Whether prize money is a payment of personal nature akin to a gift which has no element of quid pro quo and is thus to be construed as capital receipt - YES: HC

THE issue before the Bench is - Whether prize money is a payment of personal nature akin to a gift which has no element of quid pro quo and is thus to be construed as capital receipt. YES is the answer.

Facts of the case

The assessee was Editor in Chief of the English magazine namely India Today. He had filed his return for the A.Y 1991-92 declaring an income of Rs.5,47,190/-. While perusing the details given in the return, the AO noted that the assessee had claimed an exemption for sum of Rs.1 lakh received by him as B. D. Goenka Award for excellence in Journalism. During assessment proceedings, the assessee's counsel submitted that such award was not for any services rendered, but in the nature of testimonial and expression of recognition by an institution of eminence of a person in the field of Journalism. The AO however, was of the view that the award given to the assessee was not covered by the exemption provisions of Section 10(17A), and he accordingly added the amount of Rs.1 lakh to the income of assessee. On appeal, the CIT(A) deleted such addition made by the AO by holding that the receipt of Rs.1 lakh could not be construed to be an income component in the hands of assessee. On further appeal, the Tribunal reversed the order of CIT(A) by holding that the initial onus was on the assessee to show that the particular receipt was exempt from tax, which he had failed to do, and added back the amount to the total income of assessee.

Having heard the parties, the High Court held that,

++ it is clear that the assessee was an editor of a newspaper and had income by way of salary, interest, dividends and profit. However, Section 17 has not been invoked in the present case and it is not the case of the Revenue that the prize money received is taxable under the head "income from salary". In the present case, Revenue has not directly submitted and asserted that the assessee was carrying on business or profession or even vocation. The assessee has not been taxed for income in the form of "profits" and "gains" earned from profession. Assuming, that the assessee was carrying on vocation as a journalist or publisher, the issue raised is whether the prize money is a revenue receipt or a capital receipt. The other aspect is whether the prize money is taxable under the head "income from other source". It is seen that the Apex Court in the case of Divecha (P.H.) vs. CIT, has observed that the motive and intent of the person who pays is not relevant and it is the nature of the receipt in the hands of the person who receives the same, which determines the quality of the receipt. However, for this purpose, one may examine the intent of the person paying/ donee. The quantum of the amount paid may not be decisive. Even the nomenclature given to the payment under consideration may not be determinative of the true nature of the receipt;

++ 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 assessee. 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 assessee, or by a client of his. The prize money has in the instant case been paid by a third person, who was not concerned with the activities or associated with the "vocation" of the assessee. 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;

++ further, in the considered opinion of this Court, the correct legal position is that Section 10 exclusively deals with the exempt income not exigible to tax and should not per se be relied upon to ascertain whether the receipt would be a revenue receipt i.e. income chargeable to tax u/s 2(24) read with the charging provisions. The question of exemption u/s 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 Income Tax Act. In case of G.R. Karthikeyan, the Supreme Court has made an observation that when a particular "income" or "receipt" is exempt to a limited extent, it may be a relevant factor for determining the meaning of the expression "income". However, this statement should not be read in isolation, bereft of the context in which it was made. The Apex Court had cleared that the main thrust there was on highlighting that the term "income" is of widest amplitude and should be given a natural and grammatical meaning. In view of this discussion, Rs. 1 lakh received by assessee as an award from B.D. Goenka Trust for Excellence in Journalism would be a capital receipt and hence not income taxable under the Income Tax Act.