Special Investigation Team-SIT Second Report SUGGESTIONS AND RECOMMENDATIONS FOR TAKING ACTION TO CONTROL BLACK MONEY
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unless there is receipt of exempted income, Section 14A cannot be invoked
Alliance infrastructure Projects Pvt. Ltd. vs. DCIT (ITAT Bangalore), ITA Nos.220 & 1043(BNG.)/2013, ate of pronouncement : 12-09-2014
Assessee engaged in the business of real estate and construction had filed its return for AY; 2009-10 declaring an income of Rs.55,45,092/-and for AY: 2010-11 and an income of Rs.8,07,253/-. During the course of assessment proceedings, it was noted by the AO that the assessee had investments worth Rs.77,57,63,341/-in the form of shares in various companies and investment of Rs.12,07,42,035/- in a partnership firm. These investments which were made during the previous year relevant to AY: 2009-10 continued without change for AY : 2010-11 also. AO sought explanation from the assessee why a disallowance u/s 14A of the Act should not be made. For AY: 2009-10, the assessment proceedings were selected for monitoring by Addl.CIT, Range-II, Bangalore under powers vested on him u/s 144A of the Act. The Addl.CIT, also had issued a notice on 31-05-2011, proposing a disallowance u/s 14A of the Act. Reply of the assessee was that the interest expenditure incurred by it was on loans raised from M/s India Bulls which were used for its day today working. As per the assessee it was the holding company of about ten number of companies and as a part of its regular business was taking advance from group companies and giving advances to other group companies, as per the availability and requirement of funds. Argument of the assessee was that nothing out of the loan amount was used for making any investments which attracted Sec.14A of the Act. Assessee also pointed out that it was not having any exempt income at all.
Held : – From the reading of section 14A of the Act, it is clear that before making any disallowance the following conditions are to exist:-
a) That there must be income taxable under the Act, and
b) That this income must not form part of the total income under the Act, and
c) That there must be an expenditure incurred by the assessee, and
d) That the expenditure must have a relation to the income which does not form part of the total income under the Act.
Therefore, unless and until, there is receipt of exempted income for the concerned assessment years, we are of the view, Section 14A of the Act cannot be invoked.
Nobel Prize and other Indian Awards are Tax Free?
CA Umesh Sharma
Arjuna (Fictional Character): Krishna, recently Indian resident Mr. Kailash Satyarthi received Nobel Peace Prize with Malala Yusufzai. This consists of a medal and approximately 6 crores and 64 lakh rupees. Is an Indian resident required to pay Income tax on this Prize money? And also please explain how Income tax is levied on Awards, Prizes, Rewards, etc.Krishna (Fictional Character): Arjuna, Alfred Nobel started the Nobel Awards in 1901. It is given by Norve Country and till date 128 Awards have been distributed. If the amount is received by an Indian resident, then the Tax laws of the country from which amount has been received and also the provisions of Indian Income Tax Act has to be taken into consideration while calculating tax liability. Earlier when Mother Teresa had received the Nobel Peace Prize, the Indian Government had notified the same in section 10(17A) of Income Tax Act and made it tax free. Similarly now the Government needs to notify the Nobel Prize to make it tax-free.
Arjuna: Krishna, what are the provisions in Income Tax Act 1961 related to other Awards?
Krishna: Arjuna, Awards may be divided in two sections i.e. some Awards are Tax-free in Exemption section 10(17A) and some Awards are taxable under section 56(2) under the head "Income from other sources". For deciding taxability of the Awards one have to check from whom the Award was received and it was received for what purpose and whether it has been approved by the Central or State government or not.
Arjuna: Krishna, which Awards are tax-free?
Krishna: Arjuna, the Awards given in the public interest by the Central or State Government or any other body after approval from the government are tax-free. Similarly Prizes given by Central or State government in cash or kind to the winners of Olympics or Asian games or Common wealth games are tax-free. It means that only Government approved Prizes are tax-free. E.g. the Olympic Award received by Mary Kom is tax-free. Also the National Award for Films received by Vidya Balan in the year 2011 was also tax fee. Likewise only notified awards are tax free. Award of your name i.e., "Arjun" wards to sportsmen by Central Government if notified then it also tax free.
Arjuna: Wow, Krishna, which Awards are taxable?
Krishna: Arjuna, if a person receives prize from Unapproved authority or any Game show, Entertainment program, etc then it will be taxable. E.g. if a person receives Rs. 1 Crore from Kaun Banega Crorepati then it will be taxable. According to section 56(2) the said income is chargeable to tax under Income from Other Sources. Those Prizes which are not Government approved are liable to tax. The "Bharatratna" Award received by Sachin Tendulkar is tax free but "Wisden Cricketer" Award received by him is taxable. Government approval is required to make an Award tax free. Nowadays huge amount of Prizes are given to sport players in IPL, Kabaddi league, Football league etc. and they are taxable. Likewise Film artist receiving Film fare award is taxable.
Arjuna: Krishna, how much of Income tax has to pay on this?
Krishna: Arjuna, on these Awards and prices flat 30% of income tax is required to be paid. If the amount of the Prize exceeds Rs. 10,000 then TDS is required to be deducted and the remaining amount is given to winner. It means even if one receives a price, tax has to be paid first; because of which the winner may become nervous.
Arjuna: Krishna, what are the provisions if the Prize is received in kind?
Krishna: Arjuna, it is difficult to run away from the Income Tax. Tax is required to be paid for Prizes received in Kind. E.g. if a person receives a car in a game Show then he has to pay 30% tax on the said amount. It is the responsibility of the Prize giver to make sure that the Prize receiver has paid the taxes.
Arjuna: Krishna, what should one learn from the provisions of tax on Awards?
Krishna: Arjuna, it is a great honor to receive the Nobel Prize. It is a reward of the work done for needy and poor people. Some Awards are given for talent and brilliance. Further luck also plays a part in winning Awards. The Government levies tax on Prizes and Awards after taking its importance in public interest. A person doing good deeds in life, will get rewarded for it and for bad deeds will have to pay the prize for it!
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