2012 (4) TMI 123 - HC - Income Tax

Income from lottery - revenue filed an appeal against the order of Tribunal as assessee was liable to pay tax on the prize of 1Kg. Gold won by him Section 2 (24)(ix) of the Income-tax Act, 1961 - assessee subscribed to PPF which formed part of Small Savings Scheme of the Government - lucky coupons were issued to encourage investments and the assessee was also issued a lucky coupon which won the prize of 1Kg. Gold - assesse contented that gold received by him did not amount to winning from lottery because for the purpose of lottery the assessee has to purchase a ticket and he loses the amount spent on purchase of lottery ticket but in case of contribution to small savings scheme a person obtains a return on his investment and there is no risk of loss on the amount contributed - Held that - It may be observed that all the categories which are brought to tax in s. 2(24)(ix) concerns those schemes where there was an element of risk meaning that a person could lose part of his money except in the case of cross-word puzzles which has been specifically mentioned therein - assessee has invested in PPF and his contribution and return at the fixed rate remain the same and will be given to the person on maturity of the scheme irrespective of the fact whether the person has won the prize or not. Therefore, there is no element of risk involve - amount realised would not fall within the provisions of Section 2(24)(ix) and cannot be brought to tax - question raised by the revenue is decided in favour of the assessee and against the revenue.

Summary

Issues:
- Appeal against order holding assessee not liable to pay tax on prize of 1Kg Gold
- Interpretation of Section 2(24)(ix) of Income-tax Act, 1961
- Exemption claim for prize value as an incentive not income
- Applicability of definition of 'lottery' to prize won without ticket purchase
- Judicial interpretation of 'lottery' in context of investment schemes
- Effect of retrospective application of explanation added to Section 2(24)(ix)
- Comparison of judgment on prize money from motor rally with present case

Analysis:
1. The appeal was filed by the revenue against the order of the Income Tax Appellate Tribunal, Chandigarh Bench, which held that the assessee was not liable to pay tax on the prize of 1Kg Gold won as it did not constitute income under Section 2(24)(ix) of the Income-tax Act, 1961 for Assessment Year 1996-97.
2. The case revolved around the definition of 'income' under the Act and the contention that the prize received by the assessee was an incentive, not income, as it was based on an investment in a Small Savings Scheme without the element of risk or chance associated with lotteries.
3. The Commissioner of Income Tax (Appeals) accepted the assessee's argument, emphasizing that the prize did not fall within the definition of 'lottery' as there was no risk of losing the investment amount, unlike traditional lotteries involving ticket purchase and potential loss.
4. The Tribunal upheld the CIT(A)'s decision, citing precedents and the absence of risk or chance in the investment scheme, thereby concluding that the prize did not constitute winnings from a lottery and was not taxable income under Section 2(24)(ix) of the Act.
5. The revenue argued that the definition of 'income' was not exhaustive and could include prizes like the one in question, relying on a Supreme Court judgment regarding prize money from a motor rally. However, the Tribunal and courts emphasized the absence of risk or chance in the investment scheme, distinguishing it from traditional lotteries.
6. The issue of retrospective application of an explanation added to Section 2(24)(ix) was raised, with the courts determining that it did not apply to the assessment year in question, further supporting the assessee's claim for exemption from tax on the prize.
7. The courts compared the present case with judgments from the Madras and Karnataka High Courts involving prize money from investment schemes, affirming that such prizes did not fall under the definition of 'lottery' and were not taxable income, aligning with the assessee's position.

In conclusion, the courts ruled in favor of the assessee, holding that the prize of 1Kg Gold won by the assessee was not taxable income under the Income-tax Act, 1961 for Assessment Year 1996-97, as it did not meet the criteria of winnings from a lottery outlined in Section 2(24)(ix) and lacked the element of chance or risk associated with traditional lotteries.