Overruling the ITAT's order, the HC said prize money of Rs1 lakh received by the India Today Editor as award would be a capital receipt and hence not taxable under the Act
In a significant decision, the Delhi High Court has held that prize money received by India Today Editor Aroon Purie was not directly relatable to his carrying on vocation as a journalist, but linked with his personality and it would be a capital receipt and hence not taxable under the Income Tax (I-T) Act. The HC explained that every receipt, which is not explicitly exempt would not be an income and its taxability would depend on particular situation, says Taxsutra.com
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The HC held in favour of the assessee (Mr Purie) and observed that in the present case the income would be in the nature of capital receipt and would be purely in the nature of testimonial, hence not taxable. "It being a payment of a personal nature, it should be treated as capital payment, being akin to or like a gift, which does not have any element of quid pro quo," the Court said.
The case is related with the India Today Editor receiving an award, including a prize money of Rs1 lakh, for excellence in journalism by BD Goenka Foundation. While filing income tax (I-T) returns for AY1991-92, Mr Purie, claimed an exemption of Rs1 lakh received by him as BD Goenka Award. He claimed that the Award received by him was not in the nature of income as the same was not for any services rendered but was in the nature of testimonial or personal gift received as a token of appreciation. Mr Purie claimed that any such award in the nature of testimonial paid to any professional and is token of esteem, regard for his ability, and cannot be considered as an income under Section 2 (24) of the I-T Act.
The India Today Editor also claimed that as the receipt itself cannot be considered as income, there can be no question of claiming exemption u/s 10(17A) and thus claimed exemption of Rs1 lakh received as prize money for award.
Section 10(17A) provides that if any payment is made in cash or kind in nature of award or reward instituted in public interest by the central or state government, than such award money is exempted.
However, the Assessing officer (AO) disallowed the amount to tune of Rs1 lakh and added back the same to the income of the assessee. The AO observed that any money received or earned in nature of awards should be exempted only if it is covered by the provisions of section 10(17A) and found that award given to asseseee, was not covered by exemption provisions of 10(17A).
Hearing an appeal, the Commissioner of Income tax (Appeals) (CIT-A) reversed the order passed by the AO. The CIT (A) allowed the amount of Rs1 lakh received as prize money by holding that the same is not income within section 2(24) and thus there is no question of its taxability.
Aggrieved by the decision, the I-T department then filed an appeal before the Income Tax Appellate Tribunal (ITAT) at Delhi. The ITAT reversed order passed by the CIT(A) and held that Rs1 lakh received by Mr Purie from BD Goenka Foundation was not exempt under section 10(17A) of the I-T Act, and added back the amount.
Mr Purie then filed an appeal before the Delhi High Court. The HC analysed the provisions contained in section 10(3), section 10(17A) and section 2(24) and went through the widest possible scopes of the term income explained in section 2(24). After analysing facts, the HC noticed that the prime question to be considered is whether the award or prize money received by the asseseee by BD Goenka Foundation is revenue or capital receipt and secondly whether the prize money is taxable under income from other sources.
The Court also referred to several decisions given by the Supreme Court. The HC observed, “The causa causans in the present case is not directly relatable to the carrying on of vocation as a journalist or as a publisher. It is directly connected and linked with the personal achievements and personality of the person i.e. the appellant (Mr Purie). Further, it is to be noted that the payment in this case was not of a periodical or repetitive nature. The payment was also not made by an employer; or by a person associated with the “vocation” being carried on by the appellant; or by a client of his. A third person, who was not concerned with the activities or associated with the “vocation” of the appellant, has paid the prize money in the instant case. It being a payment of a personal nature, it should be treated as capital payment, being akin to or like a gift, which does not have any element of quid pro quo. The aforesaid prize money was paid to the assessee on a voluntary basis and was purely gratis…”
While rejecting the I-T department's contention that all prizes or awards in cash or kind would be income except those specifically covered and exempted under sub- section (17A) to Section 10, the Delhi HC opined, “that question of exemption would not arise where the receipt itself does not fall within the ambit of income”.