Punjab-Haryana High Court
Commissioner Of Income Tax-I vs Tilak Raj Kalra on 20 February, 2012
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.
ITA No. 147 of 2004
Date of Decision: February 25, 2012
Commissioner of Income Tax-I, Ludhiana
...Appellant
Versus
Tilak Raj Kalra
...Respondent
CORAM: HON'
HON'BLE MR. JUSTICE M.M. KUMAR
HON'BLE MR. JUSTICE ALOK SINGH
Present: Mr. Rajesh Katoch, Advocate,
for the appellant.
Mr. S.K. Mukhi, Advocate,
for the respondent.
1. To be referred to the Reporters or not?
2. Whether the judgment should be
reported in the Digest?
M.M. KUMAR, J.
1. The revenue is in appeal against the order dated 16.12.2003, passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A' (for brevity, 'the Tribunal'), holding that the assessee-respondent was not liable to pay tax on the prize of 1Kg. Gold won by him as it did not form part of his income within the meaning of clause (ix) of sub-section (24) of Section 2 of the Income-tax Act, 1961 (for brevity, 'the Act') in respect of Assessment Year 1996-97.
2. The facts of the case as revealed in the order of the Tribunal are that the assessee-respondent subscribed `10,000/- to PPF which formed part of Small Savings Scheme encouraged by the Government of Punjab. The scheme formulated by the Government of Punjab provided incentive to encourage small savings to ITA No. 147 of 2004 2 augment its resources. According to the scheme the Government issued lucky coupon on every investment of `5,000/-, which also covered investment in PPF. The assessee-respondent was also issued a lucky coupon which won the prize of 1Kg. Gold. The Assessing Officer regarded the prize as income and found that it was worth `4,68,000/-. However, the assessee-respondent claimed exemption in respect of the value of gold arguing that it was actually an incentive and, therefore, it was not covered by the definition of expression 'income' within the meaning of Section 2(24)(ix) of the Act, which deals with winning of 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.
3. The argument raised by the assessee-respondent was that the 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. 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. However, the Assessing Officer held that the prize won by the assessee-respondent falls within the meaning of Section 2(24)(ix) of the Act and accordingly addition of `4,68,000/- in the income of the assessee-respondent in respect of Assessment Year 1996-97 was made.
4. The assessee-respondent filed an appeal before the Commissioner of Income Tax (Appeals) accepted the argument of the assessee and deleted the impugned addition. The view of the CIT(A) is discernible from the following para, which reads thus:-
"5. I have considered the arguments advanced by the A.R. and also by the AO who represented the matter, as ITA No. 147 of 2004 3 well as gone through the assessment order.
5.1 In my view where no definition of the word lottery has been given in the statute then the common dictionary meaning would have to be applied and as per this meaning the Concise Oxford dictionary defines "Lottery" as under:
1. a means of raising money by selling numbered tickets and giving prize to the holders of numbers drawn at random. 2. an enterprise, process etc., whose success is governed by chance."
In the present scheme of giving prizes, whereas there was an element of chance as there is in a lottery, but there was no purchasing of tickets or pooling of such proceeds as such. It was rather an investment. There was no element of risk involved in the sense that an investor could lose his money. 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. I agree with the view of the learned counsel of the appellant that in such matters where certain items are brought to tax only by virtue of a taxing provisions, then the said taxing provision had to be applied strictly and nothing more can be added therein. In these facts and circumstances the arguments advanced by the appellant would have to be upheld and the amount realised would not fall within the provisions ITA No. 147 of 2004 4 of Section 2(24)(ix) and cannot be brought to tax. The appellant would be entitled to relief of the like amount and the appeal stands allowed." (emphasis added)
5. The revenue-appellant preferred an appeal before the Tribunal and the order passed by the CIT(A) was upheld. The Tribunal referred to the meaning of lotteries and also the judgment of Madras Bench of the Tribunal rendered in the case of Deputy Director of Small Savings v. I.T.O., I.T.O., 75 ITD 152.
152 The Tribunal cited the provisions of clause (ix) of sub-section (24) of Section 2 of the Act. The Explanation-I defining lottery was added with effect from 10.4.2002 and would not apply to the assessment year 1996-97. The Tribunal then referred to general definition of word 'lottery'. It virtually accepted the view of CIT(A) which is patent from the following para:-
" ....... Thus from the above mentioned definition of the word "lottery" it is obvious that it involves an element of chance. The person buys the ticket solely with the object of winning the prize and not for the purpose of making investment. If the person does not win any prize, money invested in the ticket is lost for ever. The assessee does not earn any return. In the present case, the assessee has invested in PPF and his contribution and return at the fixed rate remain the same. The same shall 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 chance, risk of loss of the money of the participant. This issue came to be considered by the ITAT Madras Bench in the case of Dy. Director of Small ITA No. 147 of 2004 5 Savings v. I.T.O. 75 ITD 158. In that case also, the assessee has won the prize of his investment in the small savings under the incentive scheme introduced by the State Govt. and the question was whether such prize amounted to winnings from lottery or not. The Tribunal considered the facts of the case and held that prize won by the assessee did not amount to winnings from the lottery. ................... In this case also, the assessee has not paid any consideration for lucky coupon which was the basis of the draw. There was no risk or loss to the depositor as his investment and return were guaranteed by the Govt. Further the assessee would not lose his principal and return even if he had won the prize. Thus, the decision of ITAT Madras Bench is squarely applicable to the facts of the present case. The Revenue has not cited any other judgment or decision in its favour. As regards, second proviso to Section 194B, which covered winnings in kind, the same has been inserted in the Act w.e.f. 01.06.1997 and is not applicable to the assessment year under reference. In any case, the decision of ITAT, Madras Bench fully applies to the facts of the present case. Therefore, respectfully following the aforesaid decision of ITAT, Madras Bench, we hold that the prize won by the assessee did not amount to winnings from lottery and therefore, the same did not fall in the category of 'Income' mentioned in clause (ix) of sub-section (24) of section 2 of I.T. Act, 1961. Ld. CIT(A) was justified in deleting the impugned addition. We confirm his order and dismiss all the grounds of appeal ITA No. 147 of 2004 6 of the revenue."
6. Mr. Rajesh Katoch, learned counsel for the revenue- appellant has vehemently argued that the definition of expression 'income' in clause (ix) of sub-section (24) of Section 2 of the Act is not exhaustive but only illustrative as is patent from the use of word 'includes'. Mr. Katoch has submitted that it cannot be regarded as exhaustive definition and is capable of being construed to include the income earned from winning a prize like the one in hand. According to the learned counsel the explanation which has been added on 1.4.2002 to clause (ix) of sub-section (24) of Section 2 of the Act, would include even the prizes awarded to any person by draw of lot by election or in any manner under any scheme. In support of his submission the learned counsel has placed reliance on a judgment of Hon'ble the Supreme Court rendered in the case of Commissioner of Income Tax v. G.R. Karthikeyan, Karthikeyan, (1993) 201 ITR
866. In that case the prize money from winning All India Motor Rally was regarded as income within the meaning of expression 'income' under clause (ix) of sub-section (24) of Section 2 of the Act.
7. Mr. S.K. Mukhi, learned counsel for the assessee- respondent has argued that the assessment year 1996-97 would not attract the application of explanation which was added to clause (ix) of sub-section (24) of Section 2 of the Act because it has been made effective from 1.4.2002 and, therefore, no retrospective effect could be given to the explanation. In that regard reliance has been placed on a Division Bench judgment of the Karnataka High Court rendered in the case of B.K. Suresh v. Income Tax Officer, Officer, (2008) 16 DTR Judgments 345 (Kar.).
(Kar.) In that case also the assessee therein had won a prize for investing in National Savings ITA No. 147 of 2004 7 Certificates. The Division Bench of the Karnataka High Court placed reliance on a Division Bench judgment of the Madras High Court rendered in the case of C.I.T. v. Dy. Director of Small Savings, Savings, (2004) 266 ITR 27 (Mad).
(Mad)
8. The revenue has claimed the following question of law:-
"Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that value of prize of 1 kg gold won by the assessee is not taxable under the Income-tax Act, 1961?"
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 -
(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 ejusdem 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 ejusdem 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).
(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.
14. Accordingly, the question raised by the revenue is decided in favour of the assessee and against the revenue.
(M.M. KUMAR) JUDGE (ALOK SINGH) SINGH) February February 25 25, 2012 JUDGE PKapoor