Monday 26 March 2012

Income tax - Whether incentive prize won by assessee for having invested in small savings scheme falls within definition of 'lottery' and is thus to be treated as taxable income u/s 2(24)(ix) - NO, rules HC

THE issue before the Bench is - Whether incentive prize won by the assessee for having invested in small savings scheme falls within the definition of 'lottery' and is thus to be treated as taxable income u/s 2(24)(ix). And the answer goes against the Revenue.
Facts of the case
The assessee subscribed to PPF which formed part of Small Savings Scheme encouraged by the Government of Punjab. The scheme provided incentive to encourage small savings to augment its resources. According to the scheme the Government issued lucky coupon on every investment of Rs. 5,000/-, which also covered investment in PPF. The assessee was also issued a lucky coupon which won the prize of 1Kg. Gold. The assessee claimed exemption in respect of the value of gold arguing that it was actually an incentive and, therefore, it was not covered by the definition of expression ‘income’ within the meaning of Section 2(24)(ix). The AO held that the prize won by the assessee fell within the meaning of Section 2(24)(ix) and accordingly made addition. The CIT(A) held that amount realised would not fall within the provisions of Section 2(24)(ix) and cannot be brought to tax. The Tribunal upheld the order of the CIT(A).

On Appeal before the HC the Revenue's Counsel submitted that that the definition of expression ‘income’ in Section 2(24)(ix) was not exhaustive but only illustrative as was patent from the use of word ‘includes’. The assessee's Counsel submitted that the A.Y 1996-97 would not attract the application of explanation which was added to clause (ix) of sub-section (24) of Section 2 because it was made effective from 1.4.2002 and, therefore, no retrospective effect could be given to the explanation.


Held that,
++ the explanation was added with effect from 1.4.2002 and there was no provision to give the explanation retrospective effect. Therefore, it would not apply to the A.Y 1996-97. Moreover, if the prizes awarded to any person were to be included in the expression ‘lottery’ then there was no necessity of adding the explanation to include prize money like the one in question in the expression ‘lottery’;

++ thus, any statutory entries on the basis of the principle of exclusive definition have to be ejusdem generis with the expression already used in the definition clause;
++ the reasoning adopted by the Commissioner and the Tribunal deserves to be approved when they hold that the expression ‘lottery’ would involve an element of ‘chance’ whereas when a person is making investment in a scheme like Savings Scheme then there is no element of ‘chance’ nor he loses any money invested by him. On the contrary the prize of the lottery ticket can never come back to the person purchasing the same. The investment in savings are paid back to the investor on maturity of the scheme irrespective of the fact whether he has won the prize or not and, therefore, there is no element of ‘chance’;
++ the incentive prize received by the assessee on account of the coupon given to him on the strength of Small Savings Certificate would not fall within the definition of ‘lottery’ and would, thus, not be included in the expression ‘income’.

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