Chennai May 14 The Comptroller and Auditor-General of India has said that Sachin Tendulkar had been given inappropriate tax deductions, as a result of which he owes nearly Rs 4 crore in back taxes.

The findings emerge from a recent performance audit report of the CAG, reviewing the tax assessment of sports associations and sports personalities. CAG said that irregular deductions were allowed to sports persons in respect of foreign income in 7 cases in Chandigarh, Maharashtra and Tamil Nadu.

The tax provision under the audit's focus was Section 80RR of the Income-Tax Act, 1961, which allowed deduction on income derived in the exercise of one's profession from the Government of foreign State, in the case of author, playwright, artist, musician, actor or sportsman (including an athlete).

The deduction was as high as 60 per cent of income brought into India, in assessment year (AY) 2001-02. The sop dwindled steadily to 15 per cent by 2004-05, and became zilch thereafter. One of the conditions for the deduction was that the assessee furnished a certificate along with the return of income, stating that the deduction was being correctly claimed in accordance with Section 80RR.

Audit scrutiny has revealed that the deduction was allowed in respect of income which had not been earned in the capacity of sportsman, and that certificate in the prescribed form (No.10H) had not been submitted, involving a tax effect of Rs. 4.51 crore In the case of Tendulkar, CAG has found that an aggregate irregular deduction of nearly Rs 9 crore had been allowed under Section 80RR on foreign remittances amounting to more than Rs 16 crore. These have been on account of sport endorsement (i.e. advertisements and publicity activities), between AY 1998-99 and AY 2004-2005. Short levy of tax adds to Rs 3.62 crore.

"As the income was not derived from the profession of sportsman, allowance of deduction was not in order," says the CAG report. It appears that the tax department came to the defence of the cricketing icon by saying that he had earned the endorsement money `in the capacity of artist', a permitted category in Section 80RR.

However, the CAG has not accepted the argument, saying that Tendulkar had received the income `in the capacity of a model which cannot be construed as an artist for purpose of this section'. In the face of audit objection, the Mumbai tax department has reopened the champion batsman's earlier assessments; the taxman has also stated that the audit observations would be kept in mind while finalising his income-tax assessments.

D. Murali