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2004 (9) TMI 72
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....iness and property, at Jaipur, Rajasthan. He won the first prize of Rs. 20 lakhs in the 287th Bumper Draw of the Sikkim State lottery, held on February 20, 1986, at Gangtok by the Director, State lotteries, Govt. of Sikkim, Gangtok. After having deducted a sum of Rs. 2 lakhs on account of payment of agent/sellers commission, etc., and another sum of Rs. 1,79,088 on account of income-tax, as per the Sikkim State income-tax laws, the Director of Lotteries paid the balance of Rs. 16,20,912 to the assessee through two demand drafts which were encashed at Jaipur. The assessee declared the net income of Rs. 8,21,375 claiming deduction under section 80TT of the Income-tax Act, 1961 on Rs. 20,00,000, i.e., the gross amount of the prize money. The Income-tax Officer, however, allowed the deduction under section 80TT on Rs. 18 lakhs only. On appeal, the Commissioner of Income-tax (Appeals) agreed with the Assessing Officer, and affirmed the assessment order in that regard. Before the Tribunal, an additional ground was raised by the assessee which was permitted by the Tribunal that the "authorities below have grossly erred in law in treating lottery income of the Sikkim Government as ta....
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....986-87 was beyond the charge of taxation under the Act of 1961. The other aspect of the above contention is that since in the territory of Sikkim, the income-tax laws as were applicable to Sikkim before its becoming part of India, were continuing in force during the assessment year in question, by virtue of article 371F(k), the assessee had been subjected to tax on income from the winnings from lotteries under the Sikkim income-tax laws. The same income could not be subjected to tax under the Income-tax Act, 1961 in the hands of the same assessee as it would amount to double taxation on the same income accrued, arisen or received in India in the hands of the assessee. The above controversy is the subject-matter of question No. 1 referred to us. The other controversy which is referred to us vide question No. 2 is related to claim of the assessee to deduction under section 80TT on the winnings of lottery. The assessee claimed deduction on the entire amount of Rs. 20 lakhs. The 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 t....
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....utside the State of Sikkim would not make any difference. Any person whether residing in Indian State of Sikkim or Indian State of Rajas-than remains a citizen of India and the amount received by a resident of Sikkim is also received in India and by resident of India. The upshot of the Tribunal's order is that under section 5(1)(a) of the Income-tax Act, while the resident of India residing in Sikkim receiving income in India (at Sikkim) will not be subjected to tax, but a person like the assessee on receipt of the same income in India (outside Sikkim) will be subjected to income-tax, on the like basis, viz., receipt of income in India. The provisions of the Income-tax Act ought not to be interpreted to bring about such a discriminatory result. Before coming to the core issue about the taxability of winning of Sikkim lottery announced in Sikkim under the Income-tax Act, 1961 which had accrued and arisen in Sikkim, where the Income-tax Act, 1961 was not extended, we may take other aspects of the first question, viz., whether the tax on winning of lottery is unsustainable on the principle of double taxation. So far as the principle against double taxation is concerned, the ....
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....e may inscribe is: Rest in peace and don't be re-born! If, on the same subject-matter, the Legislature chooses to levy tax twice over, there is no inherent invalidity in the fiscal adventure save where other prohibitions exist." The court approved the decision of the Bombay High Court in Cantonment Board v. Western India Theatres Ltd., AIR 1954 Bom 261. The principle was accepted by the Supreme Court in fain Brothers v. Union of India [1970] 77 ITR 107 that there can be double taxation because the Legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted that they cannot be so interpreted as to tax the subject twice over to the same tax. The Constitution does not contain any prohibition against double taxation. The principle was accepted in H.H. Prince Azam Jha Bahadur v. Expenditure-tax Officer [1972] 83 ITR 92 (SC). Again the principle was restated in Radhakisan Rathi v. Additional Collector [1995] 4 SCC 309. Referring to the aforesaid three cases, the court said: "It is now well-settled that the same subject-matter can be covered by taxation nets imposed by different competent taxing authoriti....
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....ccounts on mercantile basis, where income is accounted for as soon as it accrues to the assessee entitling him to receive it, though actual receipt may be later in time. The accounts may be maintained on cash basis also that is on the basis of actual receipt of income. However, in either case, the operation of the Explanation becomes operative only if earlier assessment has taken place under the Act of 1961, and later assessment is also sought to be made under the Act of 1961. But where the assessments proceed under different enactments which are otherwise operative in respective areas, the occasion for invoking Explanation 2 to section 5 does not arise. The test for examining the exigibility to tax of any income, therefore, is not merely the factum of double taxation but the touchstone is the extent and reach of the law imposing tax to the subject-matter and/or the subject of taxation. The core question, therefore, is whether in view of the non obstante article 371F, the provisions of the Income-tax Act, 1961 can reach the income accrued or arisen or received in Sikkim, where the Act of 1961 was not extended during the relevant assessment year in question by virtue of the....
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....whole of India, because every law made by any Legislature is subject to the provisions of the Constitution. We shall consider presently the operation of the Act of 1961, at the very inception had been extended to persons, things and acts outside its territory which has nexus within the taxable territory. Under section 1(2) the Act of 1961, which came into effect with effect from April 1, 1962, save as provided otherwise in the Act, has its operative territory, the whole of the Union Territory of India. Section 4 is the charging section and provides for levy of income-tax for any assessment year in respect of the total income of the previous year relevant thereto of every person. The object of the enactment is the levy of an income-tax, the subject matter of such levy is the "total income" of the previous year and the subject of such levy is every person to whom such income belongs. What constitutes the "total income" has been defined under section 2(45) of the Act to mean the total amount of income referred to in section 5 computed in the manner laid down in the Act. Section 5 of the Act of 1961 which is captioned as "Scope of total income" during the relevant period re....
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.... in his total income only, if it is derived from business controlled from or profession set up in India. Thus, unlike ordinary resident of India, a not ordinary resident of India, he is not required to include the entire income which accrues or arises to him outside India unqualifiedly but only such part of income which accrues or arises to him from a business controlled or profession set up in India. However, if such income is received in India where the Income-tax Act extends, such income is still includible in income to be taxed under section Lastly, in the case of non-resident, the income accruing or arising to him outside India, from whatever source, is not includible in his total income unless the same is received or deemed to be received by him or on his behalf in India under section 5(1)(a). So far as income accruing or arising or deemed to be accruing or arising in India is concerned, he is equally liable for its inclusion in the total income to be computed for taxable purposes under the Act. In other words, income received or deemed to be received in India whether it accrues in India or outside India, is within the domain of the Act of 1961 to be included in t....
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....such subject-matter beyond its territorial operative field, it does not go beyond its reach nor is rendered ineffective. A provision which has extra-territorial operation by itself is neither invalid nor ineffective. In British Columbia Electric Railway Co. Ltd. v. The King [1946] AC 527 the Privy Council on appeal from the Supreme Court of Canada said: "A Legislature which passes a law having extra-territorial operation may find that what it has enacted cannot be directly enforced, but the Act is not invalid on that account, and the courts of its country must enforce the law with the machinery available to them." Delineating the legislative powers of Union and State, the Constitution of India envisaged under article 245(1), that Parliament can make laws for the whole or any part of India. Thus, law made by Parliament may not necessarily extend to the whole of India, but may be operative in some parts of India only. In such event, a law made for a part of India, if it affects any person or act outside its territorial field, in another part of India and the provisions of such law reach it, it becomes a case of extra-territorial operation of law made by Parliament. Articl....
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....by Parliament does not require to be extended necessarily to every part of the Union Territory of India. At the same time, the law made by any part of India with reference to the subject-matter or subject can have by such enactment extra-territorial nexus beyond the operation of field of the Act, which may be falling within the operative territorial field. If in the aforesaid light, we consider the extent of the provisions of the Income-tax Act, 1961 which like any other enactments made by the Legislature in India, is subject to the provisions of the Constitution including article 371F. Article 371F of the Constitution of India was inserted in our Constitution making a special provision with a non obstante clause as a consequence of Sikkim, an erstwhile independent nation, became a State of India. We have noticed that the Income-tax Act, 1961 came into effect from April 1, 1962, and extended to the whole of India. At the time of its promulgation, Sikkim was not a part of India and the provisions of the Income-tax Act, 1961, were not enforceable in Sikkim. Yet, in respect of any income which accrued or arose in Sikkim was, liable to be taxed under the Act of 1961 if either the....
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....a non obstante clause which operates in spite of other provisions of the Constitution of India that may be contrary to it. Therefore, the laws made by the erstwhile independent Sikkim, which were in force in the territory comprised in the State of Sikkim, notwithstanding that it may be repugnant to any Central legislation, or operating in a field occupied by law made by Parliament or contrary to any other provision of the Constitution, remained effective in the territory comprised in the State of Sikkim until amended or repealed by a competent Legislature or other competent laws. Likewise, the operation of existing enactments which were in force in other States were not automatically extended to the State of Sikkim unless the same were extended in terms of clause (n) of article 371F. Clause (n) envisages extension of any enactment which is "in force in a State in India" at the date of notification issued by the President. If the expression "in force in a State in India" is confined to the laws made by the State Legislature in any particular State in India, then the Acts made by Parliament which were operative in the whole of India stood extended to Sikkim also without any reserv....
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....ent in India during the period in question, whether it is considered to have accrued or arisen in India or is taken to have accrued or arisen outside the territorial operation of the Income-tax Act, 1961, he is liable to include such winnings into his total income. 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. In this connection, reference may be made to the decision of the Supreme Court in CIT v. Dharamdas Hargovandas [1961] 42 ITR 427 inter preting section 4 of the Act of 1922 which corresponds to section 5 of the Income-tax Act, 1961, the court said: "It is divided into three parts. The first part, which is clause (a) provides that all income, profits and gains received or deemed to be received in the taxable territories in such year by or on behalf of such person will be included in the taxable income. So far as clause (a) is concerned, it is immaterial whether the person is resident in the taxable territories or is not resident therein; as long as income etc. is received in the taxable territories by or on behalf of such p....
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....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. In such event, the situs of the receipt of income loses its relevance. That may have relevance in considering the year in which it is to be assessed to tax if accrual and receipt are on different dates falling in different assessment years, in which case the matter of enquiry would have been method of accounting followed by the assessee. Such is not the question in dispute before us. If the income is received by him in Jaipur as found by the Tribunal, then the status of the assessee loses its relevance and the income from all sources in whichever territory it has arisen if it has been received in the territories where the Act of 1961 is applicable, a nexus with the income so received within the taxable territory is established with the territory where the Act is enforceable, the provision of the Act of 1961 can be enforced in respect of it. Such income can be included in the taxable total income of such assessee. Before parting with this issue, we may notice that learned counsel for the assessee has placed before us a decision ....
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....bject-matters and subjects and such extra-territorial operation is permissible under article 245 of the Constitution and the provisions are enforceable within the area where the Act extends through machinery provided under it. The principle was explained by the Supreme Court in the case of CIT v. Dharamdas Hargovandas [1961] 42 ITR 427. That was a case where a like question had arisen in respect of levy of income-tax under the Act of 1922 which extended to British India but was not applicable within the erstwhile Indian States, yet income accrued, arisen in erstwhile Indian States to a resident in British India and the income accruing or arising in Indian States to the non-resident, but received in the British India, was held liable to be taxed by virtue of the provisions of section 4 of the Act of 1922, which corresponded to sections 5 and 6 of the Act of 1961. In view of the reason detailed hereinabove, we with utmost respect, regret our inability to agree with the decision in Nirmala L. Mehta's case [2004] 269 ITR 1 (Bom). The factual ground raised by the assessee that the amount was received by him in Sikkim because the drafts were posted at Sikkim as a result of his ....
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....ice is delivery to the agent of the sender himself". The court further explained the principle by saying that apart from this principle of agency, there is no other circumstance, which makes the delivery of the cheque to the post office at the request of the addressee which is delivered to him and that is by posting the cheque in pursuance of the request of the creditor, the party performs the obligation in the manner prescribed and sanctioned by the contract and thereby discharge the onus of such contracts. Reliance was placed on Illustration (d) of section 50 of the Indian Contract Act. Therefore, when any sum is sent by post or courier, where the same is received by the addressee then it is delivered to him or his agent. If the post office or courier is acting as an agent of the addressee, the delivery to the courier fulfils the requirement of delivery to the addressee. In such case, the post office or courier acts as an agent of the addressee. Ordinarily, the post office or courier is considered as an agent of the sender unless delivery to post office or courier is at the request of the addressee, expressed or implied. However, this is a finding of fact which must be reached....
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....avour of the Revenue and against the assessee. We hold that the Tribunal was justified in holding that the income of winnings from Sikkim State lotteries in the hands of the assessee was taxable under the Income-tax Act, 1961. Question No. 2 The assessee has claimed that since his winnings from lottery declared by the Sikkim State was Rs. 20 lakhs and the amount paid to the agents by way of commission, etc., directly, before remitting the amount to him was only a part of expenses incurred by the assessee. Total income of the assessee, from winnings of lottery, which has been included in the gross total income, therefore, must be deemed to include the expenses incurred by the assessee after he has earned the income. Therefore, the deduction allowed under section 80TT, which was in force during the assessment year in question, since omitted, must be on the entire sum of Rs. 20 lakhs and not on the net amount of lottery after deduction of expenses on Rs. 18 lakhs only as has been allowed by the Assessing Officer. The Tribunal has not acceded to this foundation. Section 80TT is a provision which finds place under Heading of Chapter VI-A which provides for certain deductions in....
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....ion is required to be made or allowed under any section (except section 80M) included in this Chapter under the Heading 'C-Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income." Section 80B defines "gross total income" for the purpose of Chapter VI-A, section 80AB which was inserted with effect from April 1, 1981, defines the term gross total income of a particular nature of income included in the gross total income, where deduction is to be allowed with reference to such nature of income included in the gross total income of the assessee. In other words, section 80B defines the term "gross total income" in terms of aggregate of total income of a person from all sources, as computed in accorda....
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....tion 80B read with section 80AB of the Act, which was inserted with effect from April 1, 1981, as under: "These two provisions read together leave no room of doubt in mind that while for computing deduction under any of the provisions of Chapter VI-A which relates to gross total income from any particular source of income which forms part of the total gross income of assessee the gross total income from the source only in respect of which deduction is to be claimed, is first to be computed in accordance with all the provisions of the Income-tax Act for computing income from that source without making any deduction under any provision of Chapter VI-A. Quantification of respective deduction in respect of income from that source under Chapter VI-A is to be made on the basis of such computed gross total income before any deduction under Chapter VI-A is adjusted. The definition of the expression 'gross total profit' makes it imperative to compute the total income in accordance with the provisions of the Act before making any deduction in Chapter VI-A which is required to be made in respect of such income included in gross total income of the assessee from all sources. The ....