Income Tax, International Tax

Mere Paas 80RR hai!

Every morning you start your day motivated and inspired to finish the prescribed work  and maybe more. After five minutes, more or less, bam! You find that you are gawking clumsily into the computer screen with Facebook open and looking for any gossip you can get your hands on. And if access to a large tax database doesn’t make you feel nosey, then what will, isn’t it?

We peeped into the tax issues faced by some of the biggest names, like Sachin Tendulkar, Sunil Gavaskar, Harsha Bhogle and Amitabh Bachchan to name a few and we thought why not mix work and play?

Section 80RR – Deductions upto 60%

To encourage authors, playwrights, artists, musicians and actors to project their activities outside India for greater understanding of our culture abroad and for earning valuable foreign exchange, a deduction up to 60% is allowed under Section 80RR of the Income Tax Act if:

  • The assessee is an individual, an individual who is an author, playwright, musician, actor, or sportsman (including athletes), residing in India.
  • The income is derived in the exercise of their profession.
  • The income is brought in India in convertible foreign exchange within the prescribed period.

It may not surprise you to know that our income tax department has locked horns with many a famous personality on this section. And if we let our imagination run wild, in a Deewar like face-off between the income tax department and Mr. Amitabh Bachchan, in his arguments, apart from the regular bungalow, car, bank balance, we are sure Mr Bachchan can also add section 80RR to the list.

Cricket God or Thespian?

Sometimes individuals use the goodwill and brand value made from one profession to earn money from other professions. It might come as a surprise to a few, but our Sachin Tendulkar, had claimed that his profession is of an “actor” (instead of a “sportsperson”) because the income earned “in exercise of his profession” as an actor constituted major portion of his earnings. In the financial year 2002-03, he had received more than 5 crore INR from brand endorsements in foreign exchange. The tax department allowed deductions under Section 80RR only for the income received as a cricketer. When the dispute went to the tribunal (ITA 428 to 430/Mum/2008), the ITAT interpreted the term “artist” liberally and held in favour of Sachin by providing him deductions both for the income earned as a “sportsperson” and an “artist”.

Kaun banega taxpati?

Income received from anchoring a programme would generally not be eligible for deductions under this section if the sole profession of the assesse is anchoring. Harsha Bhogle ((2004) 87 TTJ (Mum) 892) was denied the benefit of this provision as an “artist” for the income received for anchoring and commentating the cricket matches. This principle was not applicable in the case of Amitabh Bachchan ((2007) 106 TTJ Mum 925) where income of more than 50 INR crores for the financial year 2001-02 derived from hosting the popular game show “Kaun Banega Crorepati” in India was held to be earned in exercise of his profession as an “artist”. Amitabh Bachchan was performing the role of an artist as his acting skills made the game show interesting and imaginative. The contention of the revenue that the assessee did not go out of the country to earn this income was also rejected by the court as a plain reading of the section suggests that the profession need not be exercised in the foreign country to avail the benefit of this section and the receipt of money from foreign resident would suffice.

Harsha’s colleague and ex-cricketer Sunil Gavaskar (ITA No. 3970/Mum/2010) was also allowed the benefit of this provision as a “sportsperson”. The tribunal interpreted the term “sportsperson” extremely liberally to include that the contribution for promotion of cricket is possible not only while playing but also outside the field while performing other roles like that of a reporter and commentator.

We can’t help but say, “there there Harsha, and if it’s of any consolation, we thank you for all the tax you have contributed to the country!”

Taxed away, not spared at home

Aftab Shivdasani (ITA 5773/Mum/2008) had to face trouble with the authorities to claim deduction on his earnings of Rs 82,65,470/- from foreign country on which a tax of Rs 5,34,468/- was deducted. The tribunal decided in favour of the Tax Authorities holding that if a tax has been deducted in the foreign country on such income, then the deducted amount will not be treated as a part of the total receipts brought in India.

Also read our intresting article on: The Taxability of Crime

In summary

Now that our thirst for gossip is quenched, we feel a bit introspective and thought of leaving you all with a question.

While 80RR is a beneficial provision with the aim to promote the culture and understanding of our country, it seems a liberal construction has been given by the courts to this provision at the expense of the Government revenue. And if deductions available under the Income Tax Act have been prone to misuse in the past, shouldn’t the courts be wary of using the purposive rule of interpretation?

(Written by Anuj Sharma, Product Counsel @ Riverus, with assistance from Anushri Goenka, Student, Symbiosis Law School, Pune and intern @ Riverus.)

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