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On income in India there cannot be imposition of tax twice on the same income, unless law specifically so provide- tax paid under Sikkim Income tax Manual so not taxable Under I.T.Act.

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On income in India there cannot be imposition of tax twice on the same income, unless law specifically so provide- tax paid under Sikkim Income tax Manual so not taxable Under I.T.Act.
By: CADEV KUMAR KOTHARI
April 24, 2018
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Recent judgment:

Mahaveer Kumar Jain Vs. Commissioner of Income Tax, Jaipur 2018 (4)TMI 1078 (SC). Related judgments:

Mahaveer Kumar Jain Versus Commissioner Of Income-Tax. - 2004 (9) TMI 72 - RAJASTHAN High Court

Mahaveer Kumar Jain. Versus Income-Tax Officer. - 1993 (2) TMI 149 - ITAT JAIPUR

Cases referred to:

Laxmipat Singhania Versus Commissioner of Income-Tax, Uttar Pradesh - 1968 (8) TMI 8 - SUPREME Court

Jain Brothers And Others Versus Union of India And Others - 1969 (11) TMI 1 - SUPREME Court

Conclusion:

Once the assessee has paid the income tax at source in the State of Sikkim as per the law applicable at the relevant time in Sikkim (which had already became part of India at that time but local income tax law was prevailing), the same income was not taxable under the IT Act, 1961. There cannot be tax on income already taxed under Sikkim Income Tax.

Also discussion about simplified taxation – there should not be double taxation. Applying the theory of no second time tax on same income, it can be said that income assessed under simplified taxation schemes, cannot be taxed again, except under specific provision in that regard.

Question answered by the Supreme Court:

The question answered by the Supreme Court is   “whether income from lottery earned is taxable under the IT Act especially when such income was already taxed under the provisions of Sikkim State Income Tax Rules, 1948. If so, whether the deduction that is to be allowed on such income under Sec 80 TT of the IT Act is on ‘gross income’ or on the ‘net income”?.

The Facts are as follows:

Assesse won lottery in Sikkim, on the prize won deductions were made for commission and tax on income under Sikkim State Income Tax Rules,1948 which were in force at relevant time.

Assesse was resident in Rajasthan, where I.T. Act was in force. However, on his request, the Sikkim Government / Lottery prize was remitted.

Sikkim was part of India at the relevant time. However, IT act was not extended and Sikkim law prevailed.

In such circumstances the assesse  by way of additional ground taken for first time before the Tribunal claimed that the prize money was not taxable under I.T.Act, the Tribunal admitted claim but did not allow. High Court also affirmed judgment of Tribunal. Therefore, assesse preferred appeal before the Supreme Court.

On the issue of double taxation the Supreme Court considered Laxmipat Singhania Versus Commissioner of Income-Tax, Uttar Pradesh - 1968 (8) TMI 8 - SUPREME Court in which it was held as follows:

          “It is a fundamental rule of law of taxation that, unless otherwise expressly provided, income cannot be taxed twice".

Double taxation may be permitted if expressly provided in law:

The Court also referred to Jain Brothers and Others vs. Union of India and Others (1970) 77 ITR 107 (SC) = 1969 (11) TMI 1 - SUPREME Court , in which  it has been held as under:-

“6 It is not disputed that there can be double taxation if the legislature has distinctly enacted it. It is only when there are general words of taxation and they have to be interpreted, they cannot be so interpreted as to tax the subject twice over to the same tax….. If any double taxation is involved, the Legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over."

Thereafter the Court posed question that  the only question remains to be decided is whether in fact there is a specific provision for including the income earned from the Sikkim lottery ticket prior to 01.04.1990 and after 1975, in the income-tax return or not.

After considering all relevant provisions the Supreme Court observed that  there seems to be no such provision in the IT Act wherein a specific provision has been made by the legislature for including such an income by an assesse from lottery ticket.

In the absence of any such provision, the assesse in the present case cannot be subjected to double taxation.

 Furthermore, a taxing Statute should not be interpreted in such a manner that its effect will be to cast a burden twice over for the payment of tax on the taxpayer unless the language of the Statute is so compelling that the court has no alternative than to accept it.

In a case of reasonable doubt, the construction most beneficial to the taxpayer is to be adopted.

So, it is clear enough that the income in the present case is taxable only under one law. By virtue of clause (k) to Article 371F of the Constitution which starts with a non-obstante clause, it would be clear that only the Sikkim Regulations on Income-tax would be applicable in the present case. Therefore, the income cannot be brought to tax any further by applying the rates of the IT Act.

Ultimately the Supreme Court held as follows:

           “In view of the aforementioned discussions, we are of the considered view that once the assessee has paid the income tax at source in the State of Sikkim as per the law applicable at the relevant time in Sikkim, the same income was not taxable under the IT Act, 1961. Having decided so, the other issue whether the income that is to be allowed deduction under section 80 TT of the IT Act is on ‘Net Income’ or ‘Gross Income’, becomes academic.

And the appeal was allowed. The assesse received justice only from the Supreme Court. 

Different simplified  taxation schemes under I.T.Act:

Even under the Income-tax Act, 1961 read with provisions of Finance Act of any year we find that there are some cases of imposition and collection of income-tax under simplified schemes. In such cases tax is imposed under simplified scheme and tax is collected through special mechanism and machinery for tax collection. The tax so collected is finally collected and not credit is allowed to anyone for such tax as would be in case of TDS or TCS. As tax is imposed and collected under simplified scheme, the income received is exempted in hands of recipient. This does not mean that the income is exempt under the IT Act as a whole.

Therefore, in such cases also income which has been taxed under special provisions cannot be taxed under general provisions directly by including income in income of recipient or indirectly by disallowing expenses incurred to earn such income.

For example, Dividend is taxed at distribution stage and tax is collected from companies and Mutual Funds. As a consequence recipient of dividend get exemption in his computation. But fact remain that dividend is taxable and has been taxed under the IT Act.

In such cases by making disallowance, of expenses, dividend should not be indirectly taxed in hands of recipient. S.14A should not be invoked as dividend constitute a part of total income under the Act. This aspect has not been argued before Courts.

Similarly when long-term capital gains are taxed under simplified tax by way of security transaction tax (STT) and as a consequence LTCG is exempted under S. 10.38, the same cannot be taxed again under general tax provisions (except u/s 115JB) which specifically provide to include such LTCG in book profits of companies.

However such LTCG being mandatorily exempt u/s 10.38 cannot be taxed under other provisions of the Income-tax Act. There is no express provision and such LTCG cannot be taxed by invoking provisions of deemed income like S.68.

 

 

By: CADEV KUMAR KOTHARI - April 24, 2018

 

 

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