2013 (7) TMI 288 - HC - Income Tax

Penalty u/s 201(1A) - TDS not deducted on prize money - Held that - ssessee herein was allotted a Contessa car as the first prize under the National Savings Scheme. The Assessing Officer treated it as winnings from lotteries within the meaning of section 2(24)(ix) of the Income-tax Act, 1961, subject to the special rates envisaged under section 115BB of the Act. The appeal before the Commissioner (Appeals) failed. Hence, a further appeal was taken before the Tribunal, which allowed the appeal holding that the prize won by the assessee was not covered by section 2(24)(ix) of the Act - Following decision of CIT v. Deputy Director of Small Savings 2003 (12) TMI 34 - MADRAS High Court order of ITAT confirmed. - Decided against the revenue.

Summary

Issues:
Taxability of car won under National Savings Scheme

Analysis:
The judgment delivered by Mrs. Chitra Venkataraman J. addressed the issue of whether a car won by the assessee under the National Savings Scheme was liable to tax. The court considered previous decisions, including CIT v. Deputy Director of Small Savings [2004] 266 ITR 27 (Mad) and B. K. Suresh v. ITO [2008] 221 CTR 80 (Karn), which had applied the judgment of the Madras High Court. In the case under review, the Assessing Officer treated the car as winnings from lotteries under section 2(24)(ix) of the Income-tax Act, 1961, subject to special rates under section 115BB. The Commissioner (Appeals) upheld this treatment, but the Tribunal allowed the appeal, stating that the prize was not covered by the relevant section.

The reported decision discussed a scheme operated by a company where prizes were awarded to investors. The court emphasized that the scheme was not for the promotion of goods sales and that the chance to win a prize was free and not in return for any payment. Referring to Imperial Tobacco Ltd. v. Attorney-General [1980] 1 All ER 866 (HL), the court held that the scheme was not a lottery, leading to the dismissal of the penalty levy.

The Karnataka High Court also followed the Madras High Court's decision in CIT v. Deputy Director of Small Savings [2004] 266 ITR 27 (Mad) and the House of Lords' decision in Imperial Tobacco Ltd. v. Attorney General [1980] 1 All ER 866 (HL). In that case, the assessee won an incentive prize on National Savings Certificates, with the court ruling that the certificates did not fall under the lottery definition.

In conclusion, the High Court confirmed the Tribunal's decision that the car won by the assessee was not taxable under section 2(24)(ix) of the Income-tax Act, 1961. The appeal was dismissed, with no costs awarded.