Commissioner Of Income Tax (International Taxation) and Another vs Mahesh Bhupathi

K.L. Manjunath, J.—By consent of parties, these appeals are heard together since the dispute is in regard to whether the Assessee is liable to pay the tax on the funds diverted to an account known as development fund account. The Revenue has come up in these appeals challenging the legality and correctness of the order passed by the Tribunal, Bangalore Bench in ITA Nos. 1526 to 1531/Bang/2002 for the asst. yrs. 1995-96 to 2002-03 raising the following substantial question of law:

Whether the Tribunal was correct in holding that the Assessee is entitled to create a separate "development fund" and transfer part of his earnings to the same and treat it as exempt from tax on the ground that it is being used for past and future training without basing such a conclusion on any cogent evidence and especially when similar expenses are already claimed and allowed in favour of the Assessee ?

The Assessee is an international taxpayer (sic) representing India. All India Tennis Association pays the remuneration to the Assessee as and when he participates in the Davis Cup matches. It is the case of the Assessee that the association has opened an account under the name of development fund in the name of the Assessee and out of the remuneration payable to the Assessee a part of which would be retained and transferred into the development fund account. The AO passed an order of assessment stating that the Assessee is also liable to pay the tax in respect of amount diverted to the development fund account standing in the name of the Assessee. The Assessee contended that he is not liable to pay the tax on the amount diverted to the development fund account since it is the fund created by the association pursuant to the agreement entered into between the Assessee and the association and that development fund would be paid to the Assessee considering the need of the Assessee and it is the further case of the Assessee that as and when the Assessee receives money from the account of the development fund, the same shall be offered for the tax. The AO rejecting the contention of the Assessee on the ground that the Assessee himself has created the fund and therefore, the Assessee is liable to pay the tax in respect of the amount transferred to the development fund account. Being aggrieved by the order passed by the AO, the Assessee filed an appeals before the CIT(A) which appeals also came to be dismissed. Aggrieved by the concurrent findings of the Courts below, the Assessee filed an appeals before the Tribunal. The Tribunal allowed the appeals in part. Being aggrieved by the same, the Revenue has come up in these appeals.

The main contention of the Revenue before us is that the development fund has been created by the Assessee and has diverted certain remuneration receivable by him to his own development fund account. The amount diverted to the development fund is liable to be taxed.

Per contra, learned Counsel for the Assessee contended that the development fund account has (not) been created by the Assessee on his own. According to the terms and conditions of the agreement entered into between the Assessee and the Tennis Association Development Fund has been created by the association and the association while disbursing the amount payable to the Assessee, a part of the remuneration would be diverted to the development fund account and out of the amount so diverted, considering the need of the Assessee, the association would pay the same to the Assessee in each and every assessment year. It is the further case of the Assessee that as and when the amount is received by the Assessee from the association and from the development fund account, the same is offered by the Assessee to tax. Therefore, he contends that the Tribunal was justified in granting the relief to the Assessee.

Having heard the counsel for the parties, what is to be considered by this Court in these appeals is whether the development fund account is created by the Assessee on his own or the same is created in terms of the agreement entered into between the association and the Assessee and if it is so, whether the Assessee is entitled to claim the entire amount diverted to the development fund account at any point of time even after he gives up sports activity.

According to Mr. Parthasarathi, the association would release the development fund based on the need of the Assessee and the Assessee as a matter of right cannot demand to release the entire amount so diverted out of the remuneration payable to the Assessee by the association at any point of time. He further contends that even if the Assessee gives up the sports activity, any amount lying to the credit of the Assessee under the development fund account would not be released to him as it is the discretion of the association. According to him when the Assessee is offering tax as and when the development fund amount is released to him, the question of paying the taxes in advance when the Assessee is not sure of getting back the entire money diverted to the development fund account will not arise for consideration.

Having heard the learned Counsel for the parties and perusing the order of the CIT(A) and the Tribunal, we are of the opinion that the facts of the case have not been considered by the AO properly. In order to direct the Assessee to offer the amount diverted to the development fund as tax for the relevant assessment year, it is for the AO to find out whether the Assessee on his own diverted the fund to development fund account. If it is not so, whether the Assessee is entitled to claim the development fund from the association as a matter of right. When the Assessee cannot seek release of amount from the (development fund account and when the association is having a right to release the amount considering the need of the Assessee and when the Assessee is offering the same to tax considering the amount so released in any assessment year, the AO has to consider all these facts. Since such an attempt has not been made, we are of the view that the matter has to be remanded to the AO to find out whether the development fund is created by the Assessee on his own or at the instance of the association pursuant to the agreement entered into between the association and the Assessee and whether the Revenue can call upon the Assessee to offer the amount so diverted to the development fund towards the tax when there is no guarantee for the Assessee to enjoy the same immediately.

In the circumstances, we allow the appeals without answering the substantial question of law and remand the matter to the AO to consider the matter afresh in accordance with law.