HIGH COURT OF KERALA M. K. Raghu v. ACIT

Assessability of winnings from lottery from Sikkim

What is assessable as income from winnings from lottery is real income and not notional income or income declared in the lottery as prize money.



HIGH COURT OF KERALA

M. K. Raghu

v.

ACIT

ITA NO. 35 OF 2009

FEBRUARY 10, 2009

RELEVANT EXTRACTS:

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4. The next question to be considered is whether the assessee is entitled to deduction of tax at source made by the Sikkim authorities. As already stated, we notice that what is deducted as is clear from the certificate issued by the Lottery Director is the ‘Sikkim Income Tax’ and not income tax due under the Income Tax Act, 1961. section 194B of the Income Tax Act provides for deduction of tax while paying any income by way of winning from any lottery to any person. Section 199 of the Act provides that deduction of tax made under any provision of the Act should be paid to the Central Government and only on such payment, the payment shall be treated as payment of tax by or on behalf of the person whose income was subjected to deduction. It is clear from the certificate issued by the Lotteries Director that he has not deducted income tax under section 194B of the Income-tax Act on the payment of lottery prize money to the assessee and admittedly he has not paid the amount so deducted to the Central Government. He has clearly stated in the certificate that what is deducted is Sikkim Income Tax. Therefore, the Tribunal rightly reversed the order of the Commissioner (Appeals) and held that assessee is not entitled to any credit of tax based on the certificate issued by the Lotteries Director under section 199 of the Income Tax Act. Consequently we uphold the order of the Tribunal in this regard as well.

5. The last question raised by the assessee is whether he is entitled to exclusion of the amount deducted by the Director of Lotteries in Sikkim from the prize money. The Tribunal has considered the claim as one of deduction from the income which was turned down by referring to section 58(4) of the Income Tax Act. Income from lottery is assessable under the head income from other sources and, therefore, by virtue of the express bar contained under section 58(4) no deduction of any expenditure is admissible on the income from lotteries. However, counsel for the assessee rightly pointed out that what is to be assessed as income from winnings from lottery is only the actual income received and not any notional income. Prize money from lottery is assessable under the Act by virtue of inclusion of 'winnings from lottery1 as income under Section 2(24)(IX) of the Act. Lottery defined therein includes winnings from prize awarded to any person to draw lots or by chance or in any other manner whatsoever under any scheme or arrangement by whatever name called. In the dictionary one shade of meaning given to winning is money won especially in betting etc. Similarly the charging under Section 115BB provides for levy of tax on income by way of winnings from any lottery. Obviously it is clear from these provisions that what is assessable is real income and not notional income or income declared in the lottery as prize money, in our view what is assessable is the actual income received by the assessee which in this case is excluding the income tax deducted by the Lotteries Director in the State of Sikkim, no matter such deduction may be unauthorised,

6. Even though standing counsel for the department contended that if the Director of Lottery has made unauthorised deduction it is for the assessee to pursue his remedy elsewhere, we do not think that the assessee can be expected to recover this amount through the litigation against the State Government On the other hand we feel that if the State Government is recovering income tax and retains it for itself payment to the Central Government, it is for the Central Government to take necessary steps to ensure that constitutional provisions are not violated by the State Government. We therefore hold that what is assessable as income from lottery in the hands of the assessee under Section 115BB is the net amount received by the assessee after excluding the amount of Rs.45,54,886/- recovered by the Director of Lotteries towards Sikkin Income Tax and the balance amount is only assessable under Section M S BB of the Act.

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