Prizes-Capital receipts - Abhinav Bindra ITAT

[CA DEV KUMAR KOTHARI]

Prizes or rewards are ‘capital receipt’ in hands of NON-PROFESSIONAL SPORTSPERSONS like Shri Abhinav Bindra.

Why same theory should not be applied to professional sports person? A capital receipt cannot be deemed ‘income’.

Abhinav Bindra v. Deputy Commissioner of Income-tax, Central-2, Dehradun [2013 (8) TMI 56 - ITAT DELHI]

Sections 2(24), 10 (17A), 56(2) (v) of the Income-tax Act, 1961.

CBDT Circular No.447 dated 22nd January, 1986.

Decision of ITAT dated 28th June, 2013 in the case of Assistant Commissioner of Income Tax Versus Shri Kapil Dev [2013 (7) TMI 60 - ITAT DELHI]

About Abhinav Bindra:

Before writing on tax matters it would be important to know about Shri Abhinav Bindra.

He was born on 28 September 1982, in Dehradun, India. He is an Indian shooter and is a World and Olympic champion in the 10 m Air Rifle event.

Education and training:

He studied at The Doon School for two years before moving to St. Stephen's School, Chandigarh; he graduated from Stephen's in 2000.

He is also a Bachelor of Business Administration (BBA) from the University of Colorado, US.

His parents had an indoor shooting range installed at their home in Patiala, Punjab.

His Mental Coach was Surabh Bhattacharjee, who has been closely associated with him since the beginning of his career.

Bhattacharjee and Lt. Col. Dhillon (who was also his first Coach) were the first ones to spot the potential in Abhinav.

His current coach is five-time Olympic shooter Gabriele Bühlmann from Basel, Switzerland, with whom he trained in Germany before the Olympics.

Achievements in shooting:

At 15, Abhinav Bindra became the youngest participant in the 1998 Commonwealth Games.

He won a Bronze in the 2001 Munich World Cup with a new junior world record score of 597/600.

He won six gold medals at various international meets in 2001. In the Air rifle event at the 2002 Commonwealth Games, Manchester, he won Gold in the Pairs event. Bindra also won Silver in the individual event.

Bindra was the youngest Indian participant at the 2000 Olympic Games wherein his score was 590, having 11^th position in the qualification round. He could not qualify for the finals since only the top eight could compete in the finals. His disappointing performance, did not deter him from pursuing further participations in shooting.

In 2000 he was honoured with the Arjuna Award and the prestigious Rajiv Gandhi Khel Ratna award in 2001.

In the 2004 Athens Olympics, despite breaking the Olympic record Bindra failed to win a medal.

He scored 597 in the qualification round and was placed third behind Qinan Zhu (599 – Olympic Record) and Li Jie (598).

In the finals, Abhinav finished with 97.6 points, last in the field of eight, and was the only player below 100 points. His sub-par finals dropped him from third to seventh.

On 24 July 2006, Bindra became the first Indian shooter to win a World Championship gold in Zagreb. Dr. Karni Singh's Silver in 1962 was the previous best by an Indian in a World Championship meet.

At the 2006 Melbourne Commonwealth Games, he won the Gold in the Pairs event and the Bronze in the Singles event.

Abhinav missed the 2006 Asian Games at Doha because of a back injury.

He won the gold at the 2006 ISSF World Shooting Championships at that time he was about 24 years old.

He won the gold in the 10 m Air Rifle event at the 2008 Beijing Olympic Games, and became the first Indian to win an individual gold medal at the Olympic Games.

This was also India's first gold medal since 1980, when the Men's Field Hockey Team won the gold.

He is the first and only Indian to have held both the World and Olympic titles at the same time, a feat he accomplished by capturing the Gold Medal at the 2008 Olympic Games in Beijing. He was about 26 years old at the time of this event.

After this success he started suffering from a severe back injury. So much so that he was unable to compete or even lift a rifle for a year, upsetting his preparations for the Beijing Games. Bindra booked his place in the 2008 Olympics by winning the gold medal at the 2006 ISSF World Shooting Championships with a score of 699.1. At the 2008 Beijing Olympics, he won the gold in the Men's 10m Air Rifle event after shooting a total of 700.5. He scored 596 (fourth) in the qualifying round and out-scored all other shooters in the finals with a round of 104.5.

In the finals, he started with a shot of 10.7, and none of his shots were below 10.0. He was tied with Henri Häkkinen heading into his final shot. He scored his highest of the finals – 10.4 while Hakkinen came with 9.7 to settle for the Bronze medal. It has been alleged that Abhinav Bindra's gun was tampered with between the qualifying and final round of the event, though no official complaint was filed by the Indian contingent.

Flag- bearer at 2010 Commonwealth Games New-Delhi:

Abhinav Bindra got the honour of being the Indian contingent's flag-bearer at the opening ceremony. He also got the honour of taking the athletes’ oath on behalf of the 6,700 participants from 71 countries and territories on that occasion.

Abhinav Bindra along with Gagan Narang shot in unison to set a Games record 1193 in 10m air rifle pair's event for men to win the first gold for India in the 19th Commonwealth Games. The duo scored 1193 together to break their earlier record of 1189 achieved in the last Games held four years prior in Melbourne.

However the Olympic Champion had to settle for silver in the individual event. Gagan Narang, who shot a perfect 600 to equal his own world record in men’s 10m individual air rifle qualification, won the Gold.

Abhinav Bindra won the Gold medal in the Men's 10-metre Air rifle event at 12th Asian Shooting Championships, which was held in Doha Qatar.

Abhinav Bindra lost in the qualification round in 2012 London Olympics finishing with a score of 594 at 16th rank, though his compatriot Gagan Narang made it to the finals in 3rd place, and went of to win the bronze medal for India, thereby opening the medal tally for India in London Olympics 2012.

All above aspects of his education and continuous training and practice in shooting show that he he has been trained in shooting from childhood starting from home and he had full-fledged facilities to practice and achieve excellence in shooting.

Intriguing question:

The above mentioned aspects are important while considering whether he is a professional sportsman or an amateur. Tribunal found as undisputed facts that he was an amateur and not a professional sportsperson. Tribunal has also observed that shooting as such is not a sports of professional nature.

Business career

Bindra is the CEO of Abhinav Futuristics, the sole distributor of Walther arms in India. Abhinav has sponsorship tie-ups with Samsung, BSNL and Sahara Group. He is also the brand ambassador by State-run Steel Authority of India Ltd. and also a member of Federation of Indian Chambers of Commerce and Industry (FICCI) Sports Committee since 2010.

Awards and recognition

• 2000 – Arjuna award.
• 2001 – Rajiv Gandhi Khel Ratna (India's highest sports award).
• 2009 – Padma Bhushan.^]
• 2011 – Honorary Lieutenant Colonel by Indian Territorial Army

Prizes and awards:

• Bindra was rewarded by various Indian state governments and private organisations for his achievement. Some of notable awards and prizes are as follows:

Awards for 2008 Olympics Gold medal

• Rs. 15 million by Mittal Champions Trust
• Rs. 5 million cash prize by Central Govt
• Rs. 2.5 million cash prize by the state government of Haryana.
• Rs. 2.5 million cash prize by the Board of Control for Cricket in India
• Rs. 1.5 million cash prize by Steel Ministry of India^[28]
• Rs. 1.1 million cash prize by the state government of Bihar. The Patna Indoor Stadium will be renamed after Abhinav Bindra.
• Rs. 1 million prize by the state government of Karnataka
• Rs. 1 million cash prize by S. Amolak Singh Gakhal, Chairman Golds Gym
• Rs. 1 million cash prize by Chief Minister of Maharashtra state
• Rs. 500,000 cash prize by state government of Orissa^]
• Rs. 500,000 cash prize by Government of Tamil Nadu
• Rs. 100,000 cash prize by the state government of Chhattisgarh
• Rs. 100,000 cash prize by the state government of Madhya Pradesh
• A free lifetime railway pass by the Railway Ministry of India
• A Gold medal by the state government of Kerala.
• Rs. 1.5 million cash award by Pune Municipal Corporation.

Information gathered from http://en.wikipedia.org/wiki/Abhinav_Bindra has been summarized herein above.

Awards:

Awards are granted unilaterally and just out of volition of the person who awards it. Such awards are also not result of any lottery or game shows. Thus award is not in nature of any agreed sum of money or equivalent of money if award is granted in kind.

An award is generally not in nature of any sort of consideration for doing or abstaining from doing any work. Therefore, awards are not income of recipient. Awards are in nature of ‘capital receipt’.

Even in case of professional sports persons, awards which are not in nature of consideration to play or in consideration of winning game or losing game (case of match fixing and bating) are not in nature of ‘income’ but capital receipts. Therefore, there should not be difference in treatment of money received as voluntary awards in all cases such receipts are capital receipts.

Income-tax case of Shri Abhinav Bindra (AB):

As noted in earlier paragraphs, we find that only some of facts about AB have found mention in his tax proceedings and some are not mentioned at all. There may be many more relevant facts and circumstances, discussion of which and bringing on records the same was necessary but some of them seems to have missed and therefore, tax case has been decided based on un-disputed facts.

Facts found in relation to tax disputes are as follows:

1. In 2008, he/ AB became the first person in the history of independent India to have won the Olympic Gold Medal.
2. He was given awards/rewards/prizes mainly by various governments, local authorities, trusts and institutions and also some corporate/individuals.
3. AB claimed that he was an amateur sportsperson and hence gifts/awards and prizes won by him are not income in terms of CBDT Circular No.447 dated 22-1-1986.
4.  As per AO Circular No.447 was inapplicable in view of amendment in section 10(17A) and insertion of section 56(2)(v).
5. AO allowed exemption in respect of rewards/prizes/gifts from the government, local authorities and trusts/funds recognized under section 10(23C) or registered under section 12AA by relying on the specific provisions about non-applicability of section 56(2)(v).
6. The AO included in income under section 56(2)(v) gifts, awards, prize etc (by whatever name called) received from others that is corporates, individuals etc.
7. AB preferred appeal before the CIT(A). CIT (A) instead of allowing further relief, enhanced income by adding awards etc which the AO had excluded from income.
8. AB filed appeal before ITAT on the whole issue of non-taxability of any of sums received by him as awards in his capacity as amateur sportsperson and not being a professional sportsperson by relying on the Circular issued by the Board (supra.).
9. He took the following grounds of appeal before the Tribunal:

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). 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. 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. 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."

Observations and finding of Tribunal:

1. Revenue had not controverted the assessee's contention that he was as amateur sportsman and not a professional sportsman. (thus, it became an undisputed fact – added by author)
2. CBDT Circular No.447 has not been withdrawn by Board and it still remain an effected even after the amendment in section 10(17A) and the insertion of section 56(2)(v). The fact that it has not been withdrawn was not controverted by revenue (by AO, CIT(A) and the D/R thus it is undisputed fact – added by author).
3. 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.
4. Question of exemption under section 10(17A) and distinction made by CIT(A) between "award" and "reward" is relevant only when receipt in question is income ( and not when it is not an income at all as in case of capital receipt- added by author).
5. Question of taxing a receipt under section 56(2)(v) as income will arises only when it has the character of income and not in case of capital receipts.
6. As Circular No.447 excludes the awards etc received by amateur sportsperson from ambit of "income" in section 2(24), question of considering exemption under section 10(17A) or taxability under section 56(2)(v) does not arise.

In the result, assessee's appeal was allowed holding that all prizes, awards etc. received by AB ,an amateur sportsperson and not a professional person were capital receipts and not income.

Capital receipt cannot be taxed as income:

As rightly noted by the Tribunal a receipt which is not income or which is capital will not fall under section 2 (24) or section 56 and such sums need no consideration u/s 10. Section 10 will come into play only when a receipt is income and not when it is not income.

The amounts of prizes, awards etc. which are granted voluntarily and are not received as a consideration for playing or winning the game are not income. Such sums are ‘capital receipts’.

The nature of capital receipt will not be changed even if such sums are received by a professional sportsman. Therefore, to that extent the Circular of the Board is ultra virse the income-tax Act and the Constitution of India. Because under the Constitution of India tax can be levied on income and not on capital receipts.

A capital receipt cannot be included in income for the purpose of levying tax on income. The assessee AB has good case on issue of ‘capital receipt’. However, it is likely that the revenue will challenge the Tribunals order before the High Court on the basis of presumption of income u/s 56. Therefore, AB is advised to challenge the provisions of section 56 which deems certain receipts as income though they are capital receipts.

In an appeal Court will not consider aspect of validity of a provision. Therefore, a challenge to amendments of IT Act, which deems certain capital receipts as income is a prerequisite to win the case ultimately.

Weaknesses of revenue:

In opinion of author the case of revenue is totally weak so far issue of capital receipt is concerned. However, still revenue is likely to challenge in view of deeming provisions found in the I.T.Act or any such provisions which they feel are free to incorporate at any time and with any period of retrospectively.

It was not disputed that in the given circumstances AB was a professional person and cannot be called an amateur. At age of 26-27 years and after so much gearing and dedications a person can be presumed to have professional targets to earn name and fame and professional receipts. Distinction between professional and amateur should have been brought on record vis a vis his factual sheet of AB. Even if a particular sports is called amateurs sports, still depending on depth and regularity of participation in sports a person can be a professional sportsman of an ‘amateur sports’.