2016 (8) TMI 851 - HC - Income Tax

Levy of tax on the whole of the lottery income - other beneficiaries of Neha Trust have paid taxes on their respective share of income from the said lottery prize in their individual capacity - Held that - In our view, not accepting the trust deed and trust account, the authorities have seriously committed an error. The amount of ticket is from the trust account and the amount of prize is distributed amongst beneficiaries. Even T.D.S is shown in the balance sheet of the trust account. The learned counsel for the appellant has contended that the 1983 letter in the paper book is recently produced in the last week of July. Considering these facts, we are of the opinion that the amount is withdrawn from the trust account and it is not purchased by the appellant from the individual account. Taking into account the overall circumstances and the trust deed, distribution as per the trust deed and beneficiaries have paid taxes, all the authorities have seriously committed error in holding that the assessee is liable to pay tax. In the facts and circumstances of the case, we hold that the amount was received by the trust and not by the individual in his individual capacity. In that view of the matter, we answer the question in favour of the assessee and against the revenue. However, we make it clear that the amount of TDS and amount of tax collected from the appellant may be refunded to the appellant and lottery amount TDS may be refunded to Neha Trust.

Summary

Issues Involved:
1. Whether the appellant is liable to pay wealth tax on the lottery income despite other beneficiaries of the trust paying taxes on their respective shares?
2. Whether the appellant is liable to pay tax on the entire lottery income when other beneficiaries have already paid taxes on their shares?
3. Was the ITAT correct in determining the tax liability on an assumed income from the lottery prize?

Analysis:

Issue 1: Wealth Tax Liability
The appellant, a trustee of Neha Trust, purchased a lottery ticket from the trust fund. The tribunal held the lottery prize was won in the individual capacity of the appellant, not by the Trust. The appellant argued that the trust deed was for family trust, and other beneficiaries had paid taxes. The court found that the amount was withdrawn from the trust account, distributed among beneficiaries, and taxes were paid. The court accepted the trust deed and account, concluding the authorities erred in holding the appellant liable to pay tax. The court ruled in favor of the appellant, directing the refund of TDS and tax collected.

Issue 2: Tax Liability on Entire Lottery Income
The court addressed whether the appellant should pay tax on the whole lottery income when other beneficiaries had paid taxes on their shares. Considering the trust deed, distribution, and tax payments by beneficiaries, the court held that the amount was received by the trust, not the individual. The court found errors in the authorities' decision and ruled in favor of the appellant, directing refunds and clarifying the tax liability.

Issue 3: Assumed Income Tax Liability
Regarding the ITAT's decision on tax liability on an assumed income from the lottery prize, the court's ruling in favor of the appellant in the previous issues rendered this issue moot. The court held that since the income of the trust was accepted, the appellant could not be assessed under the Wealth Tax Act. Therefore, the court answered the question in favor of the appellant and against the revenue, allowing all appeals accordingly.