TMI Blog2006 (2) TMI 209X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Authority ought to have found that even though special rates have been prescribed for winnings from lotteries for the purpose of deduction of tax at source, when winnings from lotteries itself does not exceed the taxable limit no tax can be levied. 5. The very fact that the Assessing Officer has levied surcharge shows that she has treated this as regular income where alone the rates prescribed includes surcharge. 6. In the case of Capital Gains when the Capital Gains is beneath the taxable limit no tax is levied. Even though no such clarification is given in the case of winnings from lotteries it is clear that the policy adopted is that special rates are applicable only if the income exceeds the taxable minimum. 7. Any other grounds which the appellant may be allowed to raise, at the time of hearing the appeal." Though there are 7 grounds of appeal, the only issue to be considered is whether the assessee is eligible for basic exemption in view of the fact that the assessee had no other source of income during the previous year relevant to the assessment year 1993-94, except the winning from lottery of Rs. 25,000. 2. The brief facts of the case are that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal aspect of the point had to be considered separately as contended by both the parties, they were of the opinion that no adjustment was allowable under section 143(1)(a) of the Income-tax Act, 1961 as was done by the Assessing Officer, and he was required to accept the income returned in toto. The Tribunal felt that the matter being highly debatable no adjustment could have been made by the Assessing Officer and in this matter the Tribunal allowed the assessee's appeal. 2.3 Aggrieved, by the above finding of the Tribunal, the Commissioner of Income-tax filed a reference application under section 256(1) of the Income-tax Act, 1961 and the Tribunal referred the following question for the opinion of the Hon'ble High Court of Kerala: "Whether, on the facts and in the circumstances of the case, the charging of tax at a flat rate of 40 per cent on Rs. 22,500 under section 115BB of the Income-tax Act, 1961, is valid and in accordance with law and making adjustment under section 143(1)(a) is highly debatable?" The Hon'ble High Court vide its order dated 3rd September, 2003 in ITR No. 77 of 1999 (sic) arising out of RA No. 305/Coch./97 in ITA No. 698/Coch./96, set aside the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion of India v. A. Sanyasi Rao [1996] 219 ITR 330 have found that the basis of charge relating to income-tax is laid down in sections 4 to 9. According to the Apex Court, other special sections are only machinery provisions and not charging sections. This would indicate that unless the total income from whatever source is above the non-taxable limit, no tax could be levied. 3.3 The issue whether exemption limit under the Finance Act should override section 115BB which prescribed a flat rate, has to be decided in the light of the fact that in other matters like discretionary trusts where the tax is charged at a maximum rate under section 164, the basic exemption is always considered. 3.4 A significant instance in support of the appellant's claim is that even though the special rate of tax has been prescribed under section 112 in respect of long-term capital gains, under the proviso it has been clarified that if the income from the other sources of income is within the taxable limit the deficiency in minimum taxable limit could be adjusted from the long-term capital gains and the balance alone need be taxed at special rate of 20 per cent. Unfortunately, since many cases of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) the amount of income tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other games of any sort or from gambling or betting of any form or nature whatsoever, at the rate of forty per cent; and (ii) the amount of income tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i)." It would be seen from the above that charging to tax on winnings from lotteries is at flat rate irrespective of the income. The only deduction admissible is under section 10(3) of Rs. 5,000. The non-taxable maximum prescribed for the assessment year under consideration is applicable to the income other than winning from lotteries etc. The deduction under section 10(3) which was omitted to be allowed in the original assessment under section 143(1)(a) was subsequently rectified by the Assessing Officer. There is no need to disturb the order of the revenue authorities. 5. We have heard rival submissions and considered the facts and P materials on record. The short point for our consideration in this case is whether in view of the provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... introducing this section into the statute can be ascertained from the Budget Speech of the Finance Minister. In the Budget Speech of the Minister of Finance for 1986-87 (on 28-2-1986) at para No. 102, the purpose of introducing this section has been mentioned. The relevant portion of the Budget Speech is reproduced below: "There is at present tax deduction at source from out of winning derived from races and lotteries. I propose to tax these windfall profits at a flat rate of 40 per cent, of the gross receipts. The exemption from income of a casual and non-recurring nature will simultaneously be raised from Rs. 1,000 to Rs. 5,000. Income from any winnings from crossword puzzles, card games, other games of any sort or from gambling or betting of any form or nature whatsoever, races including horse races (other than income earned by owners of race horses by way of stake money) and winnings from lotteries will not be aggregated with other incomes. That is to say, losses, if any, from other business will not be allowed to be set off against winnings from races or lotteries." From the above Budget Speech the intention of the Legislature can be ascertained. It is crystal clear from t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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