2011 (5) TMI 20 - AT - Income Tax

Deduction u/s 80RR - Business income or other sources - the assessee derived income from salary, income from other sources as a cricketer and income from modelling/sponsorships shown as income from business/profession - the assessee has received an amount of Rs. 19,92,27,085/- as gross receipts from sports sponsorship and advertisements which included an amount of Rs. 5,92,31,211/- received in convertible foreign exchange from ESPN Star Sports, Pepsico Inc and VISA - the assessee in the instant case has declared income from playing cricket as income from other sources on the ground that he is only a cricketer and is not a professional cricketer The categories of persons to whom s. 80RR allows a deduction are (i) authors; (ii) playwrights; (iii) artists; (iv) musicians; (v) actors; and (vi) sportsmen, including athletes - the assessee, while appearing in advertisements and commercials, has to face the lights and camera - Held that the amount of Rs. 5,92,31,211/- received by the assessee amounts to income derived by the assessee in the exercise of his profession as an artist and therefore entitled to deduction u/s 80RR of the Act the assessee had claimed an amount of Rs. 57,969/- towards staff welfare expenses - Since the expenses claimed were in cash and were unverifiable in nature - CIT(A) restricted the same to Rs. 5000/-, which in our opinion is reasonable under the facts and circumstances of the case Regarding entertainment expense - the CIT(A) restricted the disallowance to Rs. 50,000/- on the ground that the disallowance made on estimated basis appears to be on higher side. Car expenses - Admittedly, no log book has been maintained by the assessee, therefore, personal use of motor car for self and other family members cannot be ruled out. Accordingly, the disallowance of 1/5th of the motor car expenses amounting to Rs. 1,42,824/-being very reasonable under the facts and circumstances is justified.

Issues Involved:
1. Deduction under Section 80RR of the IT Act, 1961.
2. Disallowance of Staff Welfare Expenses.
3. Disallowance of Entertainment Expenses.
4. Disallowance of Telephone Expenses.
5. Disallowance of Motor Car Expenses.
6. Validity of Reassessment Proceedings.
7. Initiation of Penalty Proceedings under Section 271(1)(c).
8. Charging of Interest under Section 234B(3).

Issue-wise Detailed Analysis:

1. Deduction under Section 80RR of the IT Act, 1961:
The primary issue was whether the income derived by the assessee from acting in commercials and endorsements qualifies for deduction under Section 80RR. The assessee, a leading cricketer, claimed deductions for income derived from acting/modelling in various commercials, arguing that this income is from the exercise of his profession as an "actor" or alternatively as an "artist." The Assessing Officer (A.O.) and the CIT(A) denied the deduction, stating that the assessee's primary profession is playing cricket, and the income from commercials is ancillary and not derived from his profession. The Tribunal, however, allowed the deduction, stating that the income from modelling and appearing in TV commercials can be considered as income derived from the profession of an "artist." The Tribunal referenced the decision in Amitabh Bachchan's case, where similar deductions were allowed for acting in TV shows.

2. Disallowance of Staff Welfare Expenses:
The A.O. disallowed Rs. 10,000 out of Rs. 57,969 claimed by the assessee for staff welfare expenses, stating that the expenses were in cash and unverifiable. The CIT(A) reduced the disallowance to Rs. 5,000. The Tribunal upheld the CIT(A)'s decision, considering it reasonable.

3. Disallowance of Entertainment Expenses:
The A.O. disallowed Rs. 1,42,091 out of Rs. 6,16,041 claimed for entertainment expenses, citing unverifiable cash expenses and potential personal use. The CIT(A) reduced the disallowance to Rs. 50,000. The Tribunal upheld this reduced disallowance as reasonable.

4. Disallowance of Telephone Expenses:
The A.O. disallowed Rs. 1,16,540 out of Rs. 4,86,412 claimed for telephone expenses, as the bills were in the name of the assessee's wife. The CIT(A) reduced the disallowance to Rs. 50,000, acknowledging that the assessee made many calls. The Tribunal upheld this decision.

5. Disallowance of Motor Car Expenses:
The A.O. disallowed 1/5th of motor car expenses amounting to Rs. 1,42,824, considering probable personal use due to the absence of a log book. The CIT(A) upheld this disallowance, and the Tribunal found no infirmity in this decision, deeming it reasonable.

6. Validity of Reassessment Proceedings:
The assessee challenged the reassessment proceedings initiated under Section 147. The original returns were processed under Section 143(1), and the reassessment was initiated within four years due to incorrect claims under Section 80RR. The CIT(A) and the Tribunal upheld the validity of the reassessment, referencing the Supreme Court decision in Rajesh Jhaveri Stock Brokers (P.) Ltd.

7. Initiation of Penalty Proceedings under Section 271(1)(c):
The assessee's challenge to the initiation of penalty proceedings was deemed premature by both the CIT(A) and the Tribunal, and thus, this ground was dismissed.

8. Charging of Interest under Section 234B(3):
The Tribunal noted that charging interest under Section 234B(3) is mandatory and consequential, dismissing the assessee's challenge on this ground.

Conclusion:
The Tribunal allowed the deduction under Section 80RR for income derived from acting/modelling, recognizing the assessee as an "artist." Other disallowances related to staff welfare, entertainment, telephone, and motor car expenses were upheld as reasonable. The reassessment proceedings were deemed valid, and challenges to penalty proceedings and interest charges were dismissed.

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