Introduction
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi has reaffirmed a crucial tax principle—an assessee cannot be taxed on an income that is legally exempt, even if mistakenly declared as taxable in their return. The case of Kapil Dev Nikhanj v. ACIT ([2025] 173 taxmann.com 100) centered around the taxability of a one-time benefit granted to a former cricketer by the Board of Control for Cricket in India (BCCI).
The ITAT ruled in favor of the assessee, concluding that such a benefit is not taxable under Section 56(2)(vii) of the Income-tax Act, 1961, as BCCI is a trust registered under Section 12AA. This ruling is crucial not just for cricketers but also for other professionals receiving similar recognitions.
This article delves into the legal reasoning, statutory provisions, and judicial precedents that formed the basis of the ruling, while also analyzing its implications for taxpayers and tax authorities alike.
Case Background: The Key Issues
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The assessee, a former Indian cricketer, received a one-time benefit from BCCI in recognition of his services.
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In his original income tax return (ITR) for AY 2013-14, he erroneously declared this benefit as taxable income and paid tax accordingly.
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Upon later realizing that the amount was exempt under Section 56(2)(vii), he filed an appeal with a delay of 1993 days before the Commissioner of Income Tax (Appeals) [CIT(A)], seeking a refund.
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The CIT(A) refused to condone the delay and dismissed the appeal without considering its merits.
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The matter escalated to the Income Tax Appellate Tribunal (ITAT) Delhi, which ruled in favor of the cricketer, confirming that:
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The benefit was not taxable under Section 56(2)(vii).
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The delay in appeal was justified, as the assessee had acted upon legal advice.
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The CIT(A)’s rejection on technical grounds was incorrect.
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Legal Analysis: Established Principles and Judicial Reasoning
1. Section 56(2)(vii) of the Income-tax Act, 1961
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This provision exempts specified receipts (such as gifts, grants, or benefits) when received from certain qualifying entities, including trusts registered under Section 12AA.
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Since BCCI is registered under Section 12AA, the one-time benefit received by the cricketer falls under this exemption and should not be taxed.
2. Constitutional Protection Under Article 265
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Article 265 of the Indian Constitution states:
“No tax shall be levied or collected except by authority of law.”
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The tribunal emphasized that even if an assessee mistakenly declares an exempt income as taxable, the tax department cannot enforce a tax liability contrary to the law.
3. Precedent: Maninder Singh v. ACIT (ITA No. 6954/Del/2019, ITAT Delhi)
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The ITAT relied on a previous ruling involving another former cricketer, Maninder Singh, where a similar one-time benefit from BCCI was held to be exempt under Section 56(2)(vii).
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This case established judicial consistency, reinforcing that all BCCI one-time benefits granted to former players should be exempt.
4. Supreme Court Ruling in Goetze India Ltd. v. CIT (2006) 157 Taxman 1 (SC)
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The Supreme Court ruled that an Assessing Officer (AO) cannot allow a fresh claim unless made in a revised return.
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However, this restriction does not apply to appellate authorities (CIT(A) and ITAT), who have the power to grant relief even if the claim is raised later.
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ITAT Delhi invoked this principle to allow the exemption, despite the claim being made in appellate proceedings.
ITAT’s Key Findings and Decision
| Issue | ITAT’s Conclusion |
|---|---|
| Taxability of One-Time Benefit | Exempt under Section 56(2)(vii) as BCCI is a registered trust. |
| Effect of Mistaken Declaration in ITR | Tax cannot be collected merely due to an assessee’s error; statutory exemption must prevail. |
| Delay of 1993 Days in Appeal | Condoned, as the delay was due to a legal misunderstanding and subsequent correction. |
| CIT(A)’s Technical Rejection | Overturned; tax authorities must prioritize substantive justice over procedural technicalities. |
| Binding Precedent Followed | Maninder Singh v. ACIT (ITA No. 6954/Del/2019, ITAT Delhi). |
Implications of the Ruling
1. Relief for Former Cricketers and Sports Professionals
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Former cricketers and other sports personalities who receive one-time grants or awards from registered trusts can now claim exemption under Section 56(2)(vii).
2. Clarification for Artists, Writers, and Public Figures
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The ruling extends beyond cricketers—any individual receiving benefits from Section 12AA-registered institutions (such as government-recognized art, music, or sports organizations) may be eligible for tax exemption.
3. Protection for Taxpayers Who Declare Income Erroneously
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If an assessee mistakenly declares an exempt income as taxable, they can rectify it through appellate remedies—a crucial safeguard against undue taxation.
4. Guidance for Tax Authorities (AO and CIT(A))
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Revenue officers should not reject valid claims on mere technicalities (such as delays in filing appeals) when an exemption is clearly available.
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The focus should be on legal substance rather than procedural formality.
Conclusion: A Crucial Precedent for Fair Taxation
The ITAT’s decision in Kapil Dev Nikhanj v. ACIT reinforces a fundamental tax principle—“A tax cannot be levied if the law does not permit it, regardless of an assessee’s erroneous declaration.”
This case provides clarity on the taxability of one-time benefits from recognized institutions, ensuring that former sports professionals and other beneficiaries do not overpay taxes on amounts that are legally exempt.
Moreover, the ruling highlights an essential procedural safeguard—appellate remedies exist to rectify tax errors and ensure fairness, even if the initial mistake was made by the taxpayer.
By following this precedent, taxpayers can safeguard their rights, while tax authorities can ensure assessments are aligned with statutory provisions rather than rigid procedural formalities.
