1993 (2) TMI 149 - AT - Income Tax

Summary

Issues Involved:

1. Taxability of lottery income from Sikkim under the Income-tax Act, 1961.
2. Deduction under section 80TT of the Income-tax Act, 1961.
3. Disallowance of miscellaneous and legal expenses.
4. Legality of the assessee's claim regarding non-taxability of Sikkim lottery income and corresponding TDS credit.

Issue-wise Detailed Analysis:

1. Taxability of Lottery Income from Sikkim under the Income-tax Act, 1961:

The primary issue was whether the lottery income earned by the assessee from the Sikkim State Lottery is taxable under the Income-tax Act, 1961. The assessee argued that since the income accrued in Sikkim and was taxed under the Sikkim State Income-tax Rules, it should not be taxed again under the Income-tax Act, 1961. The Tribunal, however, noted that the assessee was a Resident and Ordinarily Resident of India, and under section 5 of the Income-tax Act, 1961, the global income of such a person is taxable. The Tribunal emphasized that Sikkim became a part of the Indian Union in 1975, and thus, income from Sikkim is not considered as arising outside India for the purposes of section 5. The Tribunal concluded that the lottery income was rightly included in the assessee's total income for the year under consideration.

2. Deduction under Section 80TT of the Income-tax Act, 1961:

The assessee claimed a deduction under section 80TT on the gross lottery income of Rs. 20 lakhs. However, the Income-tax authorities allowed the deduction on Rs. 18 lakhs, after deducting agent's/seller's commission. The Tribunal upheld the authorities' decision, relying on the Supreme Court's ruling in CIT v. P. K. Jhaveri, which held that deductions under sections 80K and 80AB should be allowed only on the net income after necessary deductions, not on the gross receipts. Therefore, the Tribunal dismissed the assessee's ground on this issue.

3. Disallowance of Miscellaneous and Legal Expenses:

The assessee contested the disallowance of Rs. 3,100 on account of miscellaneous and legal expenses. The Tribunal found the argument reasonable and directed the Income-tax Officer (ITO) to allow these expenses in the subsequent year if not in the current year.

4. Legality of the Assessee's Claim Regarding Non-taxability of Sikkim Lottery Income and Corresponding TDS Credit:

The Revenue raised a cross objection, arguing that the assessee's claim regarding the non-taxability of Sikkim lottery income was not tenable as it was not made before the Assessing Officer or the first Appellate Authority. The Revenue also contended that the tax charged by Sikkim State was merely a local tax and not Income-tax under the Income-tax Act, 1961, thus challenging the TDS credit claimed by the assessee. Since the Tribunal dismissed the additional ground regarding the non-taxability of Sikkim lottery income, the Revenue's cross objection became infructuous and was dismissed.

Conclusion:

The assessee's appeal was partly allowed, specifically regarding the allowance of miscellaneous and legal expenses in the subsequent year. However, the Tribunal dismissed the additional ground concerning the non-taxability of Sikkim lottery income and upheld the deduction under section 80TT on the net income. The Revenue's cross objection was dismissed as it became infructuous following the Tribunal's decision on the additional ground.