2018 (4) TMI 1078 - SC - Income Tax

Supreme Court: Sikkim Lottery Income not taxable under Income Tax Act

Mahaveer Kumar Jain Versus Commissioner of Income Tax, Jaipur

Mahaveer Kumar Jain Versus Commissioner of Income Tax, Jaipur - [2018] 404 ITR 738 (SC) Issues Involved:1. Taxability of income from Sikkim State Lottery under the Income Tax Act, 1961.2. Applicability of deduction under Section 80TT of the Income Tax Act on 'gross income' or 'net income'.Issue-wise Detailed Analysis:1. Taxability of Income from Sikkim State Lottery under the Income Tax Act, 1961:The primary issue in this case was whether the income from the Sikkim State Lottery, earned by the appellant, a resident of Rajasthan, was taxable under the Income Tax Act, 1961 (IT Act), especially since the income was already taxed under the Sikkim State Income Tax Rules, 1948. The appellant contended that the IT Act was extended to Sikkim only from 01.04.1989, and hence, income accrued in Sikkim before this date could not be taxed under the IT Act. The appellant also argued that Article 371F of the Constitution, particularly clauses (k) and (n), prevented the application of the IT Act in Sikkim until 31.03.1989, and taxing the same income by both the Union of India and the State of Sikkim would amount to double taxation.The court examined the historical context of Sikkim's merger with India and the introduction of Article 371F, which allowed pre-existing laws in Sikkim to continue until amended or repealed. It was noted that the IT Act was made applicable to Sikkim only by a notification in 1989, with the first assessment year being 1990-91. For the assessment year 1986-87, the IT Act was not applicable in Sikkim, and the Sikkim State Income Tax Rules, 1948, were in force.The court considered Section 5 of the IT Act, which includes all income received or accrued in India within its ambit. However, since the income was earned in Sikkim and already taxed there, the court concluded that the IT Act would not apply, and only the Sikkim State Income Tax Rules, 1948, would be applicable. The court emphasized that double taxation is not permissible unless expressly provided by the legislature, and there was no specific provision in the IT Act to include income from Sikkim lottery tickets before 01.04.1990.2. Applicability of Deduction under Section 80TT on 'Gross Income' or 'Net Income':The second issue was whether the deduction under Section 80TT of the IT Act should be applied to the 'gross income' or the 'net income' from the lottery. The High Court had held that the deduction under Section 80TT should be on the net winning amount received by the assessee after deducting the agent/seller commission.However, since the court concluded that the income from the Sikkim State Lottery was not taxable under the IT Act, this issue became academic. The court did not need to address whether the deduction under Section 80TT should be on the gross or net income, as the primary issue of taxability under the IT Act was resolved in favor of the appellant.Conclusion:In conclusion, the Supreme Court held that the income from the Sikkim State Lottery, already taxed under the Sikkim State Income Tax Rules, 1948, was not taxable under the IT Act, 1961. Consequently, the question of applying the deduction under Section 80TT on gross or net income became irrelevant. The appeal was allowed, and the judgment of the High Court was set aside.