Actor Sachin Tendulkar: Can you believe that the dining hall debate over roti versus parotta can manifest into a taxation dispute? However, the dispute is just one of the more recent in a long line of tax classification incongruities that have jeopardized the credibility of the Indian taxation system over the years. The tax authorities and manufacturers have struggled over a plethora of such cases.
The most prominent being the legal battle over whether Marico Parachute Oil was a hair oil or edible coconut oil. The irony of the matter is that even the legendary cricketer, Sachin Tendulkar took tax relief by claiming to be an actor and not a cricketer. At the core of this fallacy lies the ‘tax classification and deduction’ mechanism.
How did actor Sachin Tendulkar become the “GOD OF CRICKET”?
The taxation landscape provides a plethora of provisions that have been enacted with the view to ensure the well being of the society and the citizens. However, more often than not, the loopholes in these provisions become the root cause of tax evasion by the ‘Tax Assessee’.
For the one who files their own tax return, tax exemptions and deductions offer nothing significant. But, the insight on the tax dispute between the taxation authorities and the legendary Sachin Tendulkar has more interesting and inquisitive facts to offer.
Factual Backdrop: M/S Sachin R. Tendulkar, Mumbai V. The DY CIT CIR
The general overview of Section 80RR of the Income Tax legislation provides tax deductions to an author, playwright, artist, musician, actor, or a sportsman receiving income from foreign income. The income attracts tax exemption provided the income is from professional endeavors.
The object of the legislation was to strengthen foreign exchange reserves and improve international awareness of Indian culture. But, the matters took a rather interesting turn, when the legendary cricketer, Sachin Tendulkar claimed deductions on income earned from advertisements and sponsorship deals (from the likes of PepsiCo and Visa) from abroad.
PepsiCo and Visa had paid Sachin for ads which were technically in addition to his profession of cricket. But, Sachin claimed deductions by claiming that he was primarily an “actor” and not a “cricketer.”
Sachin Tendulkar, who is unquestionably hailed as the ‘God of cricket’ took the plea that he was a profession actor and his payments for ads were entitled to deduction, while his income for cricket was classified as “Income from Other Sources” in his tax returns as he was merely a non-professional cricketer.
Tribunal accepts bizarre claim of Sachin Tendulkar
The tax authorities claimed that Sachin’s claim was outlandish. The Assessing Officer argued “If Sachin is not a cricketer then who is a cricketer?”
The contention was centered around the fact that ‘the appellant [Sachin] has in fact not been “acting” or performing as an “artist” in any of the commercials or sponsorship events in the spirit of the terms. It was claimed that ‘What he has actually been doing is only “appearing” at these events and commercials. Such activities at best can be termed as “ancillary” or “subsidiary” activities through which the appellant has earned income.
Consequently, tax assessment was held against allowing the deductions, but the tribunal overturned the assessment and observed, “While appearing in advertisements and commercials, [Sachin] has to face the lights and camera. As a model, the assessee brings to his work a degree of imagination, creativity and skill to arrange elements in a manner that would affect human senses and emotions and to have an aesthetic value. No doubt, being a successful cricketer, it has added to his brand value as a model. But the fact remains that the assessee has to use his own skills, imagination and creativity. Every person or for that matter every sportsman does not possess that degree of talent or skill or creativity and face the lights and camera etc.”
As a consequence, Sachin Tendulkar was allowed to retain his status of ‘actor’ and allowed deductions under Section 80RR of IT Act.
Travesty of loophole in legislation
The dictum of the Tribunal illustrates the travesty of the legal landscape wherein the ‘welfare provision’ transformed into a potent mechanism to sham the spirit of the legislation. However, the case is not an isolated event as the subject matter finds root in a plethora of verdicts.
Prominent dictum include the verdict of Hindustan Coca-Cola Beverages Pvt. Ltd. vs State of Andhra Pradesh, were the Andhra Pradesh High Court ruled that soft drinks should be classified as a “luxury item” and subject to a higher GST rate.
However, in the landmark case of Commissioner of Central Excise vs. Madhan Agro Industries (I) Pvt. Ltd., the Supreme Court gave a split verdict on the issue of whether to classify coconut oil packaged in ‘small containers’ as edible oil or hair oil for the purpose of taxation. The verdict endorsed the idea that Parachute coconut oil can be considered as edible, however owing to difference of opinion it was marked to the CJI for appropriate orders.
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Similarly, in Tata Consultancy Services Ltd. vs State of Andhra Pradesh, the Andhra Pradesh High Court ruled that software services should be classified as “goods” and subject to GST. Additionally, a similar dispute arose regarding whether Fryums was a papad or not. The Gujarat Appellate Authority of Advance Ruling has approved 18% GST on ready-to-eat parathas.
Later, the Gujarat Appellate Authority for Advance Rulings (GAAAR) overturned the order of the Gujarat Authority for Advance Ruling (GAAR) and characterized ‘fryums’ as ‘papad’ thereby attracting no GST.
Furthermore, in the case of Dabur India Ltd. vs Commissioner of Sales Tax, the company tried to escape the taxation wrath by portraying its tooth powder as ayurvedic medicine, which was accepted. Moreover, in Airtel Digital TV Distribution Limited vs Union of India, the Supreme Court of India upheld the classification of DTH services as a “telecommunication service” and subject to 18% GST.
Conversely, the classification of the taxation regime has acquired the reputation of arbitrary flare as the courts on various occasions approved peculiar claims, while on the other hand disapproved the more genuine ones.
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