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2016 (4) TMI 350 - ITAT MUMBAI

2016 (4) TMI 350 - ITAT MUMBAI - [2016] 47 ITR (Trib) 243 - Deduction u/s 80RR - Income derived from profession as a 'sportsman' - Held that:- In the facts of the case before us, it is noted that the assessee has derived its income as a result of his agreement with M/s ESPN Star Sports for the services provided by the assessee as a presenter and commentator and other allied activities which have been discussed in the relevant clauses of the agreement. Thus, assignment has been given to the asses .....

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entator etc. The entire role of the assessee and the activity performed by him for which he was remunerated, have a direct and proximate link with the game of cricket. In the given facts of this case, one cannot visualise earning of this income, de-horse the assessee having been a cricketer and a sportsman and nor can it be visualised independent of the game of cricket. We have already held in earlier part of our order that assessee falls in the category of a 'sportsman'. Thus, in our considered .....

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nce made by the AO in this regard is directed to be deleted. - Decided in favour of assessee. - ITA Nos. 3970 & 3971/Mum./2010 - Dated:- 16-3-2016 - Saktijit Dey, JM And Ashwani Taneja, AM For the Petitioner : Shri D V Lakhani For the Respondent : Shri Nitin Waghmade ORDER Per Ashwani Taneja, AM These appeals have been filed by the assessee against separate orders of the learned Commissioner (Appeals)-10, Mumbai, passed against the separate assessment orders under section 143(3) r/w section 147 .....

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er of Income tax (Appeals) has erred in concluding that notice issued u/s 148 is valid and the reassessment proceedings are validly initiated. He has also erred in holding that reopening the assessment was in order. The appellant prays that the notice issued u/s 148 is bad in law. The conditions stipulated u/s 147 are not satisfied. The reassessment order passed by the Learned AO may be treated as invalid. The appellant prays that reassessment order passed by the Learned AO may be cancelled. 2. .....

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the facts & circumstances of the case the Learned Commissioner of Income tax (Appeals) has erred in confirming the levy of interest u/s 234B at ₹ 38,07,838/-. The appellant denies the liability for payment of interest u/s 234B and prays that the interest levy at ₹ 38,07,838/- may be deleted." 4. During the course of hearing, detailed arguments have been made by both the sides on the grounds raised before us. It is noted from the perusal of the record that on an earlier date .....

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Department for reopening of the case, which was examined by us. Ld. DR submitted copies of "reasons" recorded by the AO and other supporting material to the Bench with one copy to the counsel of the assessee. The case was adjourned to next date to enable both the parties to file their respective replies. Accordingly, on the date of hearing, parties made their respective submissions on the jurisdictional and other legal aspect of the reopening as well as on the merits of the case. 5. T .....

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also causing undue hardship to a tax payer whose services have brought fame to the entire country. Before concluding his argument he also drew our attention upon the advisory issued by the Ministry of Finance, Department of Revenue, dated 24th June 1982, wherein it was opined that audit objection should not be formed the basis of reopening of an assessment. He also relied upon the circular of the CBDT no.554 dated 13th February 1990. Thus, he concluded his argument by submitting that neither th .....

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record to show any approval/sanction of a competent authority with regard to the 'reasons' dated 6th June, 2007. It has been argued by him that variance in the "reasons" does not have any material effect. It was further submitted that the Additional DIT as well as the DIT have gone through the entire records before granting their approval and thus due procedure was followed before reopening of the assessment. It was further submitted that the AO did not form any specific opini .....

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DR, learned Counsel for the assessee has submitted that the learned DR has not been able to meet or counter various arguments of learned Counsel for the assessee with respect to jurisdiction lapses committed by the AO before reopening of the assessment as well as on merits of the case. 8. We have carefully gone through the orders of the lower authorities, arguments made, evidences shown and judgments relied upon before us, by both the parties. 9. We shall first deal with the arguments made by b .....

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the DIT. Accordingly, DIT(IT), Mumbai, granted sanction of the same on 25th May 2007, by making detailed reasoning in his own handwriting. It is noted that while giving reasoning, the DIT had raised few new aspects which were not raised by the AO in the "reasons" recorded viz, some difference in income shown in the return of income and amount shown in the remittance certificate and a change in method of accounting by the assessee. It is noted that subsequent to the sanction granted by .....

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rds, the reopening has been done without complying with the mandatory jurisdictional condition of section 151. Thus, reopening becomes bad on this ground itself. It is further noted by us that the first set of "reasons" (undated reasons) which were got sanctioned from the competent authority were neither furnished to the assessee nor these have been used/considered by the AO for reopening of the assessment and, therefore, these cannot be considered now at this stage for examining the v .....

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ectors in the case of Shri Sunil Gavaskar - A.Y. 2000-01 to 2002-03 - comments reg". One relevant para from the said letter is reproduced hereunder:- "At the outset it is submitted that when the returns for A.Y. 2000-01 & 2002-03 are processed under section 143(1) of I.T. Act, 1961 and the adjustment pointed by the audit are not permissible while processing the return u/s 143(1), hence, in principle the objections raised by the audit are not acceptable for these two years. However, .....

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though, it is true that at the stage of reopening, the belief need not be conclusive, but it is equally expected that the position of law should be clear in the mind of the AO, at least prima-facie. The belief need not be conclusive but it should be firm and clear. No belief can be formed out of confusion and doubtful thoughts. If this kind of situation is allowed to be sustainable in law, then it is quite possible that there will be experiments by the revenue officials by reopening the case of .....

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s Managers Ltd. v/s ITO, 298 ITR 32 (Bom.) wherein it was held by the Hon'ble Jurisdictional High Court that where the AO himself disagreed with the audit objection, under such circumstances, there could not have been valid basis to reopen the already concluded assessment. This judgment has been recently followed again by Hon'ble Bombay High Court to reiterate this point in the case of M/s Reliance Industries Ltd. (Dt. 1st FEBRUARY, 2016 in ITA 2000 of 2013). Some of the useful observati .....

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In this case, the CIT (A) as well as the Tribunal have, on consideration of the facts arising before them, have concluded that none of the three conditions precedent have been satisfied. The reason to believe that income chargeable to tax has escaped assessment on the part of the AO is a sine qua non for issue of a reopening assessment under section 148 of the Act as nonsatisfaction of reason to believe would by itself make the notice fatal. In such a case, the satisfaction of other conditions .....

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cannot be outsourced or arrived at on the basis of directions of his superiors. The Act requires his reason to believe that income chargeable to tax has escaped assessment. Thus, the impugned notice is not sustainable. In that view, the first condition precedent of reason to believe is that income chargeable to tax is escaped assessment being the primary requirement is not satisfied, the notice for reopening is without jurisdiction. 7. Mr. Malhotra, learned counsel for the Revenue, supports the .....

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such a submission is to be accepted, it would, be the beginning of the end of the Rule of Law." The aforesaid judgment is squarely applicable upon the facts of this case before us. Thus, we find that the "reasons" recorded by the AO were not in accordance with law. 10.2. It is further noted by us that Para-2 of the "reasons" dated 6th June 2007, was modified at the instance of the DIT and Para-3 was added subsequent to the approval from DIT, that too at the instance of .....

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arned Counsel, which is also quite significant in law, is that the impugned reopening is barred by limitation in view of the fact that reopening has been done after expiry of four years and original assessment having been done under section 143(3), reopening could not have been done as there was no failure on the part of the assessee in disclosure of material facts. 11.1. We have carefully examined the requisite facts required to address this issue also. It is noted that original return in this .....

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st, 2003 is reproduced hereunder for the sake of ready reference:- "Return declaring total income of ₹ 12065650 was filed on 30.10.2001 along with copies of balance sheet and P&L account and Tax Audit Report u/s. 44AB. The return was processed u/s. 143(1) at the returned income. Notice u/s. 143(2) was issued on 01.10.2002 in response to which Shri. Dilip V. Lakhani - C.A. attended from time to time and necessary details called for were filed and placed on record. 2. The assessee i .....

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(Emphasis supplied) 11.2. While computing the income in the assessment order, income from business was computed by the AO under the head income from business or profession and deduction under section 80RR thereon was granted as was claimed by the assessee in its return of income. A perusal of the assessment order shows that complete facts have been narrated in the assessment order that assessee is a well known erstwhile cricketer. It has also been mentioned that assessee has also received forei .....

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evant facts have been mentioned. Some of the relevant points mentioned in the reply dated 22nd August, 2003 are reproduced below:- "Our client Mr. Sunil Gavaskar has filed the return of income declaring the total income at ₹ 1,20,65,654. Our client has earned the income from salary of ₹ 6,00,000. The salary certificate is enclosed along with the return of income. The salary is received from M/s. All Star Management Group Pvt. Ltd." ……………&h .....

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t has claimed deduction under section 80RR at 60% of the income received in convertible foreign exchange. The certificate in Form 10H is enclosed along with the return of income in support of the proof that amount is received in convertible foreign exchange." 11.3. It has also been mentioned in the said reply that assessee was conferred Sanman certificate as one of the top tax payer and copy of Sanman certificate was enclosed with the reply. It was also mentioned that assessee was prepared .....

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ails in his return of income and also furnished further details and evidences during the course of original assessment proceedings. It is not at all a case of failure on the part of the assessee in disclosure of material facts. If at all there was any failure, it would be on the part of the AO in not appreciating the facts and applicable legal position, in the manner as the AO and his DIT want now at the reassessment stage. The law in this regard is very clear. The AO cannot be given benefit of .....

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erein it was held that if the assessee had made disclosure of all material facts relating to its claim for the deductions in the return which were allowed by the AO, during the course of original assessment proceedings, then, reopening u/s 147 sought to be done beyond the period of 4 years from the end of the relevant assessment year, on the ground that the assessee had wrongly been allowed deduction was not permitted under the law and barred by limitation, in view of first proviso to section 14 .....

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has amounted to review of the original assessment order. On the other hand, Ld DR submitted that no opinion was formed by the AO as no discussion was made by him on this issue in the original assessment order. 11.5. We have considered arguments of both sides. It is noted that a general practice which is uniformly followed in the income tax department by the assessing officers is that the assessment orders are drafted in a manner that these are negatively worded i.e. these contain only adverse ob .....

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record of the AO. If, during the course of original assessment proceedings, pertinent queries were raised by the AO and their replies were given by the assessee or if requisite facts and connected material is held on record of the AO which were relevant to decide an issue, then under these circumstances, a natural inference can be drawn that the AO had applied his mind before framing the assessment order while deciding that issue in favour of the assessee, and an opinion was formed by him in fav .....

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examined these documents and he was aware of complete facts, and thus, apparently, an opinion was formed by the AO while granting the benefit of deduction u/s 80RR. 11.7. Subsequently, at the stage of reopening, the AO has alleged in the "reasons" recorded that the deduction was wrongly granted. In our opinion, it is clearly a case of change of opinion by the AO. The law in this regard is also well settled, i.e., the reopening of an assessment cannot be done on the basis of change of o .....

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n the case of Nirmal Bang Securities Pvt. Ltd. v/s ACIT, W.P. No. 2665/2007, order dated 18th January, 2016, in support of our view, wherein it was held that when the assessment order was passed by the AO after due application of mind, after considering that dividend income earned from the mutual funds are exempt from tax u/s 10(33), subsequent initiation of reassessment proceedings would be considered merely on the basis of a change of opinion. 12. Before we conclude and wind up the issue of re .....

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gestions have been given by the committee which we find relevant for deciding the issue of reopening in the given facts of the case before us, i.e. where the reopening is done influenced by the audit objections. The relevant part of the suggestion given by the committee is reproduced hereunder for the sake of ready reference: "RE-OPENING OF ASSESSMENT ON ACCOUNT OF AUDIT OBJECTIONS: One of the key sources of dispute is the existing arrangement for follow up on audit objections by Internal A .....

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roblem arises when the AO seeks to take corrective measures by invoking the provisions of section 147 or 263 of the Income tax Act. Since the audit object ions are based on material on record and there is no occasion for new material to be brought on record in the course of audit, any reopening of assessment or review by the Principal Commissioner constitutes "change of opinion" in the eyes of the law. This being so, the corrective measure under section 147 or section 263 of the Income .....

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uncements on law cannot amount to "information" on the basis of Which assessments can be reopened under Sect ion 147. The same principle in our opinion should hold good for Section 263. It is also noticed that often the income-tax authorities are not in a position to overlook the audit objection on a point of law though they have taken a view after due application of mind to the legal position, due to several reasons. This has led to avoidable litigation, even though the ruling of the .....

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e audit objection directing the reopening of the assessments already concluded runs counter to the decision of the Supreme Court referred to above' (Source: Page No. 9961 of Volume 6, 11th Edn. Law of Income Tax by Sampath Iyengar) In spite of several court judgments to this effect, the CBDT has issued a circular to the effect that in all cases of audit objections, the AO should initiate corrective steps irrespective of whether the objection is valid or not in the eye of law. Consequently, s .....

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. In large number of cases, the assessments on merit are completed even though the Department is in disagreement with the audit objection. This Committee was informed that more than 25% of the litigation in the Department is on account of mandatory corrective measures initiated following audit objections. In view of the above, it is recommended that to the extent the audit objections are mistakes apparent from record, it should be mandatory for the AO to take corrective steps. However, where the .....

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12.1. Thus, from the above, it is clear that the Committee, after considering entire gamut of circumstances faced by the revenue as well as assessees, suggested that reopening, merely on the basis of audit objections and in absence of any new material indicating escapement of income, amounts to change of opinion and creates uncertainties for taxpayers. Thus, our view is in line with ideal position of law as envisaged by a competent body. 13. The fifth argument of the Ld. Counsel is for assailin .....

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asons" i.e. "reasons" dated 06.06.2007 are taken into consideration, it can be seen that all the three allegations made in the "reasons" are factually incorrect and legally invalid. We have gone through the "reasons" recorded. The first allegation of the AO is with regard to wrong claim of deduction u/s 80RR, which we shall deal and discuss in detail, little later. 14.2. The second allegation is that there was difference to the tune of ₹ 1,94,362/- in the .....

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its computation sheet is more by a sum of ₹ 1,94,632/- as compared to the amount of receipts shown in the remittance certificate. Even, this allegation is factually correct; it does not prove any escapement of income. Rather, it shows excess assessment of income. Even, otherwise no addition has been made in the assessment order on this ground and this ground was dropped being factually and legally incorrect. 14.3. The third para of the "reasons" states that there was some change .....

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t alleged wrong claim of the assessee for claiming deduction u/s 80RR of ₹ 97,71,079/- being 60% of the professional income from foreign sources amounting to ₹ 1,62,85,132/-. It has been stated in the 'reasons' that deduction u/s 80RR is allowable in respect of professional income from foreign sources where the total income of an individual being inter-alia sportsman, includes an income derived by him in the exercise of his profession from any person not resident in India, bu .....

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always playing for the country in domestic as well as international cricket tournaments. The perusal of the Income Tax Expenditure account of the assessee for the year under consideration reveals that the assessee has received income inter alia from following sources: (i) Column writing and commentary (ii) Royalty on books (iii) Honorarium (iv) Foreign Remittances (received from M/s. ESPN Star Sports Ltd., Singapore. 15.2. The assessee had received income in the form of foreign remittances, on w .....

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onging to any one of the categories as mentioned in the said section and the income must be derived as a result of carrying out that very activity only. But in the case of assessee, since assessee was no more a sportsman or a cricketer and in any case since the impugned income was not earned as a result of playing cricket, and therefore, in view of requirement of section 80RR, the assessee was not eligible to claim the deduction u/s 80RR. We have carefully considered the contention of the revenu .....

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Direct Taxes vide its circular no.281 dated 22nd September, 1980 while explaining rationale of the amendment made in section 80RR by Finance Act, 1980 for including few more categories of persons eligible to claim benefit of deduction u/s 80RR. The relevant para of this circular is reproduced hereunder: "23.1: Extension of the benefit of deduction in respect of professional income for foreign sources to sportsmen and athletes- section 80RR- Under section 80RR, a resident individual being an .....

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r understanding of our country and its culture abroad and also for augmenting our foreign exchange resources. With a view to encouraging our sportsmen and athletes to compete in international events, the Finance Act has amended section 80RR to include them in the category of persons entitled to the benefit of that section." 15.4. The perusal of the above said circular clearly shows that section 80RR is a beneficial provision intended to provide benefits of tax concessions to those persons w .....

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categories as mentioned therein. It is well settled law that beneficial provisions of the law must be construed liberally. While interpreting a beneficial legislation, rule of liberal construction should be preferred over the rule of strict interpretation, and therefore an effort must be made to see how the benefit can be provided to the persons who are claiming it sincerely and genuinely. The interpretation that enables us to achieve its object should be preferred over the one that tend to frus .....

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rate the object of legislation. Purposive Construction is a well accepted rule of interpretation which says that the courts must look upon the object which the statute seeks to achieve, especially while interpreting any beneficial legislation. If there is an ambiguity, a purposive approach for interpreting the Act is necessary. If two views are possible, one effectuates the purpose or intendment of the provision and the other frustrates it, the former must be preferred. Every effort should be ma .....

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st or improper motive on the part of the assessee, it would be just and equitable to draw such inference in such a manner that would lead to equity and justice. Too hyper-technical or legalistic approach should be avoided in looking at a provision which must be equitably interpreted and justly administered. Courts should, whenever possible, unless prevented by the express language of any section or compelling circumstances of any particular case, make a benevolent and justice-oriented inference. .....

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y settled law that, if the language is plain and unambiguous, one can only look fairly at the language used and interpret it to give effect to the legislative intention. Nevertheless, tax laws have to be interpreted reasonably and in consonance with justice adopting purposive approach. The contextual meaning has to be ascertained and given effect to. A provision for deduction, exemption or relief should be construed reasonably and in favour of the assessee. 15.8. In the case CIT vs. Sultan & .....

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tting and pattern are important. 15.9. Hon'ble Supreme Court in the decision reported in CIT vs. J.H. Gotla 156 ITR 323 (SC), has observed that if a strict and literal construction of the statute leads to an absurd result, i.e., a result not intended to be sub-served by the object of the legislation ascertained from the scheme of the legislation then if another construction is possible apart from the strict literal construction, then that construction should be preferred to the strict litera .....

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do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction. 15.10. In aforesaid legal background, let us further analyse the provisions of section 80RR in the light of the facts of this case. 16. For better appreciation of law and facts, it is necessary to first analyse the relevant provisions of section 80RR as they stood in the relevant Assessment Year, which read as under: "Where the gr .....

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01; ………………………………………………………………………….. As is brought into India by, or on behalf of, the assessee in convertible foreign exchange within a period of six months from the end of the previous year or within such further period as the competent authority may allow in this behalf and no deduction shall he allowe .....

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wing conditions needs to be satisfied for the purpose of the above section :- (a) The individual must be a resident in India; (b) He should be an author, playwright, artist, musician and actor or sportsman (including an athlete); (c) The income should be derived by him in the exercise of his profession; (d) The income should be received from the Government of a foreign State or any person not resident in India. If all the four conditions are satisfied, an amount equal to 60% of such income so re .....

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The revenue has disputed compliance of the conditions mentioned only in clauses (b) and (c) above. According to the AO, the assessee was neither a sportsman nor an artist nor an author, and thus not eligible to claim benefit of this deduction. It was further held by the revenue that the impugned income was not derived from exercise of his profession by the assessee as sportsman. Therefore, we need to analyse whether the assessee has fulfilled both of these conditions in the given facts or not. 1 .....

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mmer Olympics A sportsperson, also known as sportsman or sportswoman, is a man or woman who is involved in sports. It may mean someone who is known for the promotion of sport or athletic activities. A sportsperson can be a man or a woman who is person trained to compete or interested in a sport involving physical strength, speed or endurance. A sportsman is a player in a sport, but the term also means someone who plays sport in a way that shows respect and fairness towards the opposing player or .....

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the case are that the assessee has been undoubtedly a cricketer of international stature. He was honoured with 'Arjun Award' by the Government of India and 'Maharashtra Bhushan' by the Government of Maharashtra as life time achievement award for his sporting excellence. It has been shown to us that the assessee has been playing cricket matches in India and abroad, even after he had stopped playing tournaments of international and national levels. The evidences of such district l .....

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ee as the chairman of 'Cricket Committee- Playing' at its meeting in June, 2000. This committee was subsequently renamed as ICC Cricket Committee. The assessee remained its chairman until his resignation in May, 2008. We shall further like to state the broad intention of section 80RR, as was discussed in detail in earlier part of this order also, is to promote the sports and persons associated with it for the sake of building up greater understanding of the country and augmenting foreign .....

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r strengthened from this fact that in section 80RR, it has been no where mentioned that the sportsman should be the person who is currently playing in the field or the person earning income directly from playing in the field only. Thus, we find that the broader objective of section 80RR is met if we define the term sportsman in a wider sense, as seems to have been intended by the legislature also. In this backdrop, it can certainly be said that the assessee was a sportsman during the year for th .....

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prescribed in the section) in the exercise of his profession. It has not been stated in section that the income should be derived by the person from playing in the 'field' or directly exercising the core activity pertaining to the category to which that person belongs. If the legislature would have stated so, in that case the intention of the legislature would have been narrower in terms of nature of income to be considered as eligible for deduction under this section. Thus, what we unde .....

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hich are independent of the core activity would also be covered in this section. Further, those activities which go beyond the parameters of profession and take the shape of business activities shall also not fall in the scope of income derived during the course of profession in the context of section 80RR. 17.2. The legislature has clearly abstained from using the expressions like income derived from playing cricket (or sports), or participating in the game, or writing of books or literature, o .....

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TD 284 (Mum.), Hon'ble Bombay Bench of the Tribunal held that under sections 80HH, 80I, 80IA, and other similar sections, the mandatory requirements of the law is that income should be derived from an industrial undertaking, whereas, on the other hand, u/s 80RR, income has to be derived in the exercise of profession. Thus, language used by the legislature in section 80RR is to be liberally interpreted. If any income is derived by the assessee in the exercise of his carrying on his profession .....

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s and therefore, assessee did not exercise his profession in earning the eligible income. The bench analysed the provisions of section 80RR and held that provisions of section 80RR should be liberally interpreted as the word used in this section are 'any income derived in the exercise of profession', in contra-distinction to sections 80HH, 80I, 80IA and to other similar sections where the mandatory requirement of the law is that the gross total income of the assessee includes income deri .....

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of the relevant clauses of the agreement of the assessee with M/s. ESPN Star Sports, reproduced hereunder: "2(a) ESPN STAR Sports hereby engages you to render services on an exclusive basis as a presenter, reporter and commentator for its sports programming service (the "Programming") and such other services as described herein and you agree to render such services. You shall perform the services, under ESPN STAR Sports direction and control, as a presenter and commentator, includ .....

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available for sales functions, cross-channel promotions, photography sessions, publicity and promotional appearances, appearances for marketing and advertising purposes on other channels owned or operated by ESPN STAR Sports and any of their associated companies, radio appearances and off-the-air personal appearances for promotional purposes as ESPN STAR Sports may require (the "Project Services") (b) For the purposes of this Agreement, sports programming shall consist of commentating, .....

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he mutually agreed upon.......................... 17.5. In the facts of the case before us, it is noted that the assessee has derived its income as a result of his agreement with M/s ESPN Star Sports for the services provided by the assessee as a presenter and commentator and other allied activities which have been discussed in the relevant clauses of the agreement. Thus, assignment has been given to the assessee and this role has been performed by him effectively, because of his having been a c .....

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h he was remunerated, have a direct and proximate link with the game of cricket. In the given facts of this case, one cannot visualise earning of this income, de-horse the assessee having been a cricketer and a sportsman and nor can it be visualised independent of the game of cricket. We have already held in earlier part of our order that assessee falls in the category of a 'sportsman'. Thus, in our considered opinion, the facts of this suggest that the impugned income has been derived b .....

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a 'sportsman'. Thus issue before the bench was different and the facts of the said case and ratio decided therein are not applicable on the facts of the case before us. 18. The assessee had made another alternative argument, on without prejudice basis that if assessee is not treated as a 'sportsman', then he shall fall in another category namely 'artist'. It has been contended that while performing the role of commentator and presenter, there was an element of art involve .....

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in Tendulkar v. ACIT (ITAT-Mumbai in ITA no.428 to 430/Mum/2008) and DCIT v. M/s. Preeti Vyas, (314 ITR (AT) 69 (Mum). He had also referred to various clauses of agreement between assessee and ESPN Star to support his claim. But, since we held that assessee's case falls in the category of a 'sportsman', therefore we are not going into this aspect, and leaving it open at this stage. 19. Thus, the facts of this case suggest that the assessee is eligible to claim deduction u/s 80RR, and .....

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