[Opinion] Whistleblower Rewards and Their Tax Treatment in India

Meenakshi Subramaniam – [2026] 187 taxmann.com 396 (Article)

Once, a man shouted: “I am fed up of paying income tax. Will become an income tax informer. ” His knowledgeable friend, sadly, nodded his head and said: “ You are very innocent, my dear buddy. On becoming an income tax informer, you will get taxed on every reward you earn.”
In the recent, amazing case of Premal P Pandya v. Dy. CIT ([2026] 186 taxmann.com 640 (Ahmedabad – Trib.) ), the assessee who gave information on tax evasion was taxed!

[2026] 186 taxmann.com 640 (Ahmedabad – Trib.)
Premal P Pandya

v.

Deputy Commissioner of Income Tax

The assessee, employed with Stryker (India) Private Limited in 2011, an Indian subsidiary of a U.S. based medical equipment company, as Director – Commercial Operations and Marketing (South Asia), identified an alleged physician kickback scheme involving public hospitals in India, which violated the Foreign Corrupt Practices Act (FCPA), which was against his conscience and public interest. He reported that matter, but was dismissed.

Thereafter, considering the seriousness of the misconduct, he. engaged a counsel to represent him before the Securities and Exchange Commission (SEC), and he filed a Whistleblower complaint to the SEC, describing the alleged bribery and kickback scheme. Investigations were carried out by the SEC wherein the assessee had provided assistance and corroborative evidence. The SEC imposed a civil penalty of USD 7.8 million on U.S. parent company in September 2018. Subsequently, the assessee was awarded 28% of the penalty amount as reward on 2nd August, 2021, for his assistance in the matter. The total reward of USD 2.18 million was credited to an escrow account, of which 50% was paid to two U.S. attorneys, and balance 50% being, USD 1.09 million, was received by the assessee. Accordingly, the amount of Rs. 8,16,27,000/- was credited in the bank accounts of the assessee.

The AO treated the receipt of Rs. 8,16,27,000/- as income of the assessee under the provisions of section 56(2) (x) of the Income Tax Act. According to the assessee, the reward received from the US SEC was a windfall gain and a capital receipt, and it was not chargeable to tax under the provisions of the Income Tax Act.

Accordingly, the assessment was completed, at total income of Rs. 7,91,65,713/-, after allowing some deductions under chapter VIa of Act. Aggrieved, the assessee had filed an appeal before the first appellate authority, but the Ld. CIT(A) dismissed it.
The Ld. Counsel of assessee argued that the SEC award
i. is not a gift or voluntary transfer made out of a personal relationship;
ii. not contractual compensation or remuneration for services;
iii. not consideration arising from any commercial or business arrangement; and
iv. not a negotiated payment.

He explained that the reward lacks the essential attributes of income and falls outside the scope of Section 2(24) of the Act, relying upon certain cases:

• CIT v. Shaw Wallace & Co. [1932] 6 ITC 178 (Calcutta)
• Cadell Weaving Mill Co. v. CIT [2001] 116 Taxman 77/249 ITR 265 (Bombay)
• CIT v. M. Ramalakshmi Reddy [1981] 131 ITR 415 (Madras)

Submissions of the Revenue
The Ld.-CIT and DR argued that all unexempted awards are taxed. It was also said that it would have been taxable under Section 56 (1) (corresponding to Section 92(i) of the Income Tax Act, 2025) if not Section 56 (2) (x) (corresponding to Section 92(2) (m) of the Income Tax Act, 2025).

THE JUDGEMENT
The Ahmedabad Tribunal held that the core issue to be decided in the case is whether the reward received by the assessee from US SEC is taxable under the provisions of Income Tax Act. The thrust of the assessee’s argument is that the SEC reward is a windfall gain and capital receipt and not income u/s 2(24) of the Act and, therefore, not chargeable to tax. Relying upon the decision of the Hon’ble Privy Council in the case of Shaw Wallace & Co.(supra), the assessee has contended that the following tenets of “income” were not fulfilled in the present case:

i. A periodical monetary return,
ii. Coming with some regularity,
iii. Arising from the definite source, and
iv. Excludes receipts in the nature of a mere windfall.

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