1985 (7) TMI 78 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee's winnings from a lottery in Sikkim constitute income chargeable to income-tax in India.
2. Whether the provisions of section 5(1)(c) are applicable to the lottery winnings received by the assessee in Gangtok.

Issue-Wise Detailed Analysis:

1. Chargeability of Lottery Winnings to Income-Tax in India:

The primary issue is whether the assessee's winnings from a lottery in Sikkim, which was considered a foreign country at the relevant time, constitute income chargeable to income-tax in India under sections 10(3), 56(2)(ib), and 2(24)(ix) of the Income Tax Act, 1961, as amended by the Finance Act, 1972.

The assessee purchased a lottery ticket from the Sikkim Government and won a prize of Rs. 1 lakh. After various deductions, he received Rs. 87,412.50 and an additional Rs. 7,992 from encashing an air ticket. The Income Tax Officer (ITO) included this amount in the assessee's income, arguing that as a resident of India, the income accruing outside India was taxable under section 5, and winnings from lotteries were included in the definition of income under section 2(24)(ix).

The Appellate Tribunal, however, held that the winnings from lotteries in a foreign country retained their character as receipts of a casual and non-recurring nature, not taxable in India. They reasoned that the amendments brought by the Finance Act, 1972, applied only to winnings from lotteries in India, and sections 194B and 276B did not bind foreign governments.

Upon review, the High Court found the Tribunal's view erroneous. The court emphasized that the definition of income under section 2(24)(ix) includes winnings from lotteries, and section 5(1)(c) mandates that income accruing outside India must be included in the total income of a resident. The court clarified that section 10(3) excludes winnings from lotteries from being considered casual and non-recurring receipts, thus making them taxable. The court concluded that the Tribunal committed a serious error of law in holding that the winnings from a foreign lottery did not constitute taxable income.

2. Applicability of Section 5(1)(c):

The second issue is whether section 5(1)(c) applies to the lottery winnings received by the assessee in Gangtok. The Tribunal had rejected the Revenue's alternative argument that the winnings were received in India and thus taxable under section 5(1)(a). The Tribunal reasoned that the drafts were received by the assessee in Gangtok, not in India.

The High Court, however, did not address this issue in detail, noting that detailed arguments were not presented. Consequently, the court left question No. 2 unanswered.

Conclusion:

The High Court concluded that the assessee's winnings from the lottery in Sikkim were chargeable to income-tax in India under sections 5(1)(c), 10(3), 56(2)(ib), and 2(24)(ix) of the Income Tax Act, 1961. The Tribunal's reasoning that the winnings retained their character as casual and non-recurring receipts was found to be legally incorrect. The first question was answered in the negative, in favor of the Revenue and against the assessee. The second question was left unanswered due to the lack of detailed arguments. The reference was disposed of with no order as to costs.