2005 (9) TMI 265 - AT - Income Tax

Summary

Issues:
- Taxability of the price of Maruti car received as a gift from a small saving gift scheme of the Government.
- Applicability of the Explanation inserted in the IT Act by the Finance Act, 1972.
- Whether the prize won as a result of a small savings scheme by way of a free gift coupon is taxable as a lottery.

Analysis:

1. Taxability of Maruti Car Price:
The appeal concerns the taxability of the price of a Maruti car received as a gift from a small saving gift scheme. The assessee initially declared this car as a taxable receipt in the return of income for the relevant assessment year. However, the assessee later realized that a car received under the free gift coupon scheme of the Government may not be taxable as a lottery under the IT Act. The issue was whether the price of the car should be considered taxable income.

2. Applicability of Explanation in IT Act:
The Explanation inserted in the IT Act by the Finance Act, 1972, widened the meaning of the word 'lottery'. The assessee argued that this Explanation should not apply to the assessment year under consideration as it became operative only from 1st April, 2002, without retrospective effect. Both the Assessing Officer (AO) and the CIT(A) held against the assessee's contention. The question was whether this Explanation should be considered for the assessment year in question.

3. Taxability of Prize from Small Savings Scheme:
The judgment analyzed whether the prize won as a result of a small savings scheme by way of a free gift coupon should be taxable as a lottery. The Tribunal considered the nature of the scheme, where the assessee did not pay anything to receive the free coupon but obtained it by depositing in the small saving scheme. The Tribunal referred to a relevant decision of the Madras High Court, emphasizing that for a scheme to be regarded as a lottery, there must be an element of chance and payment for participation. As the assessee did not pay to acquire the chance, the receipt was not taxable as a lottery under the IT Act.

4. Decision and Conclusion:
The Tribunal concluded that the prize received by the assessee under the small savings scheme through a free gift coupon was not taxable as a lottery. The Tribunal highlighted that the assessee did not compete for the prize but received it gratuitously as an incentive for making small savings. The amended provisions of the IT Act, specifically the widened definition of 'lottery', were deemed irrelevant to the assessment year in question. Therefore, the Tribunal directed the exclusion of the price of the motor car from the total income of the assessee for the relevant year, allowing the appeal in favor of the assessee.