2004 (4) TMI 43 - HC - Income Tax

Prize money of the Sikkim lottery taxability under the Income-tax Act, 1961. - held that acquiescence to an illegal tax for a long time is not a ground for denying the party the relief that he is entitled to. In the instant case, therefore, it may be held that merely because the petitioner offered the prize money won in the lottery of the Sikkim Government, to tax under the Income-tax Act, 1961, that shall not take away her right in contending that the said prize money was not chargeable and assessable to tax under the Income-tax Act in the revisional jurisdiction. The said prize money was chargeable to Income-tax under the Sikkim Tax Manual that held the field at the relevant time and the Income-tax from the prize money as per the then existing Sikkim Income-tax Manual was deducted. writ petition is allowed - assessment order and revisional order are quashed and set aside

Issues Involved:
1. Taxability of prize money won in Sikkim under the Indian Income-tax Act, 1961.
2. Credit for tax deducted at source (TDS) by the Sikkim Government.
3. Applicability of the Sikkim Income-tax Manual, 1948, post-Sikkim's merger with India.
4. Jurisdiction and authority of the Commissioner of Income-tax in revisional proceedings.

Detailed Analysis:

1. Taxability of Prize Money:
The primary issue was whether the prize money of Rs. 6,30,000 from the Sikkim Government lottery won by the petitioner in August 1987 was chargeable under the Indian Income-tax Act, 1961. The court noted that Sikkim became a state of the Indian Union on April 26, 1975, and the Income-tax Act, 1961, was extended to Sikkim effective from April 1, 1990, applicable from the assessment year 1990-91 onwards. Therefore, for the assessment year 1988-89, the Sikkim Income-tax Manual, 1948, was applicable. The prize money won by the petitioner was chargeable to tax under the Sikkim Income-tax Manual, 1948, and not under the Indian Income-tax Act, 1961.

2. Credit for TDS by Sikkim Government:
The petitioner claimed a deduction of Rs. 62,088, which was deducted as income tax by the Sikkim Government from the prize money. The Assessing Officer did not give credit for this amount, as it was not paid to the Indian treasury and did not comply with section 199 of the Income-tax Act, 1961. The court held that since the Income-tax Act, 1961, was not applicable to Sikkim at the relevant time, the tax deducted by the Sikkim Government was in accordance with the Sikkim Income-tax Manual, 1948. Thus, the petitioner was entitled to claim this deduction.

3. Applicability of Sikkim Income-tax Manual, 1948:
The court emphasized that all laws in force in Sikkim before its merger with India continued to be in force until amended or repealed, as per Article 371F(k) of the Constitution. The Sikkim Income-tax Manual, 1948, was thus applicable for the assessment year 1988-89. The court referred to the Supreme Court's interpretation in the State of Sikkim v. Surendera Prasad Sharma case, which upheld the continuity of pre-existing laws in Sikkim post-merger.

4. Jurisdiction and Authority of the Commissioner of Income-tax:
The petitioner raised the issue that no tax was payable under the Indian Income-tax Act, 1961, at the revisional stage before the Commissioner of Income-tax. The Commissioner modified the Assessing Officer's order only to the extent of reducing the prize money by Rs. 62,088 but did not entertain the contention regarding the non-applicability of the Income-tax Act, 1961. The court held that the Commissioner should have considered the legal contention on its merits, irrespective of the delay in raising it. The court cited the Supreme Court's decision in Amalgamated Coalfields Ltd. v. Janapada Sabha, which held that acquiescence to an illegal tax does not prevent seeking relief.

Conclusion:
The court quashed the assessment order dated November 29, 1989, and the revisional order dated June 25, 1991. It directed the Assessing Officer to rework the petitioner's assessment for the assessment year 1988-89 in accordance with the Sikkim Income-tax Manual, 1948, recognizing that the prize money was chargeable to tax under the Sikkim laws and not the Indian Income-tax Act, 1961. The court allowed the writ petition and set aside the orders, directing fresh assessment as per its judgment.

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