Case: MAHAVEER KUMAR JAIN Vs. COMMNR. OF INCOME TAX

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 beingcommission 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)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),Jaipur, vide order dated 31.10.1988d) Being aggrieved, the present appellant preferred an appeal before the Income Tax Appellate Tribunal (in short ‘theJaipur 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 asWhether on the facts and in the circumstance of the case, theTribunal 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 winningA 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, thehas preferred this appeal by way of special leave before this court.

Reasoning: e case of the assessee is that irrespective of the place of residence, income accruing or arising in Sikkim, would not be taxable in India, as per clause (k) of Article 371F of the Constitution and is taxable only under the Sikkim State Income Tax Rules, 1948.The contention seems to be based on erroneous assumption and the simple answer to the said contention is that though the IT Act is not applicable to various other countries but still the income accruing and arising in foreign countries can be brought to tax provided the assessee is resident and ordinarily resident and further the income accrued or received in any territory which is considered to be a part of India is within the net of ITvery wordings of Section 5 of the IT Act show that it casts a very wide net and all incomes accruing anywhere in the world would be brought within its ambit. A combined reading of both the clauses makes it clear that any income accrued or received in India would be included in his total income for taxing purposes under the IT Act. However, in the present case, we find that the amount has been earned by thein the State of Sikkim and the amount of lottery prize was sent by the Government of Sikkim to Jaipur on the request made by theThe result, therefore, is that, while Section 5 of the IT Act would not be applicable, the existing Sikkim State Income Tax Rules, 1948 would be applicable. Thus, on the income, it would appear thatwould be payable, under Sikkim State Income Tax Rules, 1948 and not under the IT Act. Since Sikkim is a part of India for the accounting year, there would appear to be, on the same income, two types ofThe above referred cases make it clear that there is no prohibition as such on double taxation provided that the legislature contains a special provision in this regard. Now, the only question remains to be decided is whether in fact there is a specific provision for including the income earned from the Sikkim lottery ticket prior to 01.04.1990 and after 1975, in thereturn or not. We have gone through the relevant provisions but there seems to be no such provision in the IT Act wherein a specific provision has been made by the legislature for including such an income by an assessee from lottery ticket. In the absence of any such provision, the assessee in the present case cannot be subjected to double taxation. Furthermore, a taxing Statute should not be interpreted in such a manner that its effect will be to cast a burden twice over for the payment of tax on the taxpayer unless the language of the Statute is so compelling that the court has no alternative than to accept it. In a case of reasonable doubt, the construction most beneficial to the taxpayer is to be adopted. So, it is clear enough that the income in the present case is taxable only under one law. By virtue of clause (k) to Article 371F of the Constitution which starts with aclause, it would be clear that only the Sikkim Regulations onwould be applicable in the present case. Therefore, the income cannot be brought to tax any further by applying the rates of the ITIn view of the aforementioned discussions, we are of the considered view that 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. Having decided so, the other issue whether the income that is to be allowed deduction under section 80 TT of the IT Act is on ‘Netbecomes academic.