuary head i.e. the income which is not assessable under any of the other heads, viz., salary, income from house property and gains from business or profession and capital gains is to be assessed under the head ‘income from other sources’. However, for applicability of Section 14 and thereafter Section 56, what is required is the receipt in the nature of income. In Circular No.447 dated 22nd January, 1986, it has been clearly stated “In view of this, it is clarified that such awards in the cases 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.”
Therefore, as per the Circular, the receipt by way of award by a sportsman who is not a professional sportsman will not be in the nature of income. In the order of learned CIT(A), he has distinguished between the words “reward” and “award”, of course with reference to Section 10(17A). We have already stated that Section 10(17A) is not applicable where the above Circular is applicable. We further state that if we read the Circular as a whole, it is clear that the purpose of the Circular is to encourage the sportsmen, especially those who are not professional sportsmen.
Coming back to the facts of the assessee’s case, Shri Abhinav Bindra is the first person in the history of independent India to have won the Olympic Gold Medal. In a country whose population is more than 100 crores, if a sportsman who is not a professional sportsman has won the gold medal for the first time after 60 years of independence of the country and he has been given the awards/rewards/prizes mainly by various governments, local 16 ITA-2219/Del/2013 authorities, trusts and institutions and of course some corporate/individuals, a liberal construction of Circular No.447 dated 22nd January, 1986 is required. Considering the facts of the case and the nature and spirit of Circular No.447 dated 22nd January, 1986, we hold that in the case of the assessee, viz., Shri Abhinav Bindra, all the rewards/prizes/gifts received by him are covered by Circular No.447 dated 22nd January, 1986 and, therefore, should not be treated as income in his hands. Accordingly, the addition of `63,10,601/- made by the Assessing Officer and the enhancement of 2,34,00,000/- made by the learned CIT(A) is deleted.
The court rightly ruled that in the case of a non-professional sportsperson, all the awards prices, rewards, gifts received by him on winning the gold medal will not be income as any receipt of any awards prices, rewards, gifts will not be taxable as per Circular No.447 dated 22nd January, 1986 in case of a non-professional sportsperson and accordingly Section 10(17A) will not be applicable in this case. The clear purpose of the Circular is to encourage the sportsperson, especially those who are not professionals.
The purpose of the two case laws is to make a demarcation regarding the applicability of taxation in case of awards, gifts, and monetary benefits that are received by the assessee and the relevant nature of the awards: Revenue or Capital, Section 10(17A) and Circular No.447 dated 22nd January, 1986. Their applicability in various cases has been explained in the case law concerning the exemption granted under Income Tax.