Allowability Tax Exemption to any Awards / Rewards instituted in the public interest [Section 10(17A)]

Any payment made, whether in cash or in kind, (i) in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf; or (ii)    as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest is exempt under Section 10(17A). The provisions of section 10(17A) of the Act read as :

Text of Section 10(17A)

^[1][Incomes not included in total income.

10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included -

(17A). any payment made, whether in cash or in kind,-

  (i)     in pursuance of any award instituted in the public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf; or

 (ii)    as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest;]

KEY NOTE

1.  Substituted for clauses (17A), (17B) and (18) by the Direct Tax Laws (Amendment) Act, 1987 with effect from 01.04.1989.

Direct Tax Laws (Amendment) Act, 1987 - IV – Circular No. 551, dated 23.01.1990

A peek into the Legislative history of this provision is illuminating. Clause (17A) of section10 was substituted for clauses (17A), (17B) and (18) by the Direct Tax Laws (Amendment) Act, 1987 with effect from 01.04.1989. Prior to substitution, the aforesaid three clauses read as follows:

Merger of clauses (17A), (17B) and (18) into a single new clause (17A) and also simplification and rationalisation of the provisions of these clauses

3.31 Clauses (17A), (17B) and (18) provided for exemption in respect of the following:-

(i)    Any payment, whether in cash or in kind, in pursuance of awards for literary, scientific or artistic work, or for alleviating the distress of the poor, the weak and ailing or for proficiency in sports and games, instituted by the Central Government or by any State Government or approved by the Central Government in this behalf [clause (17A)].

       PROVISO to this clause clarified that the approval granted by the Central Government shall have the effect for such assessment year or years as may be specified in the order of approval.

(ii)   Any payment, whether in cash or in kind, as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in the public interest [clause (17B)].

(iii)  Any payment, whether in cash or in kind, by the Central Government or any State Government in pursuance of gallantry awards instituted or approved by the Central Government [clause (18)].

3.32 The purposes of the three clauses were similar, i.e., to exempt from tax various awards and rewards given by the Central Government or State Governments or those approved by the Central Government in this behalf. The Amending Act, 1987 has, therefore, merged these clauses into a single new clause (17A). Also, there is no need to specify the purposes of these awards, because once these are given by the Central Government or a State Government or are approved by the Central Government, it can safely be presumed that such an award or reward would be for a genuine cause and would be in the national or public interest. Therefore, the purposes of the awards or rewards are not mentioned in the new clause (17A), which provides that the following payments made, whether in cash or in kind, will be exempt:-

(i)    Those in pursuance of any award instituted in public interest by the Central Government or any State Government or instituted by any other body and approved by the Central Government in this behalf.

(ii)   Those given as a reward by the Central Government or any State Government for such purposes as may be approved by the Central Government in this behalf in public interest.

As a result of these amendments, there is no need now to mention in the Act the various awards and rewards granted or instituted by the Central or State Governments or to mention their purposes.

Notified awards under sub-clause (i)

S. No.	Name of the Award	Effective date	Notification
			F. No.	Date
1.	Sir C.V. Raman Award for experimental research in applied sciences/Meghnad Saha Award for research in applied sciences	01.04.1975	184/75/76-IT(A-I)	01.05.1975
2.	Sir Jagdish Chandra Bose Award for re-search in life sciences	01.04.1973	184/74/75-IT(A-I)	05.05.1975
3.	Awards by Bhartiya Jnanpith Certificate of Honour to Sanskrit, Arabic & Persian scholars	01.04.1972	184/38/75-IT(A-I)	14.07.1975
4.	Cash rewards for passing Hindi examinations	01.04.1979	184/39/75-IT(A-I)	24.07.1975
5.	National Awards for Films	01.04.1979	184/51/75-IT(A-I)	24.07.1975
6.	Ramon Magsaysay/Pope John XIII/ Kennedy International Awards	01.04.1974	184/16/75-IT(A-I)	21.08.1975
7.	Sangeet Natak Academy (Annual Award)	01.04.1974	184/60/75-IT(A-I)	27.08.1975
8.	Gelty Prize Conservation granted from time to time by Smithsonian Institution, Washington	01.04.1975	184/18/76-IT(A-I)	17.04.1976
9.	Medical Council of India Silver Jubilee Research Award Fund	01.04.1975	184/18/76-IT(A-I)	17.04.1976
10.	Borlaug Award received by Dr. Ch. Krish-namoorthy	08.02.1977	199/5/77-IT(A-I)	08.07.1977
11.	Hari Om Ashram Alembic Research Award (Annual Award)	-	199/3/77-IT(A-I)	15.11.1977
12.	Fakhruddin Ali Ahmed/Dr. Rajendra Prasad/Kheri Puraskar/Sukumar Basu Memorial/Hooker Awards	01.04.1978	3445	30.05.1980
13.	Lakhotia Puraskar instituted by Ramniwas	1995-96 to 1997-98.	199/28/95-IT(A-I)	22.04.1996
14.	Asharani Lakhotia Trust, New Delhi	1997-98
15.	Mahaveer awards instituted by Bhagwan Mahaveer Foundation	1996-97 to 1998-99	199/27/96-IT(A-I)	15.11.2000
16.	- do -	1999-2000 to 2001-2002	199/24/99-IT(A-I)	15.11.2000
17.	Rameshwar Das Birla National award instituted by Rameshwar Das Ji Birla Smarak Kosh	1999-2000 to 2001-2002	199/19/98-IT(A-II)	15.11.2000

                       

Notified awards under sub-clause (ii)            

S. No.	Name of the Award	Effective date	Notification
			F. No.	Date
1.	Swatantrata Sainik Samman Pension Scheme, 1980	Assessment year 1990-91	199/22/99-ITA-I	02.02.2000
2.	Whether in cash or in kind, as a reward by the Central Government or a State Government to the medal winners of the Olympic Games or Common Wealth Games or Asian Games with effect from the date of this order.	From 28.01.2014	199/03/2013-ITA - I	28.01.2014

 

CBDT Order [F. No. 199/03/2013-ITA.1], Dated 28.01.2014

Subject : Section 10(17A) of the income-tax act, 1961 - Exemption - Awards instituted/Approved by Central/State Government under clause (17A) for purpose of exemption of payment made in pursuance thereof

In pursuance of the powers conferred by sub-clause (ii) of clause (17A) of section10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby approves any payment made, whether in cash or in kind, as a reward by the Central Government or a State Government to the medal winners of the Olympic Games or Common Wealth Games or Asian Games with effect from the date of this order.

CBDT Circular No. 2/2014 [F. No.199/01/2014-ITA. I], dated 20.01.2014 Superseding Circular No. 447, Dated 22.01.1986

Subject :   Section 10(17A) of the Income-tax Act, 1961 - Awards - Awards instituted/Approved by the Central/State Government under clause (17A) for the purpose of exemption of payment made in pursuance thereof - Clarification on taxability of awards for sportsmen

The Central Board of Direct Taxes had issued Circular No. 447 (hereinafter called “the Circular”) on 22nd January, 1986 clarifying that awards received by a sportsman, who is not a professional, will not be liable to tax in his hands as the award will be in the nature of a gift and/or personal testimonial.

2. The said Circular was applicable in a tax regime when gift was not taxable in the hands of the recipient and with the fundamental change in the manner of treatment of gift by amending the definition of income under sub-section (24) of section 2 by introduction of sub-clauses (xiii), (xiv) and (xv) therein and insertion of clauses (v), (vi) and (vii) in sub-section (2) of section 56 of the Income-tax Act, 1961 (‘Act’), the gifts became taxable in the hands of recipient w.e.f. 01.04.2005. The said Circular No. 447 had therefore become inapplicable with the change in law and is to be treated as overridden by the aforesaid statutory provisions w.e.f. 01.04.2005.

3. Further, in terms of provisions of clause (17A) of section10, Central Government approves awards instituted by Central Government, State Government or other bodies as also the purposes for rewards instituted by Central Government or State Government from time to time. Tax exemption can be sought by eligible persons in respect of awards or rewards covered by such approvals.

Reference to ‘approval’ in section 10(17A) does not only connote a paper conveying approval and bearing stamp and seal of Central Government but any material available in public domain indicating recognition for such services, rendered in public interest

‘Approval’ of Central Govt. for purpose of section 10(17A) may either be express or implied, (gleaned from surrounding circumstances and events). Thus, reference to ‘approval’ in section 10 (17A) does not only connote a paper conveying approval and bearing stamp and seal of Central Government but any material available in public domain indicating recognition for such services, rendered in public interest. Assessee, being Chief of Special Task Force (STF), led ‘operation-Cocoon’ against forest brigand Veerapan leading to Veerapan’s fatal encounter - In recognition of special and comendable service of STF, assessee and other members of STF were allotted plots by State Government - Later assessee sold said plot - Assessing Officer however declined deduction under section 10(17A) to assessee for failure to produce an order granting approval of exemption by Government of India under section 10(17A)(ii).  In view of facts that assessee had been recognised by Central Government on several occasions for meritorious and distinguished services, and, he was also awarded President’s Police Medal for Gallantry for his role in nabbing Veerapan, same would constitute recognition by Central Government and thus assessee was to be granted deduction under section 10(17A). [In favour of assessee] (Related Assessment year : 2010-11) – [K. Vijaya Kumar v. PCIT, Chennai (2020) 422 ITR 304 : 274 Taxman 503 : 120 taxmann.com 257 (Mad.)]

Holds receipts/awards by cricketer as exempt under CBDT Circular; Follows precedents

Pune ITAT deletes addition of one time receipt (OTB) /award received by the assessee (former cricketer) from BCCI in view of CBDT Circular 447 dated 22.01.1986 for Assessment year 2013-14, notes that these amounts were received by assessee from BCCI and other associations in recognition of his past achievements in Indian cricket;  Assessing Officer had analyzed the employment status of assessee, provisions of section 17, CBDT Circular, BCCI payment details and section 10(17A)(ii) alongwith the distinction between sportsmen vs. professional cricketer and consequently denied the exemption under section 10(17A)(ii) and brought it to tax under under section 56; ITAT observes that assessee is under employment elsewhere and hence constitutes to be a sportsman which was not refuted by Assessing Officer as well; Remarks, 'Therefore, the principle is obvious that, so long as the recipient is not a professional and the award/OTB is not the receipt for the professional reasons, and it is received in the capacity of a Sportsman, the OTB/rewards are exempt from tax in view of the CBDT Circular No. 447; Relies on Delhi ITAT in case of Abhinav Bindra and Mumbai ITAT in case of Sameer Sudhakar Dighe; Concludes that as Revenue did not prove in any way the assessee is a professional, thus receipt of OTB/award by a sportsman shall be covered by Circular No. 447 and thus the receipts are exempted. – [Chandrakant Gulabrao Borde v. ITO, Pune [TS-641-ITAT-2018(PUN)] – Date of Judgement : 05.10.2018 (ITAT Pune)]

Amount received by assessee as an award from B.D. Goenka Trust for Excellence in Journalism would be a capital receipt and hence not taxable under Act as award money had been paid by a third person, who was not concerned with activities or associated with ‘vocation’ of assessee and payment was not of a periodical nature

Assessing Officer made addition to assessee’s income of an amount received by him from B.D. Goenka Foundation as an award for excellence in journalism observing that it did not fulfil conditions specified under section 10(17A) and, hence, was not exempt. Cause of giving award was not directly relatable to carrying on of vocation as a journalist or as a publisher. Prize money had been paid by a third person, who was not concerned with activities or associated with ‘vocation’ of assessee. Payment was not of a periodical or repetitive nature. Thus, payment being 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. Question of exemption under section 10 arises only if receipt is found to be a revenue receipt. Just because a certain receipt is not exempt under section 10, it does not follow that it is a revenue receipt and hence income.  

Further High Court rejected Revenue’s alternate 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,  High Court opined  “that question of exemption would not arise where the receipt itself does not fall within the ambit of income”. High Court referred to Supreme Court decision in Divecha (P.H.) v. CIT (1963) 48 ITR 222 (SC), and held “The question of exemption under Section 10 would only arise if at the first instance, the receipt is found to be a revenue receipt. It would be incorrect to first examine whether a particular receipt has been exempted and then on the said reasoning and ratio proceed to decipher and hold that the amount/receipt is income for the purposes of the Act i.e. the Income Tax Act..” High Court thereafter also relied on Karnataka HC judgement in International Instruments v. CIT, (1982) 133 ITR 283 (Karn.) wherein it was held that “Just because a certain receipt is not exempt under Section 10, it does not follow that it is a revenue receipt and hence income”. Thus ruling in favour of asseseee, High Court held that the prize money received by the asseseee as an award from B.D. Goenka Trust for excellence in Journalism would be a capital receipt and hence not taxable under the Act. [In favour of assessee] (Related Assessment year : 1991-92) – [Aroon Purie v. CIT (2015) 375 ITR 188 : 277 CTR 1 : 231 Taxman 349 : 56 taxmann.com 80 (Del.)]

Awards received by a sportsman who is not a professional, are specifically exempted by CBDT circular No. 477 dated 22.01.1986

Assessee was a shooter of international repute who won medals in various international events, including a gold medal in Olympic games. During the year, the assessee received awards/prizes/gifts amounting to Rs. 4.8 crores. The Assessing Officer took a view that gifts etc. from Government, local authorities and registered trusts were exempt, but he brought to tax the prizes received from other persons, on ground that circular No. 447 had become inapplicable because of amendment in section 10(17A) and insertion of section 56(2)(v). On appeal, the Commissioner (Appeals) enhanced the income by the sum received as awards from various Governments. On assessee’s appeal:

It is not the contention of the revenue that the assessee was a professional sportsman. Therefore, the contention of the assessee that he was an amateur sportsman and not a professional sportsman, is accepted.

The revenue contended that the above circular did not hold good after the amendment in section 10(17A) and insertion of section 56(2)(v). So far as section10 is concerned, it is under Chapter III, which begins with the heading “Incomes which do not form part of total income”. Thus, section 10 would be applicable in respect of income which is to be excluded because of section10. However, in respect of a receipt which is not in the nature of income, the entire section10 is not applicable and, therefore, any amendment in section 10 (17A) is of no consequence.

Section 14 provides the various heads under which income has to be computed and 'Income from other sources' is a residuary head i.e. the income which is not assessable under any of the other heads, is to be assessed under the head ‘income from other sources’. However, for applicability of section 14 and thereafter section 56, what is required is the receipt in the nature of income. In Circular No. 447, it has been clearly stated that awards in the case of a sportsman, who is not a professional, will not be liable to tax in his hands as it would not be in the nature of income. Therefore, as per the Circular, the receipt by way of award by a sportsman who is not a professional sportsman will not be in the nature of income. In the order of Commissioner (Appeals), he distinguished between the words “reward” and “award”, with reference to section 10(17A). It has already been stated that section 10(17A) is not applicable where the above Circular is applicable. If the Circular is read as a whole, it is clear that the purpose of the Circular is to encourage the sportsmen, especially those who are not professional sportsmen.

The assessee was the first person in the history of independent India to have won the Olympic Gold Medal. In a country whose population is more than 100 crores, if a sportsman who is not a professional sportsman has won the gold medal for the first time after 60 years of independence of the country and has been given the awards/rewards/prizes mainly by various Governments, local authorities, trusts and institutions and some corporate/individuals, a liberal construction of Circular No. 447 is required. Considering the facts of the case and the nature and spirit of Circular No. 447, all the rewards/prizes/gifts received by the assessee are covered by Circular No. 447, and therefore, should not be treated as income in his hands. Accordingly, the addition made by the Assessing Officer and the enhancement made by the Commissioner (Appeals) is deleted.

Gifts/prizes/awards/rewards received by a non-professional sportsman would not be income under section 2(24) in his hands by virtue of circular No. 447, dated 22.01.1986. Therefore, in respect of all such receipts, which are not in nature of income, question of applicability of section 10(17A) or section 56(2)(v) does not arise. [In favour of assessee] (Related Assessment year : 2009-10) – [Abhinav Bindra v. DCIT(C), Dehradun (2013) 35 taxmann.com 575 : 28 ITR(T) 376 : [TS-344-ITAT-2013(ITAT Delhi)]

ITO was given a reward by the Government in appreciation of the meritorious work done by the income-tax personnel for the success of the Voluntary Disclosure Scheme, 1975, but the reward was not approved by the Government for the purposes of section 10(17A), it could not be regarded as exempt

Section 10(17B) [since substituted by section 10(17A)(ii) with effect from 01.04.1989 of the Income-tax Act, 1961 - In appreciation of the meritorious work done by the assessee, an ITO, in regard to Voluntary Disclosure Scheme, the Government of India made payment of cash reward to him. The assessee claimed exemption under section 10(17B). The ITO rejected the assessee’s claim. On appeal, the AAC allowed the assessee’s claim, and the Tribunal, on further appeal, upheld the order of the AAC. On reference:

Held : From a perusal of the provisions of section 10(17B) it is clear that a payment made as reward by the State or the Central Government is not includible in computing total income only when the reward is for such purposes as may be approved by the Central Government in this behalf in the public interest.

It was no doubt true that the payment had been made by the Central Government to the assessee as a reward and that the said payment was also in the public interest. But there was no material on record for holding that the purpose for which the reward in question had been given had been approved by the Central Government in public interest for the applicability of clause (17B) of section 10. Therefore, such reward would not qualify for exemption under section 10(17B). The Tribunal was, therefore, wrong in allowing the assessee’s claim. [In favour of the revenue] (Related Assessment year : 1976-77) – [CIT v. S. N. Singh (1991) 192 ITR 306 : (1990) 83 CTR1 69 : 53 Taxman 234 (Pat.)]

Prize amount received by assessee in caption writing con- test conducted by private company is not exempt under section 10(17A)

The assessee participated in a caption writing contest conducted by a private company and won a cash prize. His claim that the prize amount was exempt under section 10(17A) was rejected by the ITO. The AAC upheld the ITO's order and further held that the impugned amount was income under section 2(24)(ix). On second appeal:

Held : The exemption under section 10(17A) is only for those awards which are for literary, scientific or artistic work or attainment or for proficiency in sports and games which are instituted by the Central Government or by the State Government or approved by the Central Government for this purpose. Since there was nothing on record to show that the impugned contest in this case was instituted or approved by the Government, the exemption claimed was rightly disallowed by the lower authorities.

In view of the Privy Council's decision in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT (1943) 11 ITR 513, since the definition of the word 'income' appearing in section 2(24) is merely inclusive and not exhaustive, a very wide meaning should be given to this expression in order to include almost every kind of receipt or gain and also the notional incomes mentioned in clause (24) of section 2. In the instant case, since it was not in dispute that the assessee put in his skill, exertion and, effort for participating in the contest, the impugned receipt was income. – [WG. CDR. K.P.K. Ghose v. ITO (1983) 5 ITD 413 (All.)]