MAHAVEER KUMAR JAIN versus COMMISSIONER OF INCOME TAX, JAIPUR on 19 April 2018

[2018] 3 S.C.R. 875

MAHAVEER KUMAR JAIN

v.

COMMISSIONER OF INCOME TAX, JAIPUR

(Civil Appeal No. 4166 of 2006)

APRIL 19, 2018

[R. K. AGRAWAL AND ABHAY MANOHAR SAPRE, JJ.]

Income Tax Act, 1961:

s.5 – Taxability under – Of income from lottery – When suchincome was already taxed under Sikkim State Income Tax Rules,1948 – Held: A taxing statute should not be interpreted in such amanner that its effect will be to cast a burden twice over for paymentof tax unless language of statute is so compelling that court has noalternative than to accept it – In case of reasonable doubt,construction most beneficial to the tax payer is to be adopted – Assuch there is no prohibition on double taxation unless the legislaturecontains a special provision in that regard – In the present casesince the IT Act does not provide for including income from lottery,the assessee cannot be subjected to double taxation – Since Sikkimis part of India for the relevant accounting year, once the assesseehas paid income tax as per the law applicable at the relevant time inSikkim, the same income was not taxable under IT Act – In view ofclause (k) of Art. 371F of Constitution also, only the Sikkimregulations on income-tax would be applicable – Sikkim StateIncome Tax Rules, 1948 – Constitution of India – Art. 371F (k) –Interpretation of Statutes.

Allowing the appeal, the Court

HELD: 1. In the present case, the amount has been earnedby the appellant-assessee in the State of Sikkim and the amountof lottery prize was sent by the Government of Sikkim to Jaipuron the request made by the appellant. Therefore, while Section 5of the Income Tax Act would not be applicable, the existingSikkim State Income Tax Rules, 1948 would be applicable. SinceSikkim is a part of India for the accounting year, there wouldappear to be, on the same income, two types of income-taxescannot be applied. [Para 9, 10][882-C-E]

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A2. There is no prohibition as such on double taxation,provided that the legislature contains a special provision in thisregard. There is no provision in the IT Act wherein a specificprovision has been made by the legislature for including such anincome by an assessee from lottery ticket. In the absence of anysuch provision, the assessee in the present case cannot beBsubjected to double taxation. [Para 13][883-A-C]

Jain Brothers and Others v. Union of India and Others(1970) 77 ITR 107 (SC) – relied on.

Laxmipat Singhania v. Commissioner of Income Tax, U.P.(1969) 72 ITR 291 – referred to.C3. A taxing Statute should not be interpreted in such amanner that its effect will be to cast a burden twice over for thepayment of tax on the taxpayer unless the language of the Statuteis so compelling that the court has no alternative than to acceptit. In a case of reasonable doubt, the construction most beneficialDto the taxpayer is to be adopted. Therefore, the income in thepresent case is taxable only under one law. [Para 13][883-C]

4. By virtue of clause (k) to Article 371F of the Constitutionwhich starts with a non-obstante clause, it would be clear that onlythe Sikkim Regulations on Income-tax would be applicable inEthe present case. Therefore, the income cannot be brought totax any further by applying the rates of the IT Act. [Para13][883-D]

5. Once the assessee has paid the income tax at source inthe State of Sikkim as per the law applicable at the relevant timein Sikkim, the same income was not taxable under the IT Act,F1961. [Para 14][883-E]

Case Law Reference

(1969) 72 ITR 291 referred toPara 11(1970) 77 ITR 107 (SC) relied onPara 11

GCIVIL APPELLATE JURISDICTION: Civil Appeal No. 4166of 2006.

From the Judgment and Order dated 10.09.2004 by the High Courtof Judicature for Rajasthan, Jaipur, Bench at Jaipur in DB Income TaxReference No. 40/1995.

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Sanjay Jhanwar, Tanuj Agrawal, Tarun Gupta, Advs. for theAppellant.

Yashank P. Adhiyaru, Sr. Adv., Ms. Purnima Bhat Kak,Ms. Sadhana Sandhu (For Mrs. Anil Katiyar), Advs. for the Respondent.

The Judgment of the Court was delivered by

R. K. AGRAWAL, J. 1. The present appeal has been preferredagainst the final judgment and order dated 10.09.2004 passed by theHigh Court of Judicature for Rajasthan, Bench at Jaipur in D.B.I.T.Reference No. 40 of 1995 whereby the Division Bench of the HighCourt answered the questions referred to under Section 256(1) of theIncome Tax Act, 1961 (in short ‘the I.T. Act’) in favour of the Revenueand against the appellant-assessee.

2. Before proceeding further, it is pertinent to set out the facts ina summarized way to appreciate properly the issue involved in this instantappeal:- a) The appellant herein, a resident of Jaipur, Rajasthan, havingincome from business and property, won the first prize of Rs. 20 lakhs inthe 287th Bumper Draw of the Sikkim State Lottery held on 20.02.1986at Gangtok organized by the Director, State Lottery, Government ofSikkim, Gangtok. Out of Rs. 20 lakhs, the appellant herein received Rs.16,20,912/- through two Demand Drafts for Rs. 8,10,000/- and Rs.8,10,912/- each, after deduction of Rs. 2 lacs being agent’s/seller’scommission and Rs. 1,79,088/- being Income Tax under the Sikkim StateIncome Tax Rules, 1948.

b) The appellant herein filed Income Tax Return for theAssessment Year (AY) 1986-87 disclosing the income from lottery atRs. 20 lakhs and deducting the agent/seller commission of Rs. 2 lakhsout of the same. He claimed deduction under Sec. 80 TT of the IT Acton Rs 20,00,000/- i.e the gross amount of the prize money won in thelottery in accordance with the provisions of the charging Section.

c) On scrutiny, the Assessing Officer (AO), vide order dated08.01.1988, allowed the deduction under Section 80TT of the IT Act onRs. 18 lakhs instead of Rs. 20 lakhs while holding that the Governmentof Sikkim, had deducted the tax at source from the lottery amount of A

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ARs. 18 lakhs as Rs. 2 lakhs have been paid to the agent directly. In otherwords, under the relevant provisions of Section 80TT of the IT Act, thededuction can be claimed only on net income out of lottery and not onthe gross income. The said order was further confirmed by theCommissioner of Income Tax, (Appeals), Rajasthan-II, Jaipur, vide orderdated 31.10.1988B

d) Being aggrieved, the present appellant preferred an appealbefore the Income Tax Appellate Tribunal (in short ‘the Tribunal’), JaipurBench challenging the computation by the Assessing Officer (AO) ofthe deduction under Section 80TT of the IT Act. The appellant herein –the assessee raised an additional ground before the Tribunal claimingCthat the authorities below have grossly erred in law in treating the lotteryincome of Sikkim Government as income under the IT Act. Though theTribunal allowed the appeal partly vide order dated 26.02.1993 but itdismissed the objections raised by the appellant herein as to legality ofassessment order and held that the lottery amount is taxable under theDprovisions of IT Act.

e) However, at the instance of the appellant herein – the assessee,the Tribunal framed certain questions under IT Act and referred thesame to the High Court for opinion, considering them the questions oflaw fit for reference which are as under:

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“1. Whether on the facts and in the circumstance of the case, theHon’ble Tribunal was justified in holding that income from SikkimState Lottery is taxable under the Income Tax Act, 1961?

2. Whether in the facts and circumstances of the case the Tribunalwas justified in holding that deduction u/s 80TT is applicable onFthe net winning amount received by the assessee and not on thegross amount of the winning prize?”

f) A Division Bench of the High Court, vide judgment and orderdated 10.09.2004, answered the questions raised in affirmative.

g) Aggrieved by the judgment and order dated 10.09.2004, theGappellant-assessee has preferred this appeal by way of special leavebefore this court.

3. Heard Mr. Sanjay Jhanwar, learned counsel for the appellant-the assessee and Mr. Yashank P. Adhiyaru, learned senior counsel forthe respondent and perused the records.H

Point(s) for consideration

4. The issue that arises for consideration in the present case iswhether income from lottery earned is taxable under the IT Act especiallywhen such income was already taxed under the provisions of SikkimState Income Tax Rules, 1948. If so, whether the deduction that is to beallowed on such income under Sec 80 TT of the IT Act is on ‘grossincome’ or on the ‘net income’.

Rival contentions:

5. Learned counsel appearing for the appellant contended thatthe High Court has grossly erred in holding that the provisions of the ITAct are applicable to the present case as the provisions of the said Actare extended to the State of Sikkim only with effect from 01.04.1989and, therefore, income accrued in the State of Sikkim prior to this datecould not be charged to tax under the IT Act and was taxable under theSikkim State Income Tax Rules, 1948. Learned counsel further contendedthat the order in question passed by the High Court is not lawful as theprovisions of Article 371F of the Constitution of India, particularly, clauses(k) and (n) thereof, operate in relation to all the laws prevailing in theterritories of Sikkim which prevents the application of the IT Act in theState of Sikkim up till 31.03.1989. Learned counsel further contendedthat the order passed by the High Court is not just and lawful as the levyof taxes on the same income both by the Union of India and the State ofSikkim is contrary to the principle of double taxation. Further, the HighCourt grossly erred in holding that the deduction under Section 80TT ofthe IT Act is applicable on the net winning amount received by theassessee after deducting the agent/seller commission and not on thegross amount of the winning prize.

6. On the other hand, learned senior counsel appearing for theRespondent submitted that the High Court has rightly held that theTribunal was right in holding that income from winning of lotteries fromSikkim during the assessment year in question was liable to be includedin the hands of the assessee as resident of India within the State ofRajasthan where IT Act was in force notwithstanding that the same hadaccrued or arisen to him at a place where the Act of 1961, was not inforce even in respect of income accruing to him outside taxable territory.Learned senior counsel further submitted that on the question as to“whether the Tribunal was justified in holding that deduction under Section A

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A80 TT of the IT Act was applicable on the net winning amount receivedby the assessee and not on the gross amount of the winning prize”, theHigh Court answered the same in the affirmative in favour of Revenueand against the appellant herein – the assessee observing that deductionunder Section 80 TT of the IT Act is not referable to gross total incomebut is referable to net income.B

Discussion:-

Analysis

7. Before we go into the issues raised in this appeal, it would benecessary to have an idea of the position of Sikkim under the IndianConstitution. Prior to 26.04.1975, Sikkim was not considered to be a partCof India. Any income accruing or arising there from would be treated asincome accruing or arising in any foreign country. However, by the 36thamendment to the Indian Constitution in 1975, Sikkim became part ofthe Indian Union. This, amendment was effected by introducing Article371F in the Constitution. In the backdrop of the brief history that led tothe insertion of Article 371F in the Constitution of India with effect fromDApril 26, 1975, we may now refer to Article 371F to the extent it isrelevant:- “371F. Special Provisions with respect to the State ofSikkim- Notwithstanding anything in this Constitution.—

Ex x x x x

(k) all laws in force immediately before the appointed day in theterritories comprised in the State of Sikkim or any part thereofshall continue to be in force therein until amended or repealed bya competent Legislature or other competent authority ; F(n) “The President may, by public notification, extend with suchrestrictions or modifications as he thinks fit to the State of Sikkim,any enactment which is in force in a State in India at the date ofthe notification.”

On a plain reading of this provision, it becomes clear that all lawsGwhich were in force prior to April 26, 1975, in the territories now fallingwithin the State of Sikkim or any part thereof were intended to continueto be in force until altered or repealed. Therefore, the law in force priorto the merger, continued to be applicable. As a matter of fact, the IT Actwas made applicable only by Notification made in 1989 and the firstassessment year would be 1990-91 and by the application of this Act,H

the Sikkim State Income Tax Manual, 1948 stood repealed. However inthe present case, we are concerned with the assessment year 1986-87,and, during this time, the IT Act had not been made applicable to theterritories of Sikkim. The law corresponding to the IT Act, whichimmediately was in force in the relevant State was Sikkim State IncomeTax Rules, 1948. Hence, there can be two situations, first is that theperson was a resident of Sikkim during the time period of 1975-1990 andthe income accrues and received by him there only. In such a case, noquestion of applicability of the IT Act arises. However, the problemarises where the income accrues to a person from the State of Sikkimwho was not a resident of Sikkim but of some other part of India. Thequestion that arises is whether the provisions of the IT Act are applicableto such income and whether the same can be subjected to tax under thesaid Act especially in light of the fact that the income has already beensubjected to tax under the Sikkim State Income Tax Rules, 1948.

8. The case of the assessee is that irrespective of the place ofresidence, income accruing or arising in Sikkim, would not be taxable inIndia, as per clause (k) of Article 371F of the Constitution and is taxableonly under the Sikkim State Income Tax Rules, 1948. The contentionseems to be based on erroneous assumption and the simple answer tothe said contention is that though the IT Act is not applicable to variousother countries but still the income accruing and arising in foreign countriescan be brought to tax provided the assessee is resident and ordinarilyresident and further the income accrued or received in any territorywhich is considered to be a part of India is within the net of IT Act.

9. The appellant, being a resident of Rajasthan, received the incomearising from winning of lotteries from Sikkim during the AssessmentYear in question was liable to be included in the hands of the Assesseeas resident of India within the State of Rajasthan where IT Act was inforce notwithstanding that the same had accrued or arisen to him at aplace where the IT Act was not in force even in respect of incomeaccruing to him without taxable territory. In the above backdrop, it wouldbe apposite to refer Section 5 of the IT Act which reads as under:- “5-Scope of total Income:-(1) Subject to the provisions of thisAct, the total income of any previous year of a person who is aresident includes all income from whatever source derived which- (a) is received or deemed to be received in India in such a yearby or on behalf of such person; or AB

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882SUPREME COURT REPORTS

A(b) accrues or arises or is deemed to accrue or arise to him inIndia during such year; or x x x x x”

The very wordings of Section 5 of the IT Act show that it casts avery wide net and all incomes accruing anywhere in the world would beBbrought within its ambit. A combined reading of both the clauses makesit clear that any income accrued or received in India would be includedin his total income for taxing purposes under the IT Act. However, in thepresent case, we find that the amount has been earned by the appellant-assessee in the State of Sikkim and the amount of lottery prize was sentCby the Government of Sikkim to Jaipur on the request made by theappellant.

10. The result, therefore, is that, while Section 5 of the IT Actwould not be applicable, the existing Sikkim State Income Tax Rules,1948 would be applicable. Thus, on the income, it would appear thatDIncome-tax would be payable, under Sikkim State Income Tax Rules,1948 and not under the IT Act. Since Sikkim is a part of India for theaccounting year, there would appear to be, on the same income, twotypes of income-taxes cannot be applied.

11. In the above backdrop, it would be appropriate to refer theEdecision of this Court in the case of Laxmipat Singhania vs.Commissioner of Income Tax, U.P. (1969) 72 ITR 291 at 294 whereinthis Court has observed that “It is a fundamental rule of law of taxationthat, unless otherwise expressly provided, income cannot be taxed twice”.

12. Further, in a decision of this Court in Jain Brothers and Othersvs. Union of India and Others (1970) 77 ITR 107 (SC), it has beenFheld as under:- “6 It is not disputed that there can be double taxation if thelegislature has distinctly enacted it. It is only when there are generalwords of taxation and they have to be interpreted, they cannot beso interpreted as to tax the subject twice over to the same tax…..GIf any double taxation is involved, the Legislature itself has, inexpress words, sanctioned it. It is not open to any one thereafterto invoke the general principles that the subject cannot be taxedtwice over.”

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13. The above referred cases make it clear that there is noprohibition as such on double taxation provided that the legislature containsa special provision in this regard. Now, the only question remains to bedecided is whether in fact there is a specific provision for including theincome earned from the Sikkim lottery ticket prior to 01.04.1990 andafter 1975, in the income-tax return or not. We have gone through therelevant provisions but there seems to be no such provision in the IT Actwherein a specific provision has been made by the legislature for includingsuch an income by an assessee from lottery ticket. In the absence ofany such provision, the assessee in the present case cannot be subjectedto double taxation. Furthermore, a taxing Statute should not be interpretedin such a manner that its effect will be to cast a burden twice over forthe payment of tax on the taxpayer unless the language of the Statute isso compelling that the court has no alternative than to accept it. In acase of reasonable doubt, the construction most beneficial to the taxpayeris to be adopted. So, it is clear enough that the income in the presentcase is taxable only under one law. By virtue of clause (k) to Article371F of the Constitution which starts with a non-obstante clause, it wouldbe clear that only the Sikkim Regulations on Income-tax would beapplicable in the present case. Therefore, the income cannot be broughtto tax any further by applying the rates of the IT Act.

14. In view of the aforementioned discussions, we are of theconsidered view that once the assessee has paid the income tax at sourcein the State of Sikkim as per the law applicable at the relevant time inSikkim, the same income was not taxable under the IT Act, 1961. Havingdecided so, the other issue whether the income that is to be alloweddeduction under section 80 TT of the IT Act is on ‘Net Income’ or‘Gross Income’, becomes academic.

15. In view of the above, the appeal is allowed.

Kalpana K. Tripathy

Appeal allowed.

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