2007 (10) TMI 618 - HC - Income Tax

Summary

Issues Involved:
1. Maintainability of the appeal in light of Central Board of Direct Taxes (CBDT) circulars.
2. Applicability of the Income-tax Act, 1961 to lottery income earned in the State of Sikkim prior to the assessment year 1990-91.
3. Interpretation of Section 5 and Section 91(1) of the Income-tax Act, 1961, and Article 371 of the Constitution of India.

Detailed Analysis:

1. Maintainability of the Appeal in Light of CBDT Circulars:
The respondent raised a preliminary objection regarding the maintainability of the appeal based on CBDT circulars prescribing monetary limits for filing appeals. The court noted that the right to file an appeal is a statutory right under Section 260A of the Income-tax Act, 1961. The court observed that while CBDT circulars are binding on the tax authorities, they do not override the statutory right to appeal. The court cited various judgments, including CIT v. Indra Industries and CIT v. Hero Cycles (P.) Ltd., to support the view that circulars cannot curtail statutory rights. The court concluded that the circulars in question were administrative in nature and did not create any corresponding right for the assessee to challenge the maintainability of the appeal. Therefore, the preliminary objection was dismissed.

2. Applicability of the Income-tax Act, 1961 to Lottery Income Earned in Sikkim:
The Tribunal had held that the provisions of the Income-tax Act, 1961, were applicable to Sikkim only from the assessment year 1990-91, based on a notification issued by the Ministry of Finance. The court examined Article 371F of the Constitution, which provides special provisions for the State of Sikkim, and noted that the Income-tax Act, 1961, was extended to Sikkim with effect from 1-4-1989, applicable from the assessment year 1990-91 onwards. The court referred to the Bombay High Court's decision in Nirmala L. Mehta v. A. Balasubramaniam, which held that income earned from a Sikkim lottery prior to the assessment year 1990-91 was not taxable. However, the court disagreed with this view, emphasizing the applicability of Section 5 of the Income-tax Act, which includes income received or accrued outside India for residents.

3. Interpretation of Section 5 and Section 91(1) of the Income-tax Act, 1961, and Article 371 of the Constitution:
The court analyzed Section 5 of the Income-tax Act, which defines the scope of total income, including income received or accrued outside India for residents. The court referred to the Punjab and Haryana High Court's decision in CIT v. Chaman Lal, which held that lottery income, even if accrued outside India, is taxable under Section 5(1)(c). The court found this interpretation more comprehensive and aligned with the statutory provisions. The court noted that the Tribunal failed to consider Section 5, leading to a serious legal infirmity in its decision. The court concluded that the lottery income of the assessee, being a resident of India, is subject to the provisions of the Income-tax Act, 1961, and is taxable.

Conclusion:
The court allowed the appeal, setting aside the Tribunal's order and holding that the lottery income of the assessee is governed by the provisions of the Income-tax Act, 1961. The court emphasized that the statutory right to appeal cannot be curtailed by administrative circulars and that income accrued outside India is taxable for residents under Section 5 of the Income-tax Act. The appeal was allowed with no order as to costs.