Is Prize Money Received for Exemplary Performance Taxable under GST?

Unlike tax on income, except where covered under Section 10 (17A), prize money received is not taxable under GST.

An activity or transaction has to be done or agreed to be done for a consideration and should be in the course or furtherance of business.

There needs to be a direct nexus between supply and consideration.

So the question is whether the prize money has been received as a consideration for participation in the event.

In the present case the amount received is for exemplary performance that is not a given at the start of the event. The outcome is highly uncertain and will be known only at the end of the event.

Thus, the receipt of prize money does not constitute a supply of service by the recipient to the organisers or owners of the event and is not leviable to GST.

A Comparable Situation

A similar situation arises when street singers perform and receive emoluments given voluntarily by passers by. Again, there is no direct nexus between the performance (supply) and the consideration.

The person will perform irrespective of whether he receives any money or not, though he or she would hope to receive some amount of money. Only where such amounts are paid to the performer to provide something in return would it be treated as consideration for that supply.

Section 2(31) that defines consideration as any payment made in respect of, in response to, or for the inducement of supply… Since the person performs whether or not he gets something in return, such amounts received are not consideration.

The European Court of Justice in the case of R.J. Tolsma v. Inspector of Turnover Taxes [(2012) 23 taxmann.com 16 (ECJ)] held that there is no agreement between a musician performing on public highways and soliciting donations from passers-by.

Donations are based on the sympathy of passers-by and not directly related to musical services. Voluntary, uncertain, and unquantifiable sums are not ‘consideration.’ No case of supply of services for consideration. Hence, not liable to service tax.

Conclusion

Based on the above analysis, it can be concluded that prize money received for exemplary performance is not leviable to GST, as it is not a supply.