1. Lottery winnings from Sikkim State Lottery — Tax deducted under Sikkim State Income Tax Rules, 1948 — Dispute over taxability under Income Tax Act, 1961. (Para 2 )
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2018 Supreme(SC) 368
SUPREME COURT OF INDIA
R.K. Agrawal, Abhay Manohar Sapre, JJ.
Mahaveer Kumar Jain – Appellants
Versus
Commissioner of Income Tax, Jaipur – Respondents
Civil Appeal No. 4166 of 2006
Decided On : 19-04-2018
Important Points
IMPORTANT POINT
Once the assessee has paid the income tax at source in the State of Sikkim as per the law applicable at the relevant time in Sikkim, the same income was not taxable under the IT Act, 1961.
Once the assessee has paid the income tax at source in the State of Sikkim as per the law applicable at the relevant time in Sikkim, the same income was not taxable under the IT Act, 1961.
Subject
Taxation Law - Income Tax
Act Referred
CONSTITUTION OF INDIA: Art.371(f)
INCOME TAX ACT: S.256(1), S.80(t)(t), S.5
SIKKIM STATE INCOME TAX RULES: .
INCOME TAX ACT: S.256(1), S.80(t)(t), S.5
SIKKIM STATE INCOME TAX RULES: .
Headnote
(a) Constitution of India – Article 317F r/w Sikkim State Income Tax Rules, 1948 and section 5, Income Tax Act, 1961 – Article 317F continuing State’s erstwhile laws until altered or repealed – Rule 1948 in vogue on the appointed day – Act 1961 made applicable in 1989 – First assessment year under act 1961 would be 1990-91 – Instant case pertaining to assessment year 1986-87 – For a person resident of Sikkim, Act 1961 would not apply during assessment years 1975-1990 – However, instantly income accruing from State of Sikkim to a person not a resident of Sikkim – Income already subjected to Rules 1948 – Section 5 making any income accruing or received in India taxable under Act 1961 – Instantly amount has been earned by appellant-assessee in Sikkim and amount of lottery prize sent by Government of Sikkim to Jaipur on ppellant’s request – Held, section 5 of Act, 1961 would not be applicable – Rules, 1948 would be applicable – Income-tax would be payable under Rules, 1948 and not under Act, 1961. (Para 10)
(b) Interpretation of statute – Taxing statute – Taxing statute should not be interpreted in a manner so as to burden the tax payer with double taxation – In case of doubt benefit should go to tax payer. (Para 13)
(1970) 77 ITR 107 (SC) – Relied upon
Facts of the case:
The appellant herein, having income from business and property, won the first prize of Rs. 20 lakhs in the 287th Bumper Draw of the Sikkim State Lottery. Out of Rs. 20 lakhs, the appellant herein received Rs. 16,20,912/- through two Demand Drafts for Rs. 8,10,000/- and Rs. 8,10,912/- each, after deduction of Rs. 2 lacs being agent's/seller's commission and Rs. 1,79,088/- being Income Tax under the Sikkim State Income Tax Rules, 1948.
The appellant herein filed Income Tax Return for the Assessment Year (AY) 1986-87 disclosing the income from lottery at Rs. 20 lakhs and deducting the agent/seller commission of Rs. 2 lakhs out of the same. He claimed deduction under Sec. 80 TT of the IT Act on Rs. 20,00,000/- i.e. the gross amount of the prize money won in the lottery in accordance with the provisions of the charging Section.
On scrutiny, the Assessing Officer (AO), allowed the deduction under Section 80TT of the IT Act on Rs. 18 lakhs instead of Rs. 20 lakhs while holding that the Government of Sikkim, had deducted the tax at source from the lottery amount of Rs. 18 lakhs as Rs. 2 lakhs have been paid to the agent directly. In other words, under the relevant provisions of Section 80TT of the IT Act, the deduction can be claimed only on net income out of lottery and not on the gross income. The said order was further confirmed by the Commissioner of Income Tax, (Appeals), Rajasthan-II, Jaipur.
Though the Tribunal allowed the appeal partly but it dismissed the objections raised by the appellant herein as to legality of assessment order and held that the lottery amount is taxable under the provisions of IT Act.
However, at the instance of the appellant herein - the assessee, the Tribunal framed certain questions under IT Act and referred the same to the High Court for opinion, considering them the questions of law fit for reference which are as under:
"1. Whether on the facts and in the circumstance of the case, the Hon'ble Tribunal was justified in holding that income from Sikkim State Lottery is taxable under the Income Tax Act, 1961?
2. Whether in the facts and circumstances of the case the Tribunal was justified in holding that deduction u/s 80TT is applicable on the net winning amount received by the assessee and not on the gross amount of the winning prize?"
A Division Bench of the High Court answered the questions raised in affirmative.
Finding of the Court:
Once the assessee has paid the income tax at source in the State of Sikkim as per the law applicable at the relevant time in Sikkim, the same income was not taxable under the IT Act, 1961.
Result: Appeal allowed.
Legal Category Hierarchy
Advocates:
Advocate Appeared:
For the Appellants : Tarun Gupta
For the Respondents: Mrs. Anil Katiyar, A.N. Arora
Advocate Appeared:
For the Appellants : Tarun Gupta
For the Respondents: Mrs. Anil Katiyar, A.N. Arora
Table of Contents
2. Applicability of Income Tax Act to Sikkim prior to 1989 — Article 371F of Constitution — Prohibition of double taxation — Computation of deduction under Section 80TT. (Para 5 , 6 )
3. Article 371F preserved Sikkim laws until 1989 — Absence of specific legislative provision for double taxation — Non-obstante clause in Article 371F(k) prioritizes state regulations. (Para 7 , 10 , 13 )
4. Income taxed under Sikkim State Income Tax Rules, 1948, prior to the extension of the Income Tax Act, 1961, cannot be taxed again without express legislative sanction. (Para 13 , 14 )
5. Appeal allowed — Income from Sikkim lottery held not taxable under the Income Tax Act, 1961. (Para 14 , 15 )
6. Is income from the Sikkim State Lottery taxable under the Income Tax Act, 1961, for the period prior to April 1, 1989?
No. Under Article 371F(k) of the Constitution, laws in force in Sikkim continued until amended or repealed. The Income Tax Act was extended to Sikkim only in 1989; thus, prior income is taxable under the Sikkim State Income Tax Rules, 1948. (Para 7 , 13 )
7. Can the same income be taxed by both a state and the central government under general taxation laws?
No. It is a fundamental rule that income cannot be taxed twice unless the legislature has distinctly and expressly enacted such double taxation. In the absence of specific provisions, the construction most beneficial to the taxpayer is adopted. (Para 11 , 12 , 13 )
8. Does Section 5 of the Income Tax Act, 1961, automatically make income accruing in Sikkim taxable for Indian residents prior to 1989?
No. While Section 5 generally casts a wide net for residents, the non-obstante clause in Article 371F(k) of the Constitution ensures that the Sikkim State Income Tax Rules, 1948, prevail for income accruing there during that period. (Para 10 , 13 )
JUDGMENT :
R.K. Agrawal, J.
The present appeal has been preferred against the final judgment and order dated 10.09.2004 passed by the High Court of Judicature for Rajasthan, Bench at Jaipur in D.B.I.T. Reference No. 40 of 1995 whereby the Division Bench of the High Court answered the questions referred to under Section 256(1) of the Income Tax Act, 1961 (in short 'the I.T. Act') in favour of the Revenue and against the appellant-assessee.
2. Before proceeding further, it is pertinent to set out the facts in a summarized way to appreciate properly the issue involved in this instant appeal:-
a. The appellant herein, a resident of Jaipur, Rajasthan, having income from business and property, won the first prize of Rs. 20 lakhs in the 287th Bumper Draw of the Sikkim State Lottery held on 20.02.1986 at Gangtok organized by the Director, State Lottery, Government of Sikkim, Gangtok. Out of Rs. 20 lakhs, the appellant herein received Rs. 16,20,912/- through two Demand Drafts for Rs. 8,10,000/- and Rs. 8,10,912/- each, after deduction of Rs. 2 lacs being agent's/seller's commission and Rs. 1,79,088/- being Income Tax under the SIKKIM STATE INCOME TAX RULES , 1948.
b. The appellant herein filed Income Tax Return for the Assessment Year (AY) 1986-87 disclosing the income from lottery at Rs. 20 lakhs and deducting the agent/seller commission of Rs. 2 lakhs out of the same. He claimed deduction under Sec. 80 TT of the IT Act on Rs. 20,00,000/- i.e. the gross amount of the prize money won in the lottery in accordance with the provisions of the charging Section.
c. On scrutiny, the Assessing Officer (AO), vide order dated 08.01.1988, allowed the deduction under Section 80TT of the IT Act on Rs. 18 lakhs instead of Rs. 20 lakhs while holding that the Government of Sikkim, had deducted the tax at source from the lottery amount of Rs. 18 lakhs as Rs. 2 lakhs have been paid to the agent directly. In other words, under the relevant provisions of Section 80TT of the IT Act, the deduction can be claimed only on net income out of lottery and not on the gross income. The said order was further confirmed by the Commissioner of Income Tax, (Appeals), Rajasthan-II, Jaipur, vide order dated 31.10.1988.
d. Being aggrieved, the present appellant preferred an appeal before the Income Tax Appellate Tribunal (in short 'the Tribunal'), Jaipur Bench challenging the computation by the Assessing Officer (AO) of the deduction under Section 80TT of the IT Act. The appellant herein - the assessee raised an additional ground before the Tribunal claiming that the authorities below have grossly erred in law in treating the lottery income of Sikkim Government as income under the IT Act. Though the Tribunal allowed the appeal partly vide order dated 26.02.1993 but it dismissed the objections raised by the appellant herein as to legality of assessment order and held that the lottery amount is taxable under the provisions of IT Act.
e. However, at the instance of the appellant herein - the assessee, the Tribunal framed certain questions under IT Act and referred the same to the High Court for opinion, considering them the questions of law fit for reference which are as under:
"1. Whether on the facts and in the circumstance of the case, the Hon'ble Tribunal was justified in holding that income from Sikkim State Lottery is taxable under the Income Tax Act, 1961?
2. Whether in the facts and circumstances of the case the Tribunal was justified in holding that deduction u/s 80TT is applicable on the net winning amount received by the assessee and not on the gross amount of the winning prize?"
f. A Division Bench of the High Court, vide judgment and order dated 10.09.2004, answered the questions raised in affirmative.
g. Aggrieved by the judgment and order dated 10.09.2004, the appellant-assessee has preferred this appeal by way of special leave before this court.
3. Heard Mr. Sanjay Jhanwar, learned counsel for the appellant-the assessee and Mr. Yashank P. Adhiyaru, learned senior counsel
