TMI Blog1993 (2) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... t, 1961 (the Act) on Rs. 20,00,000 i.e., the gross amount of the prize money. The ITO, however, allowed such deduction on Rs. 18 lakhs only and in appeal the learned CIT (Appeals) agreed with him in this behalf. 4. The extent of allowability of assessee's claim for deduction under section 80TT made the main ground of assessee's appeal before the Tribunal. But on 7-7-1992 the assessee sought permission of the Tribunal to raise the following additional ground, viz. " The authorities below have grossly erred in law in treating lottery income of Sikkim Govt. as taxable under the Income-tax Act, 1961. " 5. The Tribunal accorded the required permission to raise the above ground vide its order dated 5-8-1992. Since the additional ground becomes the main ground in the appeal, we would like to decide it first. 6. The main contention of Mr. N. M. Ranka, the learned Counsel for the assessee is that since the income in question accrued to the assessee in Sikkim and the same was charged there to Income-tax as per provisions of Sikkim Laws contained in the Sikkim State Income-tax Manual 1948 (Sikkim Manual 1948) and the notifications issued thereunder, the same Income cannot again be sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9. During British rule, Sikkim was an Indian State subject to British paramountcy. She used to be ruled by a hereditary monarch called 'Chogyal'. When India became independent the princely ruler of that State and its strategic position stood in the way of its merger with India. Hence, after the end of British paramountcy a treaty was entered into between Sikkim and the Govt. of India by virtue of which Sikkim became a Protectorate of the Union of India ; defence, external affairs and communication becoming the responsibility of Govt. of India. In May 1974 the Sikkim Assembly passed Govt. of Sikkim Act 1974 and later passed a resolution expressing its desire to be associated with the political and economic institutions of India and for seeking representation for the people of Sikkim in Indian Parliament. The Constitution (35th Amendment) Act, 1974 was accordingly passed conferring the status of an " associate State " on Sikkim by inserting article 24 and the 10th Schedule in the Constitution, though the concept of an " associate State " was quite alien to the Indian federal system. 10. It may be recalled that while the Indian Parliament was enacting the Constitution (35th Amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Constitution seems to be, in the first stage, to safeguard the application of those laws which the people of Sikkim were accustomed to follow and, in the second stage, to apply such laws as are in force in any Indian State or States to them at such appropriate time as is deemed fit and proper by the President of India. The protective umbrella of clause (k) of article 371F was thus meant for the benefit to the people of Sikkim and not to persons residing outside the territories in the State of Sikkim. 13. The Sikkim Manual of 1948 made provisions regarding levy of Income-tax on persons and for association of persons enjoying taxable income, as per such Manual, from assets held in and/or activities being carried on in the territories comprising the State of Sikkim. It had the following five categories of assessments, namely :-- (1) Business (2) Agricultural produce (3) Salaries (4) Patta Estate Income (5) Principal income in cash or kind. 14. The relevant terms were defined in Rule 2 as under :-- (i) " Gross-sale proceeds " means all proceeds accrued from the turnover of a business, within the territory of Sikkim. (ii) " Agricultural Income " means gross produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Notification No. 4091-100/IT ST, dated 5-2-1974. Prior to this Notification the position obviously was that an assessee, as per definition of the term in clause (v) of Rule 2 of the Sikkim Regulation 1948, was not at all liable to pay any sort of income-tax on winnings from Sikkim State lottery. But in the case of a person to whom the provisions of Income-tax Act, 1961 were applicable, particularly between 1972-1974, winnings from Sikkim Lottery were assessable as per provisions of section 80TT of the Act (inserted w.e.f. 1-4-1972 but since omitted w.e.f. 1-4-1987). That would mean that the citus was on person and not on income, insofar as Sikkim Manual 1948 and the Income-tax Act 1961 were concerned. The issue of Notification No. 4091-100/IT ST, dated 5-2-1974 should not and would not affect the position of a person to whom the provisions of the Act are applicable on the date of winnings from Sikkim Lotteries. A notification issued by the Sikkim Government for the benefit of the people of that State should not be read as excluding the operation of the IT Act to a person to whom it is otherwise legally applicable. Tax on winnings from Sikkim lottery by a person not a reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench accepts the views expressed in the Single Member Bench case of Anuj (Toffee) Garg. But this Bench, with all respects to the learned author of the decision in the case of Anuj (Toffee) Garg, finds it difficult to agree with his further views that " mere fact that section 5 would be applicable does not automatically mean that all the provisions of IT Act and the Finance Act would be applicable ". In the opinion of this Bench once the provisions of section 5 are found applicable to the case of a person computation of his total income of any previous year shall have to be necessarily made in accordance with the relevant provisions of the Act. It is altogether a different thing that a part of the total income is not liable to tax as per provisions contained in Explanation 2 to section 5 or is deductible in the computation of the total income under any other provision of the Act or is entitled to double taxation relief under Chapter IX of the Act. 20. Now coming to the facts in the instant case the assessee herein is a resident and ordinarily resident of India to whom the provisions of the Act, do, unquestionably, apply. Income from winnings from Sikkim lottery was received (at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Kanchenjunga Properties (P.) Ltd. v. State of Sikkim [1991] 191 ITR 575 (Sikkim) were also referred to in this behalf. 22. In the case of Jain Bros. the Supreme Court held that-- " 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 (vide Channell J. in Stevens v. Durban Roodepoort Gold Mining Co. Ltd.). The Constitution does not contain any prohibition against double taxation even if it be assumed that such a taxation is involved in the case of a firm and its partners after the amendment of section 23(5) by the Act of 1956. Nor is there any other enactment which interdicts such taxation. It is true that section 3 is the general charging section. Even if section 23(5) provides for the machinery for collection and recovery of the tax, once the legislature has, in clear terms, indicated that the income of the firm can be taxed in accordance with the Finance Act of 1956 as also the income in the hands of the partners, the distinction a charging and a machinery section is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Supreme Court in the case of CIT v. P. K. Jhaveri [1990] 181 ITR 79 where it has been held that in view of provisions of section 8B(5) and 80AB, deduction under section 80K was allowable to an assessee only on the amount after deduction of the interest paid on moneys borrowed specifically for investment in the shares and not on the gross amount received. In our opinion, the ratio in this decision applies on all fours to the facts of the instant case. Therefore, deduction under section 80TT had rightly been allowed to the assessee after deduction of agent's/seller's commission of the gross receipts. Ground relating to this point is accordingly dismissed. 28. The next ground relates to the disallowance of Rs. 3,100 made on account of Misc. and legal expenses. The argument of Mr. Ranka that these expenses be allowed in subsequent year if not in this year is quite reasonable. We accordingly direct the ITO to allow the expenses of Rs. 3,100 in subsequent year. 29. In its cross objection the Department has raised the following two grounds, viz. (i) The assessee's claim before the Hon'ble ITAT to treat the lottery income from Sikkim Government is not taxable und ..... X X X X Extracts X X X X X X X X Extracts X X X X
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