2014 (10) TMI 532 - HC - Income Tax

Court upholds exclusion of gold prize money from income under Income Tax Act

The High Court dismissed the revenue's appeal, upholding the Tribunal's decision to exclude the prize money of 1 kg. gold from the respondent's income. ... Taxability of prize money of 1 kg. of gold won by the assessee – Lottery income u/s 115BB r.w. section 2(24)(ix) - TDS not deducted because of consumer goods – Held that:- Following the decision in COMMISSIONER OF INCOME TAX-I, LUDHIANA Versus TILAK RAJ KALRA [2012 (4) TMI 123 - Punjab and Haryana High Court] - the explanation was added with effect from 1.4.2002 and there was no provision to give the explanation retrospective effect - it would not apply to the AY 1996-97 - if the prizes awarded to any person were to be included in the expression 'lottery' then there was no necessity of adding the explanation to include prize money like the one in question in the expression 'lottery'. The expression 'lottery' would involve an element of 'chance' whereas when a person is making investment in a scheme like Savings Scheme then there is no element of 'chance' nor he loses any money invested by him - the incentive prize received by the assessee on account of the coupon given to him on the strength of Small Savings Certificate would not fall within the definition of 'lottery' and would, thus, not be included in the expression 'income' – thus, the order of the Tribunal is upheld – Decided against revenue. Issues:1. Taxability of prize money of 1 kg. gold won under the small savings scheme.2. Interpretation of the Income Tax Act regarding winnings from lotteries and games of chance.3. Application of precedents from High Courts in similar cases.Issue 1: Taxability of prize money of 1 kg. gold won under the small savings schemeThe appeal was filed by the revenue under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal. The respondent, a lawyer, won 1 kg. of gold under a scheme of the Punjab Government. The assessment framed included the value of the gold as part of the income for the year. The Commissioner of Income Tax (Appeals) partly allowed the appeal, reducing the addition for gold impurities and estimated professional income. The Tribunal further partly allowed the appeal and deleted the addition of the gold value. The revenue contended that the prize money should be taxable based on a Supreme Court judgment regarding income from a motor rally. However, the Division Bench referred to a provision of the Income Tax Act and explained that the prize money did not fall under the definition of 'lottery' due to the nature of the savings scheme. The Court upheld the Tribunal's decision based on the interpretation of the Act and previous judgments.Issue 2: Interpretation of the Income Tax Act regarding winnings from lotteries and games of chanceThe Division Bench analyzed Section 2(24)(ix) of the Income Tax Act, which includes winnings from lotteries, games, and gambling as part of income. The explanation added to the Act clarified the scope of 'lottery' and 'games of chance.' The Bench highlighted that the explanation was not applicable retrospectively to the assessment year in question. It was noted that the investment in the savings scheme did not involve an element of chance, unlike traditional lotteries. The Court differentiated between earnings from activities involving chance and those from investment schemes where the return was assured. This distinction was crucial in determining the taxability of the prize money won by the respondent.Issue 3: Application of precedents from High Courts in similar casesThe Division Bench relied on previous judgments from the Madras and Karnataka High Courts, which dealt with similar cases involving prize money from savings schemes. These judgments supported the view that winnings from such schemes did not constitute income from lotteries or games of chance. The Court also referred to the judgment in Tilak Raj Kalra's case, which had already addressed the taxability of prize money won under a savings scheme. Based on these precedents, the Court dismissed the appeal, holding that the prize money received by the respondent was not taxable income. The decision was in line with the interpretations provided by the High Courts in similar cases.In conclusion, the High Court dismissed the appeal by the revenue, upholding the decision of the Tribunal to delete the addition of the prize money from the respondent's income. The judgment provided a detailed analysis of the taxability of winnings under savings schemes, interpreting relevant provisions of the Income Tax Act and considering precedents from other High Courts.