M.K.RAGHU V. UNION OF INDIA

WP(C)/35274/2009

AI Insights

The case involves multiple writ petitions filed by lottery winners against the Income Tax Authorities and the Director of Lotteries, Government of Sikkim, concerning the credit of tax deducted at source from lottery winnings. The petitioners argued that the tax deducted by the Director of Lotteries should be credited to their income tax assessments. However, the Income Tax Authorities contended that the deductions were not made in accordance with the Income Tax Act, 1961, and thus, the petitioners were not entitled to the credit. The court examined the legal provisions under the Income Tax Act, particularly Section 115 BB, which pertains to taxation of lottery winnings, and found that the actual amounts received by the petitioners after such deductions should be considered for tax purposes.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 722405 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 16-12-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: T P M IBRAHIM KHAN; P SANJAY; A PARVATHI MENON; JOSE JOSEPH
• Assessee Lawyers: V B UNNIRAJ; A S BEENU; R S GEETHA; P ANITHA
• Keywords: Income tax assessment; Lottery winnings; Tax deduction at source; Sikkim government; Credit of tax deducted
• Section: 199; 115BB; 194B; 58(4); 2(24)(ix)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE A.K.JAYASANKARAN NAMBIAR TUESDAY, THE 16TH DAY OF DECEMBER 2014/25TH AGRAHAYANA, 1936 WP(C).No.35274 of 2009 (D) ------------------------------------- PETITIONER: ------------------- SHRI.M.K.RAGHU,MANAKKAPADATHU, KOPPARAMBU,EROOR, TRIPUNITHURA,ERNAKULAM. BY ADVS.SRI.V.B.UNNIRAJ SMT.A.S.BEENU SMT.R.S.GEETHA SMT.P.ANITHA RESPONDENTS: ------------------------ 1. UNION OF INDIA,REPRESENTED BY PRINCIPAL SECRETARY,MINISTRY OF FINANCE,NEW DELHI. 2. STATE OF SIKKIM,REPRESENTED BY SPECIAL SECRETARY,INCOME & COMMERCIAL TAX, DIVISION, FINANCE DEPARTMENT,GANGTOK 737 101,SIKKIM. 3. DIRECTOR OF STATE LOTTERIES, GOVERNMENT OF SIKKIM,GANGTOK,SIKKIM. 4. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 2 (2),ERNAKULAM. R1 BY SRI.T.P.M.IBRAHIM KHAN,ASST.S.G OF INDIA R2 & R3 BY SRI.P.SANJAY,SC SMT.A.PARVATHI MENON R4 BY SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 16-12-2014, ALONG WITH O.P.NO.8538/2003 AND W.P(C) NO.17767/2010 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: pk W.P .(C) NO.35274/2009 APPENDIX PETITIONER'S EXHIBITS: EXT.P1:TRUE COPY OF THE TDS CERTIFICATE DATED 28.11.2002. EXT.P2:TRUECOPY OF THE REPLY BEARING NO.299/FIN/DSSL DATED 28.7.2003. EXT.P3:TRUE COPY OF THE COMMUNICATION BEARING NO.37/FIN/DSSL DATED 12.4.2004. EXT.P5:TRUE COPYOF THE ORDER OF THE FIRST APPELLATE AUTHORITY IN APPEAL NO.ITA 78/R-11/E/CIT-11/05-06,DATED 21.2.2006. EXT.P6:TRUE COPY OF THE COMMON ORDER OF THE TRIBUNAL IN THE APPEAL DATED 16.10.2008 IN ITA 344/COCH/06. EXT.P7:TRUE COPY OF THE HIGH COURT JUDGMENT DATED 10.2.2009 IN ITA 35/09. RESPONDENT'S EXHIBITS: NIL //TRUE COPY// P.S. TO JUDGE pk A.K.JAYASANKARAN NAMBIAR, J. ............................................................. W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 ............................................................. Dated this the 16th day of December, 2014 J U D G M E N T In all these writ petitions a common issue arises and hence they are taken up together for consideration and disposed by this common judgment. 2. The petitioners in these writ petitions are winners of separate lotteries, conducted by the Director of State Lotteries, Government of Sikkim. They had purchased tickets from the terminal of the authorised agent of the said Director of Lotteries, Government of Sikkim and won the prize in various draws on the tickets purchased by them. In the writ petition, the grievance of the petitioners is essentially against the stand of the Income Tax Authorities who have chosen to deny the petitioners credit of the tax deducted at source by the Director of Lotteries, Government of Sikkim, while completing the assessments in respect of the petitioners under the Income Tax Act. The facts in the writ petition would reveal that, while making the payment of the prize amounts, the Director of Lotteries, Government of Sikkim had deducted 30 % W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 2 of the prize amount in terms of the Sikkim Government Income Tax Rules, and the fact of deduction of the said amount was evidenced by certificates that were issued to the petitioners showing the said deduction at the time of effecting payment of the prize amounts to them. On receipt of the said certificates, showing deduction of 30% from the prize amounts payable to them, the petitioners are stated to have filed returns showing the entire prize amounts won by them in the lottery as their income for the purposes of Income Tax Act and claiming credit in respect of the tax amount deducted by the Director of Lotteries, Government of Sikkim while effecting the payments to them. While completing the assessments of the petitioners, however, the Income Tax Authorities appear to have taken the stand that, insofar as the deduction effected by the Director of lotteries, Government of Sikkim was not in the manner contemplated under the Income Tax Act, 1961, the petitioners would not get the credit of the amount so deducted, in their assessments under the Income Tax Act. In the assessments completed against the petitioners therefore, they were not given credit of the tax amounts deducted by the Director of Lotteries Government of Sikkim. The petitioners in W.P.(C).No. 17767 of 2010 and W.P.(C).No.35274 of 2009, challenged the assessment W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 3 orders passed against them before the appellate authorities under the Income Tax Act. The said proceedings eventually reached this Court through appeals preferred by the assessee against the order of the Income Tax Appellate Tribunal. The said appeals were considered by a Division Bench of this Court which found as follows, on the issue of the amount on which the assessee could be subjected to tax in respect of the prize amount won by them in the lottery, under the Income Tax Act 1961: “3. The questions raised for our decision are the following: “(1) Whether the Sikkim lottery prize was liable to be subject to tax, the same having suffered tax already by deduction of tax at source in the State of Sikkim? (2) Whether alternatively, the assessee is entitled for deduction of tax at source made by Sikkim authorities against the tax payable on the assessment made in India? (3) Without prejudice to the above, whether the appellant is taxable in India on the amount of prize money as reduced by the amount of TDS having regard to the fact that TDS by the Sikkim authorities did not accrue to and was not received by the appellant?” W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 4 4. The first question is whether winnings from lottery from Sikkim can be assessed as income under s.2(24)(ix) of the IT Act. The IT Act provides a specific charging s.115BB provides tax at 30 per cent on income from, lotteries. The assessee is an individual residing in India and Sikkim being a State in India, we see no reason why the income earned by the assessee in the form of prize money from lotteries is not assessable under the Act. Even though assessee has claimed that the lottery income was subjected to tax in Sikkim, we are unable to accept the same because the authority to tax income under the Constitution vests with Central Government and the income earned in Sikkim is no exception. Even though the Directorate of Lotteries has deducted Sikkim Income-tax from the lottery income received by the assessee we do not know what entails him to deduct Sikkim income-tax after 1st April, 1990 when the IT Act is made applicable to the State of Sikkim. The deduction of Sikkim income-tax apparently is unauthorised and it is not for us to consider the legality while considering the appeal under s.260A of the IT Act. However, we hold that assuming a resident in India is assessable for the income received in the form of winnings from lottery from Sikkim under s.115BB of the IT Act. Consequently, the finding of the tribunal in this regard is upheld. 5. The next question to be considered is whether the assessee is entitled to deduction of tax at source made by the Sikkim authorities. As already stated, we notice that what is deducted as is clear from the certificate issued by the Lottery Director is the 'Sikkim Income-tax and not Income -tax due under the IT Act, 1961. Sec.194B of the W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 5 IT Act provides for deduction of tax while paying any income by way of winnings from any lottery to any person. Sec.199 of the Act provides that deduction of tax made under any provision of the Act should be paid to the Central Government and only on such payment, the payment shall be treated as payment of tax by or on behalf of the person whose income was subjected to deduction. It is clear from the certificate issued by the Lotteries Director that he has not deducted income-tax under s.194B of the IT Act on the payment of lottery prize money to the assessee and admittedly he has not paid the amount so deducted to the Central Government. He has clearly stated in the certificate that what is deducted is Sikkim income-tax. Therefore, the Tribunal rightly reversed the order of the CIT(A) and held that assessee is not entitled to any credit of tax based on the certificate issued by the Lotteries Director under s.199 of the IT Act. Consequently we uphold the order of the Tribunal in this regard as well. 6. The last question raised by the assessee is whether he is entitled to exclusion of the amount deducted by the Director of Lotteries in Sikkim from the prize money. The Tribunal has considered the claim as one of deduction from the income which was turned down by referring to s. 58(4) of the IT Act. Income from lottery is assessable under the head 'Income from other sources' and therefore, by virtue of the express bar contained under s. 58(4) no deduction of any expenditure is admissible on the income from lotteries. However, counsel for the assessee rightly pointed out that what is to be assessed as income from winnings from lottery is only the actual income received and not any notional income. Prize money from lottery is W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 6 assessable under the Act by virtue of inclusion of 'winnings from lottery' as income under s.2 (24)(ix) of the Act, Lottery defined therein includes winnings from prize awarded to any person to draw lots or by chance or in any other manner whatsoever under any scheme or arrangement by whatever name called. In the dictionary one shade of meaning given to winning is money won especially in betting etc, similarly the charging under s. 115BB provides for levy of tax on income by way of winnings from any lottery. Obviously it is clear from these provisions that what is assessable is real income and not notional income or income declared in the lottery as prize money. In our view what is assessable is the actual income received by the assessee which in this case is excluding the income-tax deducted by the Lotteries Director in the State of Sikkim. no matter such deduction may be unauthorised. 7. Even though standing counsel for the Department contended that if the Director of Lottery has made unauthorised deduction it is for the assessee to pursue his remedy elsewhere, we do not think that the assessee can be expected to recover this amount through the litigation against the State Government. On the other hand we feel that if the State Government is recovering income- tax and retains it for itself payment to the Central Government, it is for the Central Government to take necessary steps to ensure that constitutional provisions are not violated by the State Government. We therefore hold that what is assessable as income from lottery in the hands of the assessee under s. 115BB is the net amount received by the assessee after excluding the amount of Rs.45,54,886 recovered by the Director of Lotteries towards Sikkim income-tax and the balance amount is W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 7 only assessable under s. 115BB of the Act. 8. We therefore allow the appeal in part by reversing the order of the Tribunal on this limited ground and direct the AO to revise the assessment on the net amount as directed above. However, we make it clear that if Sikkim Government credits the recovered amount to the Government of India through the efforts of the Central Government it shall be open to the assessee to apply for rectification of the assessment on full amount and to get credit under s. 199 of the IT Act. In that event the relief granted by us will stand automatically cancelled and the entire income including the Sikkim income-tax recovered by Lotteries Director there will be assessed as income from lottery.” 3. As far as the petitioner in O.P. 8538 of 2003 is concerned, although initially, he had filed returns disclosing only the actual amount received by him from the Director of Lotteries, Government of Sikkim, he subsequently filed a revised return showing the entire amount won by him in the lottery, including the amount deducted by the Director of Lotteries, Government of Sikkim, and offered the same for taxation. He had also claimed credit for the tax deducted by the Director of Lotteries, Government of Sikkim. It is stated that the said return was accepted by the Income Tax Department and an intimation was issued to him acknowledging receipt of the returns filed by him. What is relevant however, in all these cases is W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 8 that despite the directions issued by the Division Bench in the appeals preferred by the petitioners in W.P.(C).NO.35274 of 2009 and 17767 of 2010, no consequential orders appear to have been passed by the Income Tax Authorities giving effect to the directions of the Division Bench in the appeal preferred by the said petitioners. In all these writ petitions, the relief sought for by the petitioners are for directions to the Director of Lotteries, Government of Sikkim, as well as to the State of Sikkim, to take steps to issue the necessary certificates prescribed under the Income Tax Act, 1961, for the purposes of enabling the petitioners to claim credit of the tax deducted from payments made to them in their respective assessments before the Income Tax authorities. Alternatively, there is a prayer seeking a direction to the Income Tax Authorities to refund amounts collected in excess, by way of tax, from the petitioners pursuant to the assessments done on them for the assessment years in question. 4. Statements have been filed on behalf of the Director of Lotteries Government of Sikkim as also by the Income Tax Authorities. While in the statement filed on behalf of the Director of Lotteries Government of Sikkim, it is stated that the provisions W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 9 of the Income Tax Act, 1961 and in particular, those relating to deduction of tax at source from payments made to the petitioners, will have no application to the authorities functioning under the Government of Sikkim. Reference is made to the various provisions in the Constitution which deal with special provisions in respect of the State of Sikkim. It is pointed out that insofar as the deduction effected by the said respondents was in accordance with the Sikkim Income Tax Manual, the certificate issued by them to the petitioners was also in accordance with the said Income Tax Manual and could not therefore be seen as one issued in terms of the Indian Income Tax Act, 1961. The stand of the Income Tax Authorities, in the statement filed by them is that, insofar as the Director of Lotteries of the State of Sikkim has not deducted tax at source in the manner contemplated under the Income Tax Act, 1961, and further, has not remitted any of the amounts so deducted to the credit of the Government of India, they could not give credit to the amounts so deducted in the assessments completed against the petitioners in the instant case. 5. I have heard learned Senior counsel Sri.Abraham Markose, Sri.V.B.Unniraj and Sri.Dale.P.kurian appearing on behalf of the W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 10 petitioners in the writ petitions as also Sri.P.Sanjay appearing for the Director of Lotteries, Government of Sikkim and the Sri.Jose Joseph, the learned Standing counsel for the Income Tax Department. 6. On a consideration of the facts an circumstances of the case as also the submissions made across the Bar, I find that insofar as it is the specific case of the Income Tax authorities that the amounts, stated to have been deducted by the Director of Lotteries Government of Sikkim from the amounts payable to the petitioners as prize amounts on the Lottery tickets purchased by them, were not credited to the account of the Government of India, the deductions so effected cannot be seen as tax deduction at source for the purposes of the Income Tax Act, 1961. It follows therefore, that the amounts that have been received by the petitioners, after the deductions effected by the Director of Lotteries, the Government of Sikkim have to be taken as the only amounts that were received by the petitioners as prize amounts in respect of the lottery tickets purchased by them. In otherwords, the amounts actually received by the petitioners after the deductions effected by the Director of Lotteries, Government of W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 11 Sikkim, will have to be taken as the amounts received by the petitioners for the purposes of Section 115 BB of the Income Tax Act, 1961. The decision of the Division of this Court referred to above is also to this effect. Accordingly, leaving it open to the Income Tax Authorities to proceed against the Director of Lotteries, Government of Sikkim in terms of the Income Tax Act, 1961, for not deducting tax at source from payments made to the petitioners in the manner contemplated under the Income Tax Act, 1961, if they so choose, I dispose the present writ petitions by making it clear that the assessments of the petitioners, for the assessment years in question, shall be completed by the respondent authorities under the Income Tax Act, by treating only such amounts as coming within the purview of Section 115 BB of the Income Tax Act as have actually been received by them. It is made clear that the amounts deducted by the Director of Lotteries, Government of Sikkim, from payments that were due to the petitioners, shall not be treated as having been received by the petitioners for the purposes of completing their assessments under the Income Tax Act, 1961. If the respondent Income Tax Authorities have not passed consequential orders, pursuant to the judgment of the Division Bench in the case of the petitioners in W.P.(C).Nos.35274 of 2009 W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 12 and 17767 of 2010, then they shall do so immediately and at any rate within a period of two months from the date of receipt of a copy of the this judgment after hearing the petitioners. Similarly, in the case of the petitioner in O.P.No.8538 of 2003 the assessments, if any completed against the petitioner in the said case, shall be revised taking note of the findings in this judgment and the revised assessment order, shall be passed within the period aforementioned. In all cases, if on passing revised assessment orders, it is found that excess amounts have been paid by the petitioners by way of tax, the same shall be refunded to them within a period of one month from the date of passing the revised assessment orders as directed in this judgment. The writ petitions are disposed as above. A.K.JAYASANKARAN NAMBIAR JUDGE mns W.P.(C).No.35274 of 2009, W.P.(C).No.17767 of 2010 & O.P.No.8538 of 2003 13 "