I-T tribunal bats for Sachin in tax dispute

Treats gains on sale of as capital gains, not business income, spares him from huge tax liability.

The Income Tax Appellate Tribunal, Mumbai, has ruled in favour of cricketing star Sachin Tendulkar, in a case pertaining to the taxation of his gains from the sale of shares.

The issue was about whether income earned through engaging the services of portfolio managers should be taken as business income or as capital gains.

In the case of capital gains, there is no tax if listed shares are held for over a year, while 15 per cent is payable if they are sold within a year. But, if these are declared business income then the individual tax slabs would apply.

In Tendulkar's case, it would be over 30 per cent.

Explaining the case, Maneet Puri of Taxmann said Tendulkar had shown in his returns long-term capital gains of Rs 85.56 lakh and long-term capital loss of Rs 23.82 lakh in assessment year 2010-11. He had also shown-term capital gains of Rs 90.89 lakh and short-term capital loss of Rs 7.78 lakh. The gains are to be netted off to arrive at the tax liability.

The assessing officer had treated gains arising on sale of shares as business income on the ground that Tendulkar had engaged the services of portfolio managers, for which he paid them a "huge" sum as fees. Tendulkar had paid Rs 52 lakh for the services.

The aggrieved sportsman then filed an appeal with the Commissioner of Income Tax (Appeals), who overruled the assessing officer's judgement.

The revenue department then went to the ITAT, Mumbai.

However, it was noted in the case that investment in shares through portfolio managers was merely to the extent of 4.8 per cent of the assessee's total investments, Puri said.

It was also noted that Tendulkar had always disclosed amounts invested in shares under the head investments.

According to a circular by the Central Board of Direct Taxes in 2016, the initial choice of characterisation of share portfolio as investment (which will give rise to capital gains) or stock-in-trade (which will give rise to business income) was with the assessee. The assessee had exercised his choice by declaring them as investments.

The assessing officer did not have liberty under the law to thrust his opinion upon the assessee, so long as the assessee followed his choice on a consistent basis. Tendulkar followed this choice for the previous four assessment years.

"Thus, the reasoning given by the AO (assessing officer) that the impugned income would be assessable under the head income from business merely because the assessee has availed the service of portfolio manager is not sustainable in view of ...judgments and facts of the case before us," ITAT held.

As such, Tendulkar's investments were declared taxable under head capital gains and not business income by ITAT.

Image: Sachin Tendulkar. Photograph: Hitesh Harisinghani for Rediff.com.