COMMR. OF INCOME TAX, BATHINDA vs. RAMESH CHANDER WADHWA

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ITA/249/2005HC Punjab & HaryanaPHHC01076216200504 September 2014Author: MR. JUSTICE R.C. KATHURIA (RETD.),MR. JUSTICE JITENDRA CHAUHAN6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal by the Revenue had no merit. It relied on its own Division Bench judgment in Commissioner of Income Tax I, Ludhiana vs. Tilak Raj Kalra, which dealt with the taxability of prize money of 1 kg of gold won in a small savings scheme. The Court distinguished the Supreme Court's judgment in CIT vs. G.R. Karthikeyan, noting that the prize in Karthikeyan was from a motor rally, which is akin to 'races' or 'games of any sort' under Section 2(24)(ix). The Court reasoned that the explanation to Section 2(24)(ix) was added w.e.f. 1.4.2002 and was not retrospective. Crucially, it held that 'lottery' involves an element of 'chance', whereas an investment in a savings scheme does not. The invested amount is returned on maturity, unlike a lottery ticket prize, which is lost if not won. Therefore, the incentive prize received on account of a coupon linked to a Small Savings Certificate does not fall within the definition of 'lottery' and is not income. The Court agreed with the Madras and Karnataka High Courts in similar cases. The substantial question of law was answered against the Revenue and in favour of the assessee.

What were the facts?

The Revenue (Commissioner of Income Tax, Bathinda) appealed against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1997-98. The assessee, Shri Ramesh Chander Wadhwa, a lawyer, won 1 kg of 22-carat gold (valued at ₹4,37,750) in June 1996 as the first prize under a Punjab Government Small Savings Scheme. The assessee admitted winning the prize but did not file a return of income. An assessment was framed under Section 144 at ₹5,51,940. The CIT(A) partly allowed the appeal, reducing the addition for gold impurities and professional income, but upheld the prize as taxable income. The ITAT, however, deleted the addition of ₹4,37,750, leading to the present appeal by the Revenue.

What were the issues?

1. Whether, on the facts and circumstances, the ITAT was right in law in treating the receipt of 1 kg of gold (cost ₹4,37,750) as non-taxable, by relying on CIT vs. Deputy Director of Small Savings (Madras High Court), where TDS was not deducted due to the prize being a consumer good? (Assessee's contention: The ITAT's decision was correct. Revenue's contention: The ITAT erred in treating the receipt as non-taxable, citing CIT vs. G.R. Karthikeyan (Supreme Court) to argue that prize money is income exigible to tax). 2. Whether the ITAT was right in holding that winning 1 kg of gold through a draw of lots did not constitute income from a lottery, when it did constitute lottery income under Section 115BB read with Section 2(24)(ix) of the Income Tax Act, 1961? (Assessee's contention: The issue is covered by this Court's judgment in CIT vs. Tilak Raj Kalra. Revenue's contention: The winning constitutes lottery income as per the cited sections.)

Which sections of the Income-tax Act were involved?

Section 260A,Section 142(1),Section 144,Section 2(24)(ix),Section 115BB

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
ITA No.249 of 2005 (O&M) 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.249 of 2005 (O&M) Date of decision: 04.09.2014 The Commissioner of Income Tax, Bathinda ……Appellant Vs. Shri Ramesh Chander Wadhwa,Abohar, District Ferozepur (Pb.) …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE FATEH DEEP SINGH Present: Mr.Gaurav Singh Hooda, Advocate for the appellant. Mr. S.K.Mukhi, Advocate for the respondent. Ajay Kumar Mittal,J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 1.11.2004, Annexure 'C' passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, “the Tribunal”) for the assessment year 1997-98,claiming following substantial questions of law:- i) Whether on the facts and circumstances of the case the Hon'ble Income Tax Appellate Tribunal, Amritsar Bench, Amritsar was right in law in treating the receipt of 1 kg. Gold (total cost ` 4,37,750/-) against the winning coupon as non taxable by relying on Hon'ble Madras High Court in the case GURBAX SINGH 2014.10.13 11:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.249 of 2005 (O&M) 2 of CIT vs. Deputy Director of Small Savings (2004) 266 ITR 27 wherein TDS was not deducted because of consumer goods? ii)Whether the Hon'ble Income Tax Appellate Tribunal, Amritsar Bench, Amritsar was right in holding that winning of 1 kgs. of gold through draw of lots did not constitute income from lottery, whereas, it did constitute lottery income in view of section 115BB read with section 2(24)(ix) of the Income Tax Act, 1961?” 2. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The respondent, a practicing lawyer won first prize of 1 kg. Gold of 22 carat under the scheme of Directorate of Small Savings, Punjab Government, Chandigarh in June 1996 for his deposits in small savings during the period 1.5.1995 to 30.9.1995. Vide his statement dated 23.5.1997, the assessee admitted of having won the prize of 1 kg. of gold and promised that he would file his return of income for the assessment year 1997-98. The assessee did not file his return of income even after service of notice under section 142(1) of the Act. He also did not avail final opportunity to present his case on 8.2.2000. Assessment was framed on 21.3.2000, Annexure 'A' under section 144 of the Act at income of ` 5,51,940/- (` 5,01,938/- - value of 1 kg. Gold plus ` 50,000/- as professional income from practice in civil courts). Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) vide order dated 24.7.2000, Annexure 'B' partly allowed the appeal, giving relief of ` 64,190/- for gold impurities and ` 3000/- out of estimated professional income. While holding the prize as assessee's income, the CIT(A) observed that the winning of lucky coupon was income of the appellant which had rightly been brought to tax while GURBAX SINGH 2014.10.13 11:10 I attest to the accuracy and integrity of this document High Court Chandigarh ITA No.249 of 2005 (O&M) 3 framing assessment for the assessment year 1997-98. Not satisfied with the order, the assessee filed appeal before the Tribunal. Vide order dated 1.11.2004, Annexure 'C', the Tribunal partly allowed the appeal and deleted the addition of ` 4,37,750/-. Hence the instant appeal by the revenue. 3. Learned counsel for the revenue referred to judgment of the Apex Court in CIT, Madras vs. G.R.Karthikeyan, AIR 1993 SC 1671 to contend that prize money received by the participant in a motor rally was held to be income and was exigible to tax. On the aforesaid premises,it was urged that in the present case, the Tribunal had erred in accepting the appeal of the assessee. 4. On the other hand, learned counsel for the assessee relied upon Division Bench judgment of this Court in ITA No.147 of 2004 Commissioner of Income Tax I, Ludhiana vs. Tilak Raj Kalra, decided on 25.2.2012 and submitted that the issue involved herein is fully covered by

the said judgment.

5.

After hearing learned counsel for the parties, we do not find any merit in the appeal.

6.

This Court in Tilak Raj Kalra's case (supra) dealt with the issue of taxability of prize money of 1 kg. of gold won by the assessee in the small savings scheme. The Division Bench distinguishing the judgment of Apex Court in G.R.Karthikeyan's case (supra) had held as under:- “9. In order to appreciate the contentions of revenue, it would be necessary to first examine the provisions of Section 2(24) (ix) of the Act and the explanation added w.e.f. 1.4.2002, which reads thus:

"

2.

In this Act, unless the context otherwise requires,- (1) to (23) xxx xxx xxx (24) "income" includes - GURBAX SINGH 2014.10.13 11:10 I attest to the accuracy and integrity of this document High Court Chandigarh (i) to (viii) xxx xxx xxx (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. Explanation.- For the purpose of this sub-clause,- (i) "lottery" includes winning from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called; ITA No. 147 of 2004 8 (ii) "card game and other game of any sort" includes any game show, an entertainment programme on television or electronic mode, in which people complete to win prizes or any other similar game;"

10.

A perusal of the aforesaid provision would show that the explanation was added with effect from 1.4.2002 and there was no provision to give the explanation retrospective effect. Therefore, it would not apply to the assessment year 1996-97. Moreover, if the prizes awarded to any person were to be included in the expression 'lottery' then there was no necessity of adding the explanation to include prize money like the one in question in the expression 'lottery'.

11.

The argument raised on behalf of the revenue based on the judgment of Hon'ble the Supreme Court rendered in the case of G.R. Karthikeyan (supra), (supra) has not impressed us. It is no doubt true that the expression 'income' is illustrative, as is evident from clauses (i) to (ix), yet it cannot be concluded that every earning would be included under the expression 'income'. The rationale of the judgment in G.R. Karthikeyan's case (supra) is not far to seek because in that case prize money was won from winning the All India Motor Rally. A random look on the definition would show that All India Highway Motor Rally is eju em generis with the expression 'races including horse races' and 'other games of any sort'. Thus, any statutory entry on the basis of the principle of exclusive definition have to be GURBAX SINGH 2014.10.13 11:10 I attest to the accuracy and integrity of this document High Court Chandigarh eju em generis with the expression already used in the definition clause.

12.

Therefore, the reasoning adopted by the Commissioner and the Tribunal deserves to be approved when they hold that the ITA No. 147 of 2004 9 expression 'lottery' would involve an element of 'chance' whereas when a person is making investment in a scheme like Savings Scheme then there is no element of 'chance' nor he loses any money invested by him. On the contrary the prize of the lottery ticket can never come back to the person purchasing the same. The investment in savings are paid back to the investor on maturity of the scheme irrespective of the fact whether he has won the prize or not and, therefore, there is no element of 'chance'.

13.

Moreover, the case of the assessee-respondent is covered by the Division Bench judgment of Madras High Court in the case of Deputy Director of Small Savings (supra) and Division Bench judgment of Karnataka High Court in the case of B.K. Suresh (supra). In both the cases the prize money has been won under the Saving Schemes. Accordingly, it has to be held that the incentive prize received by the assessee- respondent on account of the coupon given to him on the strength of Small Savings Certificate would not fall within the definition of 'lottery' and would, thus, not be included in the expression 'income'. We are in agreement with the view taken by the Madras and Karnataka High Court.”

7.

Raj Kalra's case (supra). In view of the binding precedent, the substantial question of law is answered against the revenue and in favour of the GURBAX SINGH 2014.10.13 11:10 I attest to the accuracy and integrity of this document High Court Chandigarh assessee. Accordingly, the appeal stands dismissed. (Ajay Kumar Mittal) Judge September 04, 2014 (Fateh Deep Singh) Judge ‘gs' GURBAX SINGH 2014.10.13 11:10 I attest to the accuracy and integrity of this document High Court Chandigarh

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