Gifts/Prizes/Awards/Rewards received by sportsman not taxable if he is not professional

By | March 26, 2018
(Last Updated On: March 26, 2018)

IN THE ITAT DELHI BENCH ‘A’

Abhinav Bindra

v.

Deputy Commissioner of Income-tax, Central-2, Dehradun

G.D. AGRAWAL, VICE-PRESIDENT
AND R.P.TOLANI, JUDICIAL MEMBER

IT APPEAL NO. 2219 (DELHI) OF 2013
[ ASSESSMENT YEAR 2009-10 ]

JULY  26, 2013

Ashwani Kumar for the Appellant. Bhim Singh for the Respondent.

ORDER

G.D. Agrawal, Vice-President – 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 Rs.4,81,63,380/- which were divided in four categories as under:—

From Governments2,34,00,000
From local authority5,00,000
From Trust/assessment/funds recognized u/s 10(23C) or registration u/s 12AA of the I.T. Act1,79,52,779
From other persons63,10,601
Total4,81,63,380

4. Before the Assessing Officer, the assessee claimed that the entire sum of Rs.4,81,63,380/- is not income for which he relied upon the decision of CBDT vide Circular No.447 dated 22nd January, 1986. The Assessing Officer treated the above Circular to be inapplicable because of amendment in Section 10(17A) and insertion of Section 56(2)(v). However, he accepted the receipt of reward/prize/gifts from the Government, local authorities and trusts/funds recognized under Section 10(23C) or registered under Section 12AA to be exempt. He, therefore, added the sum of Rs.63,10,601/- to be the income of the assessee under Section 56(2)(v). On appeal, learned CIT(A) enhanced the income by the sum of Rs.2,34,00,000/- being the awards/rewards received from various Governments. Hence, this appeal by the assessee.

5. At the outset, the learned counsel for the assessee stated that the assessee is an amateur shooter and, therefore, with regard to rewards/gifts, Circular No.447 would be squarely applicable. He stated that as per the above Circular, a distinction has been made between a sportsman who is a professional sportsman or a non-professional sportsman. In the case of non-professional sportsman, the award received by him will not be in the nature of income. He stated that once as per the Board’s Circular, any award received by a sportsman who is not a professional is not income. The question of applicability of Section 10(17A) or 56(2)(v) will not arise because the receipt is not the income under Section 2(24) of the IT Act. Section 10 is applicable in respect of income which does not form part of the total income. Similarly, Section 56 is applicable in respect of income from other sources. Therefore, in respect of all receipt which is not in the nature of income, neither Section 10(17A) is relevant nor Section 56 is relevant. He further stated that the above Circular has not been withdrawn by the CBDT despite amendment in Section 10(17A) and insertion in Section 56(2)(v). Therefore, the same would be applicable. In this regard, he also relied upon the decision of ITAT dated 28th June, 2013 in the case of Shri Kapil Dev rendered in ITA No.4788/Del/2003 and others. He, therefore, submitted that the entire receipt of the assessee by way of gifts/prizes/rewards should be held to be not in the nature of income. Accordingly, the addition made by the Assessing Officer as well as enhancement made by the learned CIT(A) should be deleted.

6. Learned DR, on the other hand, relied upon the order of learned CIT(A) and he stated that the Circular of the CBDT being relied upon by the learned counsel is dated 22nd January, 1986. Much water has flown thereafter and Section 10(17A) has been amended and moreover, Section 56(2)(v) has been inserted by the Finance (No.2) Act of 2004 with effect from 1st April, 2005. The assessment year under consideration is AY 2009-10 and, therefore, Section 56(2)(v) would be squarely applicable. Therefore, after the insertion of Section 56(2)(v), the Circular would not be applicable.

7. In the rejoinder, it is stated by the learned counsel that the Circular No.447 dated 22nd January, 1986 has not been withdrawn so far. If the CBDT would have opined that after the insertion of Section 56(2)(v) the Circular is not applicable, it would have been withdrawn so far because more than eight years have passed since the insertion of Section 56(2)(v). He further submitted that even if it is held that a Circular is contrary to the provision of Section 56(2)(v), still, if some benefit is allowed by the Board’s Circular even contrary to the Income-tax Act, the assessee is entitled to the said benefit.

8. We have carefully considered the arguments of both the sides and perused the material placed before us. 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.

2. In cases where such receipt is in the nature of gift, the chargeability to gift-tax will be considered separately.”

9. 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. We find that before the Assessing Officer, the assessee has given a detailed written submission which is reproduced in the assessment order. In the first paragraph itself, which is being reproduced below for ready reference, the assessee has claimed that he is an amateur shooter. 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, 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.”

10. The above submission made by the assessee before the Assessing Officer has neither been rebutted by the Assessing Officer in the assessment order nor the learned CIT(A) has given any contrary finding. Even at the time of hearing before us, it is not the contention of the Revenue that the assessee, viz., Shri Abhinav Bindra is a professional sportsman. Therefore, we agree with the contention of the learned counsel that the assessee is an amateur sportsman and not a professional sportsman.

11. 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). This statement made at the bar has not been controverted by the Revenue. Therefore, we proceed with the belief that the above Circular has not been withdrawn. As we have already stated that as per Circular No.447, 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 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. So far as Section 56 is concerned, it is under the heading “Income from other sources”. Section 56(1) and (2) read as under:—

’56 (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.

(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head “Income from other sources”, namely :-

(i) dividends ;

(ia) income referred to in sub-clause (viii) of clause (24) of section 2 ;

(ib) income referred to in sub-clause (ix) of clause (24) of section 2 ;

(ic) income referred to in sub-clause (x) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(id) income by way of interest on securities, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(ii) income from machinery, plant or furniture belonging to the assessee and let on hire, if the income is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(iii) where an assessee lets on hire machinery, plant or furniture belonging to him and also buildings, and the letting of the buildings is inseparable from the letting of the said machinery, plant or furniture, the income from such letting, if it is not chargeable to income-tax under the head “Profits and gains of business or profession”;

(iv) income referred to in sub-clause (xi) of clause (24) of section 2, if such income is not chargeable to income-tax under the head “Profits and gains of business or profession” or under the head “Salaries”;

(v) where any sum of money exceeding twenty-five thousand rupees is received without consideration by an individual or a Hindu undivided family from any person on or after the 1st day of September, 2004 but before the 1st day of April, 2006, the whole of such sum :

Provided that this clause shall not apply to any sum of money received-

(a)from any relative; or
(b)on the occasion of the marriage of the individual; or
(c)under a will or by way of inheritance; or
(d)in contemplation of death of the payer; or
(e)from any local authority as defined in the Explanation to clause (20) of section 10; or
(f)from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g)from any trust or institution registered under section 12AA.

Explanation.-For the purposes of this clause, “relative” means—

(i)spouse of the individual;
(ii)brother or sister of the individual;
(iii)brother or sister of the spouse of the individual;
(iv)brother or sister of either of the parents of the individual;
(v)any lineal ascendant or descendant of the individual;
(vi)any lineal ascendant or descendant of the spouse of the individual;
(vii)spouse of the person referred to in clauses (ii) to (vi);
(vi)where any sum of money, the aggregate value of which exceeds fifty thousand rupees, is received without consideration, by an individual or a Hindu undivided family, in any previous year from any person or persons on or after the 1st day of April, 2006 but before the 1st day of October, 2009, the whole of the aggregate value of such sum:

Provided that this clause shall not apply to any sum of money received—

(a)from any relative; or
(b)on the occasion of the marriage of the individual; or
(c)under a will or by way of inheritance; or
(d)in contemplation of death of the payer; or
(e)from any local authority as defined in the Explanation to clause (20) of section 10; or
(f)from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g)from any trust or institution registered under section 12AA.

Explanation.-For the purposes of this clause, “relative” means-

(i)spouse of the individual;
(ii)brother or sister of the individual;
(iii)brother or sister of the spouse of the individual;
(iv)brother or sister of either of the parents of the individual;
(v)any lineal ascendant or descendant of the individual;
(vi)any lineal ascendant or descendant of the spouse of the individual;
(vii)spouse of the person referred to in clauses (ii) to (vi);
(vii)where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009,-
(a)any sum of money, without consideration, the aggregate value of which exceeds fifty thousand rupees, the whole of the aggregate value of such sum;
(b)any immovable property, without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;

The following sub-clause (b) shall be substituted for the existing sub-clause (b) of clause (vii) of sub-section (2) of section 56 by the Finance Act, 2013, w.e.f. 1-4-2014 :

(b) any immovable property,-

(i)without consideration, the stamp duty value of which exceeds fifty thousand rupees, the stamp duty value of such property;
(ii)for a consideration which is less than the stamp duty value of the property by an amount exceeding fifty thousand rupees, the stamp duty value of such property as exceeds such consideration:

Provided that where the date of the agreement fixing the amount of consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause:

Provided further that the said proviso shall apply only in a case where the amount of consideration referred to therein, or a part thereof, has been paid by any mode other than cash on or before the date of the agreement for the transfer of such immovable property;

(c) any property, other than immovable property,-

(i)without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
(ii)for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 50C and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections :

Provided further that this clause shall not apply to any sum of money or any property received-

(a)from any relative; or
(b)on the occasion of the marriage of the individual; or
(c)under a will or by way of inheritance; or
(d)in contemplation of death of the payer or donor, as the case may be; or
(e)from any local authority as defined in the Explanation to clause (20) of section 10; or
(f)from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or
(g)from any trust or institution registered under section 12AA.

Explanation.-For the purposes of this clause,-

(a)“assessable” shall have the meaning assigned to it in the Explanation 2 to sub-section (2) of section 50C;
(b)“fair market value” of a property, other than an immovable property, means the value determined in accordance with the method as may be prescribed;
(c)“jewellery” shall have the meaning assigned to it in the Explanation to sub-clause (ii) of clause (14) of section 2;
(d)“property” means the following capital asset of the assessee, namely:-
(i)immovable property being land or building or both;
(ii)shares and securities;
(iii)jewellery;
(iv)archaeological collections;
(v)drawings;
(vi)paintings;
(vii)sculptures;
(viii)any work of art; or
(ix)bullion;
(e)“relative” means,-
(i)in case of an individual-
(A)spouse of the individual;
(B)brother or sister of the individual;
(C)brother or sister of the spouse of the individual;
(D)brother or sister of either of the parents of the individual;
(E)any lineal ascendant or descendant of the individual;
(F)any lineal ascendant or descendant of the spouse of the individual;
(G)spouse of the person referred to in items (B) to (F); and
(ii)in case of a Hindu undivided family, any member thereof;
(f)“stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property;]

(viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,-

(i)without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
(ii)for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :

Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47.

Explanation.-For the purposes of this clause, “fair market value” of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);

(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:

Provided that this clause shall not apply where the consideration for issue of shares is received-

(i)by a venture capital undertaking from a venture capital company or a venture capital fund; or
(ii)by a company from a class or classes of persons as may be notified by the Central Government in this behalf.

Explanation.-For the purposes of this clause,-

(a)the fair market value of the shares shall be the value-
(i)as may be determined in accordance with such method as may be prescribed; or
(ii)as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,
whichever is higher;
(b)“venture capital company”, “venture capital fund” and “venture capital undertaking” shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to clause (23FB) of section 10;

(viii) income by way of interest received on compensation or on enhanced compensation referred to in clause (b) of section 145A.’

12. From the above, it is evident that Section 56 is applicable in respect of “income” which is not chargeable to income-tax under any of the heads specified in Section 14 Item Nos. A to E. Section 14 is “Heads of income” and it reads as under:-

“14. Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :-

A. – Salaries.

B. – [***]

C. – Income from house property.

D. – Profits and gains of business or profession.

E. – Capital gains.

F. – Income from other sources.”

13. Thus, 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, 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.

14. 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 authorities, trusts and institutions and of course some corporate/individuals, a liberal construction of Circular No.447 is required. Considering the facts of the case and the nature and spirit of Circular No.447, 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 Rs.63,10,601/- made by the Assessing Officer and the enhancement of Rs.2,34,00,000/- made by the learned CIT(A) is deleted.

15. In the result, the appeal of the assessee is allowed.

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