2004 (9) TMI 72 - HC - Income Tax

Tribunal rules income from Sikkim lottery taxable under Income-tax Act

Mahaveer Kumar Jain Versus Commissioner Of Income-Tax.

The Tribunal ruled in favor of the Revenue and against the assessee in a case concerning the taxability of income from the Sikkim State lottery under the ... Income from lottery - Deduction under section 80TT on the winnings of lottery- Assessing Officer had allowed the deduction on the net amount of lottery after adjusting Rs. two lakhs paid by the Sikkim Government by way of commission to commission agents or other expenses before the amount was paid to the assessee - '1. Whether, Tribunal was justified in holding that income from Sikkim State lottery is taxable under the Income-tax Act, 1961? 2. Whether, Tribunal was justified in holding that deduction under section 80TT is applicable on the net winning amount received by the assessee and not on the gross amount of the winning prize?' – There is no doubt or dispute that, had Sikkim not become a State of India, the winning was liable to be taxed in the hands of the assessee notwithstanding it was liable to be taxed in Sikkim also - Tribunal was right in holding that income from winnings of lotteries declared by the State of Sikkim was liable to be included in the hands of the assessee as resident of India within the State of Rajasthan where the Income-tax Act, 1961, was in force notwithstanding that it had accrued or arisen to him at a place where the Act of 1961 was not in force even in respect of income accruing to him without taxable territory - Both questions are answered in affirmative Issues Involved:1. Taxability of income from Sikkim State lottery under the Income-tax Act, 1961.2. Applicability of deduction under section 80TT on the net winning amount or the gross amount of the winning prize.Issue-wise Detailed Analysis:Issue 1: Taxability of Income from Sikkim State LotteryThe Tribunal examined whether the income from the Sikkim State lottery, won by a resident Indian, is taxable under the Income-tax Act, 1961. The assessee argued that the Income-tax Act, 1961 was not applicable to Sikkim during the relevant assessment year (1986-87) as Sikkim was not originally part of India when the Act was enacted. The Income-tax Act was extended to Sikkim only from the assessment year 1990-91, following a Presidential notification under Article 371F(n) of the Constitution. The assessee contended that the income earned in Sikkim should not be taxed under the Income-tax Act, 1961, as it was already subjected to tax under Sikkim's income-tax laws, thus raising the issue of double taxation.The Tribunal rejected the assessee's contention, emphasizing that the assessee, being an ordinary resident of India, is subject to the provisions of the Income-tax Act, 1961. The income from the lottery was received in Jaipur, India, and thus falls within the ambit of section 5(1)(a) of the Act, which includes income received or deemed to be received in India by a resident. The Tribunal clarified that the principle of double taxation does not apply when taxes are imposed by different legislative authorities under different enactments. The Tribunal referred to several Supreme Court decisions, including Sri Krishna Das v. Town Area Committee, Chirgaon, and CIT v. Dharamdas Hargovandas, to support its conclusion that double taxation under different laws is permissible.The Tribunal also addressed the issue of extra-territorial operation of the Income-tax Act, 1961, under Article 245 of the Constitution, which allows Parliament to make laws with extra-territorial operation. The Tribunal concluded that the income from the lottery, having been received in Jaipur, is taxable under the Income-tax Act, 1961, irrespective of its accrual in Sikkim.Issue 2: Deduction under Section 80TTThe second issue pertained to whether the deduction under section 80TT should be applied to the gross amount of the lottery winnings (Rs. 20 lakhs) or the net amount after deducting expenses (Rs. 18 lakhs). The assessee argued that the deduction should be on the gross amount, while the Assessing Officer allowed the deduction on the net amount.Section 80TT, which provides for deductions in respect of winnings from lotteries, was examined in conjunction with sections 80B and 80AB. Section 80B defines 'gross total income' as the total income computed in accordance with the provisions of the Act before making any deductions under Chapter VI-A. Section 80AB specifies that deductions under Chapter VI-A should be computed based on the income of the nature included in the gross total income, as computed in accordance with the Act.The Tribunal concluded that the deduction under section 80TT should be based on the net amount of the lottery winnings included in the gross total income after accounting for expenses. This interpretation aligns with the provisions of sections 80B and 80AB, which require the income to be computed in accordance with the Act before applying deductions. The Tribunal referred to the Supreme Court's decision in Distributors (Baroda) P. Ltd. v. Union of India and other relevant cases to support its conclusion.Conclusion:Both issues were decided in favor of the Revenue and against the assessee. The Tribunal held that the income from the Sikkim State lottery is taxable under the Income-tax Act, 1961, and the deduction under section 80TT should be applied to the net amount of the lottery winnings included in the gross total income.