REPORTABLE IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4166 OF 2006 Mahaveer Kumar Jain .... Appellant(s) Versus Commissioner of Income Tax, Jaipur .... Respondent(s) JUDGMENT R.K. Agrawal, J. 1) present appeal has been preferred against final judgment and order dated 10.09.2004 passed by High Court of Judicature for Rajasthan, Bench at Jaipur in D.B.I.T. Reference No. 40 of 1995 whereby Division Bench of High Court answered questions referred to under Section 256(1) of Income Tax Act, 1961 (in short I.T. Act ) in favour of Revenue and against appellant-assessee. 2) Signature Not Verified Before proceeding further, it is pertinent to set out Digitally signed by ASHA SUNDRIYAL Date: 2018.04.19 17:26:37 IST Reason: facts in summarized way to appreciate properly issue involved in this instant appeal:- 1 a) appellant herein, resident of Jaipur, Rajasthan, having income from business and property, won first prize of Rs. 20 lakhs in 287th Bumper Draw of Sikkim State Lottery held on 20.02.1986 at Gangtok organized by Director, State Lottery, Government of Sikkim, Gangtok. Out of Rs. 20 lakhs, appellant herein received Rs. 16,20,912/- through two Demand Drafts for Rs. 8,10,000/- and Rs. 8,10,912/- each, after deduction of Rs. 2 lacs being agent s/seller s commission and Rs. 1,79,088/- being Income Tax under Sikkim State Income Tax Rules, 1948. b) appellant herein filed Income Tax Return for Assessment Year (AY) 1986-87 disclosing income from lottery at Rs. 20 lakhs and deducting agent/seller commission of Rs. 2 lakhs out of same. He claimed deduction under Sec. 80 TT of IT Act on Rs 20,00,000/- i.e gross amount of prize money won in lottery in accordance with provisions of charging Section. c) On scrutiny, Assessing Officer (AO), vide order dated 08.01.1988, allowed deduction under Section 80TT of IT Act on Rs. 18 lakhs instead of Rs. 20 lakhs while holding 2 that Government of Sikkim, had deducted tax at source from lottery amount of Rs. 18 lakhs as Rs. 2 lakhs have been paid to agent directly. In other words, under relevant provisions of Section 80TT of IT Act, deduction can be claimed only on net income out of lottery and not on gross income. said order was further confirmed by Commissioner of Income Tax, (Appeals), Rajasthan-II, Jaipur, vide order dated 31.10.1988 d) Being aggrieved, present appellant preferred appeal before Income Tax Appellate Tribunal (in short Tribunal ), Jaipur Bench challenging computation by Assessing Officer (AO) of deduction under Section 80TT of IT Act. appellant herein assessee raised additional ground before Tribunal claiming that authorities below have grossly erred in law in treating lottery income of Sikkim Government as income under IT Act. Though Tribunal allowed appeal partly vide order dated 26.02.1993 but it dismissed objections raised by appellant herein as to legality of assessment order and held 3 that lottery amount is taxable under provisions of IT Act. e) However, at instance of appellant herein assessee, Tribunal framed certain questions under IT Act and referred same to High Court for opinion, considering them questions of law fit for reference which are as under: 1. Whether on facts and in circumstance of case, Hon ble Tribunal was justified in holding that income from Sikkim State Lottery is taxable under Income Tax Act, 1961? 2. Whether in facts and circumstances of case Tribunal was justified in holding that deduction u/s 80TT is applicable on net winning amount received by assessee and not on gross amount of winning prize? f) Division Bench of High Court, vide judgment and order dated 10.09.2004, answered questions raised in affirmative. g) Aggrieved by judgment and order dated 10.09.2004, appellant-assessee has preferred this appeal by way of special leave before this court. 4 3) Heard Mr. Sanjay Jhanwar, learned counsel for appellant-the assessee and Mr. Yashank P. Adhiyaru, learned senior counsel for respondent and perused records. Point(s) for consideration 4) issue that arises for consideration in present case is whether income from lottery earned is taxable under IT Act especially when such income was already taxed under provisions of Sikkim State Income Tax Rules, 1948. If so, whether deduction that is to be allowed on such income under Sec 80 TT of IT Act is on gross income or on net income . Rival contentions: 5) Learned counsel appearing for appellant contended that High Court has grossly erred in holding that provisions of IT Act are applicable to present case as provisions of said Act are extended to State of Sikkim only with effect from 01.04.1989 and, therefore, income accrued in State of Sikkim prior to this date could not be charged to tax under IT Act and was taxable under Sikkim State Income Tax Rules, 1948. Learned counsel 5 further contended that order in question passed by High Court is not lawful as provisions of Article 371F of Constitution of India, particularly, clauses (k) and (n) thereof, operate in relation to all laws prevailing in territories of Sikkim which prevents application of IT Act in State of Sikkim up till 31.03.1989. Learned counsel further contended that order passed by High Court is not just and lawful as levy of taxes on same income both by Union of India and State of Sikkim is contrary to principle of double taxation. Further, High Court grossly erred in holding that deduction under Section 80TT of IT Act is applicable on net winning amount received by assessee after deducting agent/seller commission and not on gross amount of winning prize. 6) On other hand, learned senior counsel appearing for Respondent submitted that High Court has rightly held that Tribunal was right in holding that income from winning of lotteries from Sikkim during assessment year in question was liable to be included in hands of assessee as resident of India within State of Rajasthan where IT Act 6 was in force notwithstanding that same had accrued or arisen to him at place where Act of 1961, was not in force even in respect of income accruing to him outside taxable territory. Learned senior counsel further submitted that on question as to whether Tribunal was justified in holding that deduction under Section 80 TT of IT Act was applicable on net winning amount received by assessee and not on gross amount of winning prize , High Court answered same in affirmative in favour of Revenue and against appellant herein assessee observing that deduction under Section 80 TT of IT Act is not referable to gross total income but is referable to net income. Discussion:- 7) Before we go into issues raised in this appeal, it would be necessary to have idea of position of Sikkim under Indian Constitution. Prior to 26.04.1975, Sikkim was not considered to be part of India. Any income accruing or arising there from would be treated as income accruing or arising in any foreign country. However, by 36th 7 amendment to Indian Constitution in 1975, Sikkim became part of Indian Union. This, amendment was effected by introducing Article 371F in Constitution. In backdrop of brief history that led to insertion of Article 371F in Constitution of India with effect from April 26, 1975, we may now refer to Article 371F to extent it is relevant:- "371F. Special Provisions with respect to State of Sikkim- Notwithstanding anything in this Constitution. xxxxx (k) all laws in force immediately before appointed day in territories comprised in State of Sikkim or any part thereof shall continue to be in force therein until amended or repealed by competent Legislature or other competent authority ; (n) "The President may, by public notification, extend with such restrictions or modifications as he thinks fit to State of Sikkim, any enactment which is in force in State in India at date of notification." On plain reading of this provision, it becomes clear that all laws which were in force prior to April 26, 1975, in territories now falling within State of Sikkim or any part thereof were intended to continue to be in force until altered or repealed. Therefore, law in force prior to merger, continued to be applicable. As matter of fact, IT Act was made applicable only by Notification made in 1989 and 8 first assessment year would be 1990-91 and by application of this Act, Sikkim State Income Tax Manual, 1948 stood repealed. However in present case, we are concerned with assessment year 1986-87, and, during this time, IT Act had not been made applicable to territories of Sikkim. law corresponding to IT Act, which immediately was in force in relevant State was Sikkim State Income Tax Rules, 1948. Hence, there can be two situations, first is that person was resident of Sikkim during time period of 1975-1990 and income accrues and received by him there only. In such case, no question of applicability of IT Act arises. However, problem arises where income accrues to person from State of Sikkim who was not resident of Sikkim but of some other part of India. question that arises is whether provisions of IT Act are applicable to such income and whether same can be subjected to tax under said Act especially in light of fact that income has already been subjected to tax under Sikkim State Income Tax Rules, 1948. 9 8) case of assessee is that irrespective of place of residence, income accruing or arising in Sikkim, would not be taxable in India, as per clause (k) of Article 371F of Constitution and is taxable only under Sikkim State Income Tax Rules, 1948. contention seems to be based on erroneous assumption and simple answer to said contention is that though IT Act is not applicable to various other countries but still income accruing and arising in foreign countries can be brought to tax provided assessee is resident and ordinarily resident and further income accrued or received in any territory which is considered to be part of India is within net of IT Act. 9) appellant, being resident of Rajasthan, received income arising from winning of lotteries from Sikkim during Assessment Year in question was liable to be included in hands of Assessee as resident of India within State of Rajasthan where IT Act was in force notwithstanding that same had accrued or arisen to him at place where IT Act was not in force even in respect of income accruing to him 10 without taxable territory. In above backdrop, it would be apposite to refer Section 5 of IT Act which reads as under:- 5-Scope of total Income:-(1) Subject to provisions of this Act, total income of any previous year of person who is resident includes all income from whatever source derived which- (a) is received or deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or x x x x x very wordings of Section 5 of IT Act show that it casts very wide net and all incomes accruing anywhere in world would be brought within its ambit. combined reading of both clauses makes it clear that any income accrued or received in India would be included in his total income for taxing purposes under IT Act. However, in present case, we find that amount has been earned by appellant-assessee in State of Sikkim and amount of lottery prize was sent by Government of Sikkim to Jaipur on request made by appellant. 10) result, therefore, is that, while Section 5 of IT Act would not be applicable, existing Sikkim State Income Tax Rules, 1948 would be applicable. Thus, on income, it 11 would appear that Income-tax would be payable, under Sikkim State Income Tax Rules, 1948 and not under IT Act. Since Sikkim is part of India for accounting year, there would appear to be, on same income, two types of income-taxes cannot be applied. 11) In above backdrop, it would be appropriate to refer decision of this Court in case of Laxmipat Singhania vs. Commissioner of Income Tax, U.P. (1969) 72 ITR 291 at 294 wherein this Court has observed that It is fundamental rule of law of taxation that, unless otherwise expressly provided, income cannot be taxed twice". 12) Further, in decision of this Court in Jain Brothers and Others vs. Union of India and Others (1970) 77 ITR 107 (SC), it has been held as under:- 6 It is not disputed that there can be double taxation if 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 subject twice over to same tax .. If any double taxation is involved, Legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke general principles that subject cannot be taxed twice over." 12 13) above referred cases make it clear that there is no prohibition as such on double taxation provided that legislature contains special provision in this regard. Now, only question remains to be decided is whether in fact there is specific provision for including income earned from Sikkim lottery ticket prior to 01.04.1990 and after 1975, in income-tax return or not. We have gone through relevant provisions but there seems to be no such provision in IT Act wherein specific provision has been made by legislature for including such income by assessee from lottery ticket. In absence of any such provision, assessee in present case cannot be subjected to double taxation. Furthermore, taxing Statute should not be interpreted in such manner that its effect will be to cast burden twice over for payment of tax on taxpayer unless language of Statute is so compelling that court has no alternative than to accept it. In case of reasonable doubt, construction most beneficial to taxpayer is to be adopted. So, it is clear enough that income in present case is taxable only under one law. By 13 virtue of clause (k) to Article 371F of Constitution which starts with non-obstante clause, it would be clear that only Sikkim Regulations on Income-tax would be applicable in present case. Therefore, income cannot be brought to tax any further by applying rates of IT Act. 14) In view of aforementioned discussions, we are of considered view that once assessee has paid income tax at source in State of Sikkim as per law applicable at relevant time in Sikkim, same income was not taxable under IT Act, 1961. Having decided so, other issue whether income that is to be allowed deduction under section 80 TT of IT Act is on Net Income or Gross Income , becomes academic. 15) In view of above, appeal is allowed. ... . J. (R.K. AGRAWAL) . .... J. (ABHAY MANOHAR SAPRE) NEW DELHI; APRIL 19, 2018. 14 Mahaveer Kumar Jain v. Commissioner of Income-tax, Jaipur