THE COMMISSIONER OF INCOMETAX, TVM. vs. M.S. HAMEED

ITR/66/2000HC KeralaKLHC01015361200007 December 2006Author: HONOURABLE MR.JUSTICE P.R.RAMAN,HONOURABLE MR.JUSTICE K.P.BALACHANDRAN30 pages
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What were the facts?

The assessee, a partner in a firm, initially included lottery winnings of Rs. 4,50,000 from a Sikkim lottery in his income return for assessment year 1987-88. Subsequently, in a revised return, he excluded this amount, claiming it was not taxable as the Income Tax Act was extended to Sikkim only from assessment year 1990-91. The Assessing Officer disagreed, considering the assessee a resident of India. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT), Cochin Bench, ruled in favor of the assessee, holding that Sikkim lottery winnings were not taxable prior to assessment year 1990-91. The Revenue appealed this decision to the High Court.

What did the High Court hold?

The High Court held that the winnings from the Sikkim lottery were not taxable in the hands of the assessee for assessment year 1987-88. The Court reasoned that while Sikkim became part of India in 1975, the Income Tax Act, 1961, was extended to Sikkim only from assessment year 1990-91. Article 371F of the Constitution of India mandates that laws in force in Sikkim before its accession continue to apply until amended or repealed. Therefore, for the assessment year 1987-88, the Sikkim Income Tax Manual, 1948, was applicable. The lottery winnings had already been taxed under this manual, and taxing them again under the Indian Income Tax Act would amount to double taxation, which is impermissible without a specific legislative provision. The Court distinguished the Alankar Commercial Pvt. Ltd. case, noting it dealt with income earned outside Sikkim but within India, whereas the present case involved income received within Sikkim and taxed under its local law. The contention regarding the CBDT circular was rejected as it did not apply to references made under Section 256(1). The question was answered in the affirmative, in favor of the assessee.

What were the issues?

1. Whether, on the facts and circumstances, the Tribunal was right in law and fact in holding that winnings from the Sikkim lottery could not be brought to tax in the hands of the assessee for assessment year 1987-88, in light of Section 5 read with Section 2(24)(ix) of the Income Tax Act, 1961? Assessee's contentions: - Income from Sikkim lotteries was not includible in taxable income because the Income Tax Act was made applicable to Sikkim only from assessment year 1990-91. - By virtue of Article 371F of the Constitution of India, only the Sikkim Income Tax Manual, 1948, was applicable, and since the income had suffered tax under that law, it could not be taxed again. - Relied on the decision in Ghisalal Agarwala v. CIT ((2001)165 CTR (Gau) 667). - A CBDT circular dated March 27, 2000, barred appeals where the tax effect was less than Rs. 2 lakhs. Revenue's contentions: - As an ordinary resident in India, the assessee's income, whether received in India or outside, is liable to assessment. - The extension of the Income Tax Act to Sikkim from assessment year 1990-91 is irrelevant. - Sikkim became part of India from April 26, 1975, and income received from Sikkim lotteries is income received in India and thus assessable. - Relied on Alankar Commercial (P) Ltd. v. CIT ((2000) 243 ITR 626) and its Supreme Court decision ((2001) 9 SCC 380). - Relied on passages from Kanga's Law and Practice of Income Tax (9th Edition).

Which sections of the Income-tax Act were involved?

Section 5,Section 2(24)(ix),Section 256(1),Section 256(2),Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE P.R.RAMAN & THE HONOURABLE MR. JUSTICE K.P.BALACHANDRAN THUR AY, THE 7TH DECEMBER 2006 / 16TH AGRAHAYANA 1928 ITR.No. 66 of 2000() -------------------- AGAINST THE ORDER DATED 15/4/1998 IN ITA.483/COCH/94 IN RA.337/COCH/199/1998 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPLICANT: ----------- THE COMMISSIONER OF INCOME TAX (APPEALS), TRIVANDRUM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL,(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: ------------ M.S.HAMEED, P/O.M/S.M.MOLHAMED KHAN AND BROS., CHALAI, TRIVANDRUM. BY ADV. SRI.D.S.SREEKUMARAN SMT.T.S.MAYA (THIYADIL)

THIS TAX REFERENCE HAVING BEEN FINALLY HEARD ON 21/11/2006, THE COURT ON 07/12/2006 DELIVERED THE F

The order continues below.

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