No Income Tax on Lottery Prize since Tax was already paid under Sikkim State Income Tax Rules: SC [Read Judgment]

In Mahaveer Kumar Jain vs. Commissioner of Income Tax, the Supreme Court held that the income earned by the assessee from lottery prize cannot be subjected to tax under Income Tax Act, 1961 when the same tax was already paid under Sikkim State Income Tax Rules, 1948.

The appellant had won the first prize of Rs.20 Lacs in the 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 the agent’s/seller’s commission and Rs. 1,79,088/- being Income Tax under the Sikkim State Income Tax Rules, 1948.

While filing returns, he claimed deduction under Section 80TT of the Income Tax (IT) Act,1961 on Rs.20 Lacs, the gross amount of the prize money won in the lottery. However, the Assessing Officer (A.O) allowed deduction on Rs.18 Lacs and held that the Government of Sikkim had deducted tax at source from the lottery amount of Rs.18 Lacs as Rs.2 lacs have been paid directly to the agent. On appeal to the Commissioner of Income Tax (Appeals) (CIT(A)), he confirmed the order of the A.O. that the relevant provisions of Section 80TT of the IT Act, the deduction can be claimed only on net income out of the lottery and not on the gross income.

The appellant appealed before the Income Tax Appellate Tribunal raising an additional challenge that the authorities have treated the lottery income of Sikkim Government as income under the Income Tax Act,1961. The Tribunal partly allowed the appeal but dismissed the addition challenge raised by the appellant and held that the lottery amount is taxable under the provisions of Income Tax Act,1961.  An appeal was preferred before the High Court.

The Counsel appearing for the appellant contended 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. He further contended that as per Article 371F clause (k) &(n) of the Constitution of India 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. He submitted that 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.

The Counsel for the Revenue contended 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 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.

The Bench comprising of Justice R.K. Agrawal & Justice Abhay Manohar Sapre observed that a person can be subjected to double taxation, only if there is a specific provision in the legislature to that effect. They found that there is no provision in the IT Act for including such an income by an assessee from the lottery ticket. In the absence of such income, the assessee cannot be burdened with double taxation.

“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. 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.” observed the Court.