Mahaveer Kumar Jain vs Commnr. Of Income Tax

Mahaveer Kumar Jain .... Appellant(s)

Versus

Commissioner of Income Tax, Jaipur .... Respondent(s)

JUDGMENT

R.K. Agrawal, J.

1) 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) Signature Not Verified Before proceeding further, it is pertinent to set out the Digitally signed by ASHA SUNDRIYAL Date: 2018.04.19 17:26:37 IST Reason: facts in a summarized way to appreciate properly the issue

involved in this instant appeal:-

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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

2 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

3 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.

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3) Heard Mr. Sanjay Jhanwar, learned counsel for the

appellant-the assessee and Mr. Yashank P. Adhiyaru, learned

senior counsel for the respondent and perused the records.

Point(s) for consideration

4) The issue that arises for consideration in the present

case is whether income from lottery earned is taxable under

the IT Act especially when such income was already taxed

under the provisions of Sikkim State Income Tax Rules, 1948.

If so, whether the deduction that is to be allowed on such

income under Sec 80 TT of the IT Act is on ‘gross income’ or on

the ‘net income’.

Rival contentions:

5) Learned counsel appearing for the appellant contended

that the High Court has grossly erred in holding that the

provisions of the IT Act are applicable to the present case as

the provisions of the said Act are extended to the State of

Sikkim only with effect from 01.04.1989 and, therefore,

income accrued in the State of Sikkim prior to this date could

not be charged to tax under the IT Act and was taxable under

the Sikkim State Income Tax Rules, 1948. Learned counsel

5 further contended that the order in question passed by the

High Court is not lawful as the provisions of Article 371F of

the Constitution of India, particularly, clauses (k) and (n)

thereof, operate in relation to all the laws prevailing in the

territories of Sikkim which prevents the application of the IT

Act in the State of Sikkim up till 31.03.1989. Learned counsel

further contended that the order passed by the High Court is

not just and lawful as the levy of taxes on the same income

both by the Union of India and the State of Sikkim is contrary

to the principle of double taxation. Further, the High Court

grossly erred in holding that the deduction under Section

80TT of the IT Act is applicable on the net winning amount

received by the assessee after deducting the agent/seller

commission and not on the gross amount of the winning prize.

6) On the other hand, learned senior counsel appearing for

the Respondent submitted that the High Court has rightly

held that the Tribunal was right in holding that income from

winning of lotteries from Sikkim during the assessment year in

question was liable to be included in the hands of the assessee

as resident of India within the State of Rajasthan where IT Act 6 was in force notwithstanding that the same 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 outside taxable

territory. Learned senior counsel further submitted that on

the question as to “whether the Tribunal was justified in

holding that deduction under Section 80 TT of the IT Act was

applicable on the net winning amount received by the assessee

and not on the gross amount of the winning prize”, the High

Court answered the same in the affirmative in favour of

Revenue and against the appellant herein – the assessee

observing that deduction under Section 80 TT of the IT Act is

not referable to gross total income but is referable to net

income.

Discussion:-

7) Before we go into the issues raised in this appeal, it

would be necessary to have an idea of the position of Sikkim

under the Indian Constitution. Prior to 26.04.1975, Sikkim

was not considered to be a part of India. Any income accruing

or arising there from would be treated as income accruing or

arising in any foreign country. However, by the 36th

7 amendment to the Indian Constitution in 1975, Sikkim

became part of the Indian Union. This, amendment was

effected by introducing Article 371F in the Constitution. In the

backdrop of the brief history that led to the insertion of Article

371F in the Constitution of India with effect from April 26,

1975, we may now refer to Article 371F to the extent it is

relevant:-

"371F. Special Provisions with respect to the State of Sikkim- Notwithstanding anything in this Constitution.— xxxxx

(k) all laws in force immediately before the appointed day in the territories comprised in the State of Sikkim or any part thereof shall continue to be in force therein until amended or repealed by a competent Legislature or other competent authority ;

(n) "The President may, by public notification, extend with such restrictions or modifications as he thinks fit to the State of Sikkim, any enactment which is in force in a State in India at the date of the notification."

On a plain reading of this provision, it becomes clear that all

laws which were in force prior to April 26, 1975, in the

territories now falling within the State of Sikkim or any part

thereof were intended to continue to be in force until altered or

repealed. Therefore, the law in force prior to the merger,

continued to be applicable. As a matter of fact, the IT Act was

made applicable only by Notification made in 1989 and the

8 first assessment year would be 1990-91 and by the application

of this Act, the Sikkim State Income Tax Manual, 1948 stood

repealed. However in the present case, we are concerned with

the assessment year 1986-87, and, during this time, the IT Act

had not been made applicable to the territories of Sikkim. The

law corresponding to the IT Act, which immediately was in

force in the relevant State was Sikkim State Income Tax Rules,

1948. Hence, there can be two situations, first is that the

person was a resident of Sikkim during the time period of

1975-1990 and the income accrues and received by him there

only. In such a case, no question of applicability of the IT Act

arises. However, the problem arises where the income accrues

to a person from the State of Sikkim who was not a resident of

Sikkim but of some other part of India. The question that

arises is whether the provisions of the IT Act are applicable to

such income and whether the same can be subjected to tax

under the said Act especially in light of the fact that the

income has already been subjected to tax under the Sikkim

State Income Tax Rules, 1948.

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8) The 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 IT Act.

9) The appellant, being a resident of Rajasthan, received the

income arising from winning of lotteries from Sikkim during

the Assessment Year in question was liable to be included in

the hands of the Assessee as resident of India within the State

of Rajasthan where IT Act was in force notwithstanding that

the same had accrued or arisen to him at a place where the IT

Act was not in force even in respect of income accruing to him

10 without taxable territory. In the above backdrop, it would be

apposite to refer Section 5 of the IT Act which reads as under:-

“5-Scope of total Income:-(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which-

(a) is received or deemed to be received in India in such a year by or on behalf of such person; or

(b) accrues or arises or is deemed to accrue or arise to him in India during such year; or x x x x x”

The very 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 the

appellant-assessee in the State of Sikkim and the amount of

lottery prize was sent by the Government of Sikkim to Jaipur

on the request made by the appellant.

10) The 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

11 would appear that Income-tax would 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 of income-taxes

cannot be applied.

11) In the above backdrop, it would be appropriate to refer

the decision of this Court in the case of Laxmipat Singhania

vs. Commissioner of Income Tax, U.P. (1969) 72 ITR 291 at

294 wherein this Court has observed that “It is a fundamental

rule of law of taxation that, unless otherwise expressly

provided, income cannot be taxed twice".

12) Further, in a decision of this Court in Jain Brothers

and Others vs. Union of India and Others (1970) 77 ITR 107

(SC), it has been held as under:-

“6 It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted, they cannot be so interpreted as to tax the subject twice over to the same tax….. If any double taxation is involved, the Legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over."

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13) The 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 the

income-tax return 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

13 virtue of clause (k) to Article 371F of the Constitution which

starts with a non-obstante clause, it would be clear that only

the Sikkim Regulations on Income-tax would be applicable in

the present case. Therefore, the income cannot be brought to

tax any further by applying the rates of the IT Act.

14) In 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 ‘Net Income’ or ‘Gross

Income’, becomes academic.

15) In view of the above, the appeal is allowed.

...…………….………………………J. (R.K. AGRAWAL)

.…....…………………………………J. (ABHAY MANOHAR SAPRE)

NEW DELHI;

APRIL 19, 2018.

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