2022 (1) TMI 631 - AT - Income Tax

Nature of receipt - Ex gratia payment voluntarily made by the BCCI - capital receipt not of the nature of income, as such, voluntary receipts are treated as capital in character - sole reason for bringing to tax a sum by the AO was that BCCI was not having registration u/s 12AA - HELD THAT - We direct the A.O. to examine whether BCCI was having registration u/s 12AA of the I.T.Act for the relevant assessment year. If the A.O. is satisfied that BCCI was having registration for the relevant assessment year, necessarily the amount of ₹ 60 lakh cannot be taxed u/s 56(2)(vii) of the I.T.Act in view of 2nd proviso (g) to the said section. CIT(A) alternatively held that the amount is also taxable u/s 28(iv) - In the instant case, prima facie, the CIT(A) has not undertaken such an exercise. Moreover, it is settled position of law that for section 28(iv) to attract, the business or profession must have been carried on by the assessee at any time during the previous year (emphasis supplied). CIT(A) in the impugned order has stated that assessee was rendering services to BCCI during the year under consideration, however, he has not elaborated how assessee was rendering services to BCCI during the relevant assessment year. The assessee was paid ₹ 60 lakh as an ex gratia amount for having played cricket for his country - The assessee being a retired cricketer, prima facie, section 28(iv) of the I.T.Act will not have application. Therefore, in the interest of justice and equity, we are of the view that the case needs to be considered afresh by the A.O. Accordingly, all the issues raised in this appeal are restored to the files of the A.O. The A.O. is directed to examine afresh whether a sum of ₹ 60 lakh received by the assessee is taxable or not. Appeal filed by the assessee is allowed for statistical purposes.

Summary

Issues Involved:
1. Taxability of ex gratia payment received from BCCI as a capital or revenue receipt.
2. Applicability of section 56(2)(vii) and section 28(iv) of the Income Tax Act.
3. Consideration of BCCI's registration under section 12AA for tax treatment.

Analysis:

Issue 1: Taxability of ex gratia payment
The appellant, a retired cricketer, received an ex gratia payment of ?60 lakhs from BCCI. The Assessing Officer (A.O.) treated this amount as taxable under section 56(2)(vii) of the Income Tax Act since BCCI lacked registration under section 12A. The appellant contended that the payment was a capital receipt and not liable to be taxed. The CIT(A) upheld the addition, stating that the amount was received for past services rendered by the appellant to BCCI, making it a revenue receipt under section 28(iv) of the Act.

Issue 2: Applicability of Sections 56(2)(vii) and 28(iv)
The appellant argued that the CIT(A) erred in applying section 28(iv) as the amount was a capital receipt. The Tribunal noted that section 28(iv) applies when the business or profession was carried out during the relevant year, which seemed unlikely for a retired cricketer. The Tribunal directed the A.O. to reconsider the taxability of the amount, emphasizing the need for a fresh examination and a fair opportunity for the appellant to present their case.

Issue 3: BCCI's Registration under Section 12AA
The A.O. based the taxability decision on BCCI's lack of registration under section 12AA. However, the Tribunal directed the A.O. to verify if BCCI had registration for the relevant assessment year. If BCCI was registered, the amount of ?60 lakhs could not be taxed under section 56(2)(vii) of the Act, as per the second proviso (g) to the said section.

In conclusion, the Tribunal allowed the appeal for statistical purposes, emphasizing the need for a fresh examination by the A.O. on the taxability of the ex gratia payment received by the appellant from BCCI. The decision highlighted the importance of providing a fair opportunity for the appellant to present their case and the necessity to verify BCCI's registration status under section 12AA for accurate tax treatment.