J.M.JAMES, J. -
(1.) THE Tribunal, Cochin Bench, in R.A. No. 305/Coch/97, at the instance of the CIT, Cochin, under Section 256(1) of the IT Act, 1961, for short 'the Act', has referred the following question of law :
'Whether, on the facts and in the circumstances of the case, the changing of tax at a flat rate of 40 per cent on Rs. 22,500 under Section 115BB of the IT Act, 1961, is valid and in accordance with law and making adjustment under Section 143(1)(a) is highly debatable ?'
(2.) THE facts of the case are that the only source of income for the assessee during the asst. yr. 1993 -94 was winning an amount of Rs. 25,000 from Kerala State Lottery. He had filed a return of income showing the total income as Rs. 22,500 after deducting the agent's commission and seller's bonus, at the rate of 5 per cent each. The AO, at the first instance, accepted the returned income and made a total demand of Rs. 10,472, together with interest under Sections 234B and 234C of the Act. He also gave credit for TDS of Rs. 7,000, and thereafter, fixed the amount at Rs. 3,472. But subsequently, the AO, under Section 154 of the Act, passed a rectification order allowing exemption of Rs. 5,000 under Section 10(3) of the Act en 18th Dec. 1996. Thus, the total income was fixed as per the rectification order at Rs. 17,600, and deducted 40 per cent of the tax of said Rs. 17,500 together with surcharge at the rate of 12 per cent. amount to Rs. 840. The said rectification order was challenged before the Dy. CIT(A), who agreed with the findings of the AO, and dismissed the appeal. The same was challenged before, the Tribunal, Cochin Bench, as ITA No. 698/Coch/1996. As per the order dt. 4th Sept., 1997, the Tribunal allowed the appeal, and directed the AO to accept the income returned by the assessee. It was thereafter, at the instance of the Department, this reference, stated above, was made.
Heard Sri P.K.R. Menon, the learned senior counsel (Government of India) Taxes, and Sri K.R. Syam Kumar, the learned counsel appearing for the respondent.
(3.) THE main contention of the Department is that Section 115BB of the Act, being a special provision, the schedule and other income of the assessee should not be considered in assessing the income from winning the state lotteries, and the exemption available to the assessee under Section 115BB is only under Section 10(3) of the Act, which had been granted. Therefore, the AO and the appellate authority were correct, and the Tribunal was wrong in allowing the appeal, and directing the AO to accept the tax return. It is also contended that Circular No. 31.1 of CBDT circulars is inapplicable. As stated above, a deduction under Section 10(3) of the Act had been granted by the AO through his rectification order under Section 154 of the Act, thereby deducting an amount of Rs. 5,000. After rectification, the AO fixed the total income at Rs. 17,500 and under Section 115BB, 40 per cent of the tax together with surcharge at the rate of 12 per cent was also deducted. After reducing the tax deducted at source, Rs. 7,000, the demand was refixed in the rectification order at Rs. 840, It was, this order, under challenge before the Dy. CIT, who took the same view as that of the assessing authority. The Tribunal stated that the matter being highly debatable, no adjustment could have been made by the AO, and therefore, directed the AO to accept the tax return originally filed by him. Section 115BB of the Act is reproduced below :
'115BB. Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever. - -Where the total income of an assessee includes income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity or owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income -tax payable shall be the aggregate of: (i) the amount of income -tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of forty per cent; and (ii) the amount of income -tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in Clause (i)' ;