The recent report of the Controller and Auditor General of India (CAG) on the tax deductibility of professional income received by Sachin Tendulkar has been a matter of intense discussion in professional circles. Coming at a time when the Indian team is at the receiving end from all quarters, the least Tendulkar would have expected was an adverse report by the CAG.

The subject relates to deduction under Section 80RR of the Income-Tax Act which deals with a flat 15 per cent deduction from the gross total income claimed by Tendulkar in respect of sports endorsements, that is, advertisements and publicity earnings received in convertible foreign exchange and brought into India.

For cricketers in India, especially successful ones like the Tendulkars and Dravids, earnings through endorsements far outstrip their match earnings and, therefore, a cricketer at his peak would like to "make hay while the sun shines".

The current controversy is interesting as it has opened up a fresh discussion on the interpretation of Section 80RR of the Act.

Entitlement, issues

This provision, which was introduced in the statute in 1970, has undergone several quantitative and qualitative changes in the last four decades. It applies to an author, playwright, artist, musician, actor or sportsman in respect of income derived in the exercise of his profession.

The other condition is that the income has to be received from the government of a foreign state or a person not resident in India and the money has to be brought into India within six months in convertible foreign exchange from the end of previous year.

Reports note that Tendulkar has earned substantial amounts of endorsement money in foreign exchange admittedly in the capacity of a sportsman. He had claimed deduction under Section 80RR of the Act. The question for consideration is whether the income earned through promotional activities can be treated as income earned in the capacity of a sportsman.

One cannot ignore the fact that a cricketer is essentially paid to perform his job as a sportsman. Once he becomes successful, he is flooded with endorsements and over a period the income he earns from this source outstrips that from his primary source as a cricketer, that is.

In the case of Sachin Tendulkar, it is common knowledge that over the last 15 years his income through sports endorsements have been staggering. This raises an important question: Should Section 80 RR be applicable at all for such categories of income?

Considering that some of the major deductions and exemptions have to be removed from the Act, where is the need to grant flat deduction out of earned income through sports endorsements? The report also indicates that the cricketer may have has categorised the deduction under the heading "in the capacity of artist".

Strange interpretations have been advanced in tax cases over the years. While one does not know what the outcome of the case would be, as it moves through appellate forums, it has certainly created a flutter in professional circles.

In good company

In the matter of claiming Section 80RRA benefit, Tendulkar is in elite company. In Amitabh Bachchan vs Deputy Commissioner of Income Tax (ITA No 1584/Mum/2006), the actor claimed Section 80RRA deduction on the ground that he was performing the role of an `artist' in Kaun Banega Crorepathi, and was not merely anchoring the programme.

The Mumbai Tribunal however denied the deduction to the star holding that "though the appellant is one of the finest actors of Indian cinema that would not change the role of the appellant in the KBC programme as an anchor. Since the appellant was conducting the programme it was his responsibility to make the show interesting and to that extent he might have used his acting skill but the role expected of him in the KBC programme was that of an anchor or a host. Though the appellant was technically quite competent to make the show highly interesting for the public he cannot be treated as an artist or an actor in his role of an anchor for the KBC programme."

In the Harsha Bhogle vs Assessing Officer (2003 86 ITD 714) case, the Mumbai Bench of the Tribunal had to consider whether the popular cricket commentator was performing the role of an artist to be entitled to Section 80RRA deduction.

The Tribunal held thus: "In the present case, the assessee is not a painter. Shri Bhogle is also not practising any particular art. He is a commentator of cricket matches which has nothing to do with the term `Arts'. He is also not an artiste because artiste is a professional performer, i.e., a singer or a dancer. Shri Bhogle is neither a singer nor a dancer. He is only explaining the performance of each player while commenting on TV. Therefore, he is exhibiting information which cannot be compared with public entertainment."

The Tribunal accordingly held that Harsha Bhogle is not entitled to Section 80RR deduction. One should not grudge paying more taxes which are, after all, paid out of earned income. Tax earnings are used for development activities which benefit the society at large. In current context, it would be better if Section 80RRA were reworded so as to remove the glitches that have created the disputes.

R. Anand
(The author is a Chennai-based chartered accountant.)