2004 (8) TMI 90 - HC - Income Tax

Reassessment notice u/s 148 - income from lottery prize - Held that the purchasers of the lottery ticket did not form an association of persons and the income from lottery was not liable to be assessed in the hands of such an association. The initiation of the proceeding under section 147/148 as well as the impugned notice is thus illegal, null and void as the same are in contravention of the mandatory provisions of the Act. Further, plea of the Revenue that the writ petitions are pre-mature does not commend for acceptance.

Issues Involved:
1. Whether the appellants and four others by jointly purchasing the winning lottery ticket had formed an association of persons (AOP) and if the lottery prize won is an income liable to be assessed in the hands of such an association.
2. Whether the impugned notice is invalid and non est in law for being in contravention of sections 147 and 148 of the Income-tax Act, 1961.

Issue 1: Formation of Association of Persons (AOP)
The appellants and four others jointly purchased a lottery ticket which won the first prize of Rs. 1 crore. The prize was claimed individually, and payments were made after deducting income-tax at source. The appellants disclosed the prize money in their individual income-tax returns, and the Assessing Officer assessed this income initially as a protective measure, which was later treated as substantive assessment by the Commissioner of Income-tax (Appeals) and confirmed by the Tribunal. The Revenue contended that the joint purchase formed an AOP, and the income should be assessed in the hands of the AOP.

The court referred to the apex court's definition of an AOP, which requires volition among members to join for a common purpose to earn income, profits, or gains. The court noted that there was no written agreement or tangible evidence of such intention among the purchasers. The joint purchase of a lottery ticket, which is a game of chance, does not demonstrate the essential traits of an AOP. The court concluded that the mere joint purchase of a lottery ticket does not constitute the formation of an AOP, and thus, the income from the lottery cannot be assessed in the hands of an AOP.

Issue 2: Validity of the Impugned Notice
The impugned notice was issued under section 148 of the Act, addressed to "M/s. Mahendra Singh Sehgal and seven others," without indicating the status of the addressee or details of the income that had escaped assessment. The court found the notice vague and lacking in material particulars, which is essential for the assessee to respond effectively.

The court emphasized the mandatory nature of sections 147 and 148, which require the Income-tax Officer to have "reason to believe" that income has escaped assessment and to record reasons before issuing a notice. The court found that neither the Assessing Officer nor the approving authority had any material to conclude that the purchasers had formed an AOP. The records did not support the Revenue's claim, and the reasons for initiating the proceeding were not recorded as required under section 148(2).

The court held that the impugned notice was invalid due to non-compliance with the mandatory provisions of the Act, and the decision to initiate the proceeding under section 147/148 was vitiated by non-application of mind. Consequently, the impugned notice was quashed.

Conclusion:
The appeals were allowed, and the impugned judgment and order were set aside. The court concluded that the purchasers of the lottery ticket did not form an AOP, and the income from the lottery was not liable to be assessed in the hands of an AOP. The initiation of the proceeding under section 147/148 and the impugned notice were declared illegal, null, and void. No order as to costs was made.

← Previous Next →