Madras H.C : Where assessee was allotted a car as first prize under National Saving Scheme, such prize could not be treated as lotteries under section 2(24)(ix)

High Court Of Madras

CIT vs. Dr.S.P. Suguna Seelan

Section : 2(24)

Mrs. Chitra Venkataraman And M. Jaichandren, JJ.

Tax Case (Appeal) No. 382 Of 2005

July 26, 2011

JUDGMENT

Mrs. Chitra Venkataraman, J. – The learned counsel for the assessee, as well as the standing counsel for the Revenue fairly stated before this court that the issue as to whether the car won by the assessee on draw of lots under the incentive scheme of the National Savings Scheme was liable to tax, is covered by the decision of this court CIT v. Deputy Director of Small Savings [2004] 266 ITR 27/136 Taxman 261 and that the issue was again considered by the Karnataka High Court in the decision B. K. Suresh v. ITO [IT Appeal No. 99 of 2004, dated 21-1-2008], which in turn had applied the judgment of this court CIT v. Deputy Director of Small Savings case (supra).

2. The reported decision relates to the prize awarded under the scheme operated by the company. The assessee therein is a Deputy Director of Small Savings. Under the gift linked scheme, a prize coupon is given to the investor when the investment is made in excess of Rs. 1,000. In the course of the accounting year relating to the assessment year, 1998-99, the respondent therein released the prizes worth Rs. 72,94,460. The Assessing Officer viewed that the assessee ought to have deducted tax at source. On the default committed, the Assessing Officer invoked section 201 of the Income-tax Act, 1961. He demanded a additional sum of Rs. 2,39,919 as interest, under section 201(1A) of the Act and levied the penalty of Rs.29,17,792.

3. On the appeal before this court, it was pointed out that the scheme was not one for the promotion of sale of any goods. The investor was not offered interest payable on a larger sum, even when a smaller sum is invested. The chance given to the investor to win a prize was a free chance and was not a chance given in return for a prize or contribution paid. In so deciding, this court referred to the decision Imperial Tobacco Ltd. v. Attorney-General [1980] 1 All ER 866 (HL) and held that the scheme was not a lottery and consequential levy of penalty would not arise.

4. The Karnataka High Court followed the said decision of this court in Deputy Director of Small Savings case (supra) as well as the decision by the House of Lords Imperial Tobacco Ltd. (supra). There the assessee won an incentive prize on the National Savings Certificates on account of the coupon given to the assessee therein. The Karnataka High Court held that the National Savings Certificate would not fall within the definition of “lottery”.

5. As far as the present case is concerned, the assessee herein was allotted a Contessa car as the first prize under the National Savings Scheme. The Assessing Officer treated it as winnings from lotteries within the meaning of section 2(24)(ix) of the Income-tax Act, 1961, subject to the special rates envisaged under section 115BB of the Act. The appeal before the Commissioner (Appeals) failed. Hence, a further appeal was taken before the Tribunal, which allowed the appeal holding that the prize won by the assessee was not covered by section 2(24)(ix) of the Act. Thus, applying the decision of this court, we have no hesitation in confirming the order of the Tribunal. The tax case appeal is dismissed. No costs.

[Citation : 353 ITR 391]

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