REPORTABLE IN THE 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)

                  J U D G M E N T

R.K. Agrawal, J.

1) The present appeal has been preferred against the final

judgment  and  order  dated  10.09.2004  passed  by  the  High

Court of Judicature for Rajasthan, Bench at Jaipur in D.B.I.T.

Reference No. 40 of 1995 whereby the Division Bench of the

High Court answered the questions referred to under Section

256(1) of the Income Tax Act, 1961 (in short ‘the I.T. Act’) in

favour of the Revenue and against the appellant-assessee.  

2)   Before proceeding further, it is pertinent to set out the

facts in a summarized way to appreciate properly the issue

involved in this instant appeal:-

1

a) The  appellant  herein,  a  resident  of  Jaipur,  Rajasthan,

having income from business and property, won the first prize

of Rs. 20 lakhs in the 287th Bumper Draw of the Sikkim State

Lottery  held  on  20.02.1986  at  Gangtok  organized  by  the

Director, State Lottery, Government of Sikkim, Gangtok.  Out

of Rs. 20 lakhs, the 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 the Sikkim State Income Tax Rules, 1948.  

b) The  appellant  herein  filed  Income  Tax  Return  for  the

Assessment  Year  (AY)  1986-87  disclosing  the  income  from

lottery  at  Rs.  20  lakhs  and  deducting  the  agent/seller

commission  of  Rs.  2  lakhs  out  of  the  same.   He  claimed

deduction under Sec. 80 TT of the IT Act on Rs 20,00,000/- i.e

the  gross amount  of  the  prize  money won in the  lottery  in

accordance with the provisions of the charging Section.  

c) On scrutiny, the Assessing Officer (AO), vide order dated

08.01.1988, allowed the deduction under Section 80TT of the

IT Act on Rs. 18 lakhs instead of Rs. 20 lakhs while holding

2

that  the  Government  of  Sikkim,  had  deducted  the  tax  at

source from the lottery amount of Rs. 18 lakhs as Rs. 2 lakhs

have been paid to the agent directly.  In other words, under

the  relevant  provisions  of  Section  80TT  of  the  IT  Act,  the

deduction can be claimed only on net income out of  lottery

and  not  on  the  gross  income.  The  said  order  was  further

confirmed  by  the  Commissioner  of  Income  Tax,  (Appeals),

Rajasthan-II, Jaipur, vide order dated 31.10.1988

d) Being  aggrieved,  the  present  appellant  preferred  an

appeal before the Income Tax Appellate Tribunal (in short ‘the

Tribunal’), Jaipur Bench challenging the computation by the

Assessing Officer (AO) of the deduction under Section 80TT of

the  IT  Act.   The  appellant  herein  –  the  assessee  raised  an

additional  ground  before  the  Tribunal  claiming  that  the

authorities  below  have  grossly  erred  in  law  in  treating  the

lottery income of Sikkim Government as income under the IT

Act.  Though the Tribunal allowed the appeal partly vide order

dated 26.02.1993 but it dismissed the objections raised by the

appellant herein as to legality of assessment order and held

3

that the lottery amount is taxable under the provisions of IT

Act.  

e) However,  at  the instance of  the appellant  herein – the

assessee, the Tribunal framed certain questions under IT Act

and  referred  the  same  to  the  High  Court  for  opinion,

considering them the questions of law fit for reference which

are as under:

“1. Whether on the facts and in the circumstance of the case, the  Hon’ble  Tribunal  was  justified  in  holding  that  income from Sikkim State Lottery is taxable under the Income Tax Act, 1961? 2. Whether in the facts and circumstances of  the case the Tribunal was justified in holding that deduction u/s 80TT is applicable  on  the  net  winning  amount  received  by  the assessee and not on the gross amount of the winning prize?”

f) A Division Bench of the High Court, vide judgment and

order  dated  10.09.2004,  answered  the  questions  raised  in

affirmative.

g) Aggrieved by the judgment and order dated 10.09.2004,

the  appellant-assessee  has  preferred  this  appeal  by  way  of

special leave before this court.

4

3) Heard  Mr.  Sanjay  Jhanwar,  learned  counsel  for  the

appellant-the assessee and Mr. Yashank P. Adhiyaru, learned

senior counsel for the respondent and perused the records.

Point(s) for consideration

4) The  issue  that  arises  for  consideration  in  the  present

case is whether income from lottery earned is taxable under

the  IT  Act  especially  when  such  income  was  already  taxed

under the provisions of  Sikkim State Income Tax Rules, 1948.

If  so,  whether  the deduction that  is  to be allowed on such

income under Sec 80 TT of the IT Act is on ‘gross income’ or on

the ‘net income’.

Rival contentions:

5) Learned counsel appearing for the appellant contended

that  the  High  Court  has  grossly  erred  in  holding  that  the

provisions of the IT Act are applicable to the present case as

the  provisions  of  the  said  Act  are  extended to  the  State  of

Sikkim  only  with  effect  from  01.04.1989  and,  therefore,

income accrued in the State of Sikkim prior to this date could

not be charged to tax under the IT Act and was taxable under

the Sikkim State  Income Tax Rules,  1948.  Learned counsel

5

further contended that  the order in question passed by the

High Court is not lawful as the provisions of Article 371F of

the  Constitution  of  India,  particularly,  clauses  (k)  and  (n)

thereof,  operate  in  relation to  all  the  laws prevailing in the

territories of Sikkim which prevents the application of the IT

Act in the State of Sikkim up till 31.03.1989.  Learned counsel

further contended that the order passed by the High Court is

not just and lawful as the levy of taxes on the same income

both by the Union of India and the State of Sikkim is contrary

to the principle of  double taxation.  Further,  the High Court

grossly  erred  in  holding  that  the  deduction  under  Section

80TT of the IT Act is applicable on the net winning amount

received  by  the  assessee  after  deducting  the  agent/seller

commission and not on the gross amount of the winning prize.

6) On the other hand, learned senior counsel appearing for

the  Respondent  submitted  that  the  High  Court  has  rightly

held that the Tribunal was right in holding that income from

winning of lotteries from Sikkim during the assessment year in

question was liable to be included in the hands of the assessee

as resident of India within the State of Rajasthan where IT Act

6

was in force notwithstanding that the same had accrued or

arisen to him at a place where the 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

the  question  as  to  “whether  the  Tribunal  was  justified  in

holding that deduction under Section 80 TT of the IT Act was

applicable on the net winning amount received by the assessee

and not on the gross amount of the winning prize”, the High

Court  answered  the  same  in  the  affirmative  in  favour  of

Revenue  and  against  the  appellant  herein  –  the  assessee

observing that deduction under Section 80 TT of the IT Act is

not  referable  to  gross  total  income  but  is  referable  to  net

income.  

Discussion:-

7)  Before  we go into  the issues raised in this  appeal,  it

would be necessary to have an idea of the position of Sikkim

under  the  Indian Constitution.  Prior  to  26.04.1975,  Sikkim

was not considered to be a part of India. Any income accruing

or arising there from would be treated as income accruing or

arising  in  any  foreign  country.  However,  by  the  36th

7

amendment  to  the  Indian  Constitution  in  1975,  Sikkim

became  part  of  the  Indian  Union.  This,  amendment  was

effected by introducing Article 371F in the Constitution. In the

backdrop of the brief history that led to the insertion of Article

371F in the Constitution of  India with effect from April  26,

1975,  we may now refer  to  Article  371F to  the  extent  it  is

relevant:-

"371F.  Special Provisions with respect to the State of Sikkim- Notwithstanding anything in this Constitution.— x x x x x   (k) all laws in force immediately before the appointed day in the territories comprised in the State  of  Sikkim or any part  thereof shall continue to be in force therein until amended or repealed by a competent Legislature or other competent authority ; (n)  "The President may, by public notification, extend with such restrictions or modifications as he thinks fit to the State of Sikkim, any enactment which is in force in a State in India at the date of the notification."

On a plain reading of this provision, it becomes clear that all

laws  which  were  in  force  prior  to  April  26,  1975,  in  the

territories now falling within the State of Sikkim or any part

thereof were intended to continue to be in force until altered or

repealed.  Therefore,  the  law  in  force  prior  to  the  merger,

continued to be applicable. As a matter of fact, the IT Act was

made applicable only by Notification made in 1989 and the

8

first assessment year would be 1990-91 and by the application

of this Act, the Sikkim State Income Tax Manual, 1948 stood

repealed.  However in the present case, we are concerned with

the assessment year 1986-87, and, during this time, the IT Act

had not been made applicable to the territories of Sikkim. The

law corresponding to  the  IT Act,  which immediately  was in

force in the relevant State was Sikkim State Income Tax Rules,

1948.  Hence,  there can be two situations,  first  is  that  the

person  was  a  resident  of  Sikkim during  the  time  period  of

1975-1990 and the income accrues and received by him there

only.  In such a case, no question of applicability of the IT Act

arises. However, the problem arises where the income accrues

to a person from the State of Sikkim who was not a resident of

Sikkim but  of  some other  part  of  India.  The  question  that

arises is whether the provisions of the IT Act are applicable to

such income and whether the same can be subjected to tax

under  the  said  Act  especially  in  light  of  the  fact  that  the

income has already been subjected to tax under the Sikkim

State Income Tax Rules, 1948.  

9

8) The case of the assessee is that irrespective of the place

of residence, income accruing or arising in Sikkim, would not

be taxable in India, as per clause (k) of  Article 371F of the

Constitution  and  is  taxable  only  under  the  Sikkim  State

Income Tax Rules, 1948. The contention seems to be based on

erroneous  assumption  and  the  simple  answer  to  the  said

contention  is  that  though  the  IT  Act  is  not  applicable  to

various  other  countries  but  still  the  income  accruing  and

arising in foreign countries can be brought to tax provided the

assessee is  resident and ordinarily  resident and further the

income  accrued  or  received  in  any  territory  which  is

considered to be a part of India is within the net of IT Act.

9) The appellant, being a resident of Rajasthan, received the

income arising from winning of lotteries from Sikkim during

the Assessment Year in question was liable to be included in

the hands of the Assessee as resident of India within the State

of Rajasthan where IT Act was in force notwithstanding that

the same had accrued or arisen to him at a place where the IT

Act was not in force even in respect of income accruing to him

10

without taxable territory. In the above backdrop, it would be

apposite to refer Section 5 of the IT Act which reads as under:-

“5-Scope of total Income:-(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or deemed to be received in India in  such a 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”

The very wordings of Section 5 of the IT Act show that it casts

a  very  wide  net  and all  incomes  accruing  anywhere  in  the

world would be brought within its ambit. A combined reading

of both the clauses makes it clear that any income accrued or

received in  India would be included in his  total  income for

taxing  purposes  under  the  IT  Act.  However,  in  the  present

case,  we  find  that  the  amount  has  been  earned  by  the

appellant-assessee in the State of Sikkim and the amount of

lottery prize was sent by the Government of Sikkim to Jaipur

on the request made by the appellant.  

10) The result, therefore, is that, while Section 5 of the IT Act

would not be applicable, the existing Sikkim State Income Tax

Rules,  1948  would  be  applicable.  Thus,  on  the  income,  it

11

would appear that Income-tax would be payable, under Sikkim

State Income Tax Rules, 1948 and not under the IT Act. Since

Sikkim is a part of India for the accounting year, there would

appear to be, on the same income, two types of income-taxes

cannot be applied.  

11) In the above backdrop, it would be appropriate to refer

the decision of this Court in the 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 a fundamental

rule  of  law  of  taxation  that,  unless  otherwise  expressly

provided, income cannot be taxed twice".  

12) Further,  in  a  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  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…..  If  any  double  taxation  is  involved,  the  Legislature itself has, in express words, sanctioned it. It is not open to any one thereafter to invoke the general principles that the subject cannot be taxed twice over."

12

13)  The above referred cases make it clear that there is no

prohibition  as  such  on  double  taxation  provided  that  the

legislature contains a special provision in this regard. Now, the

only question remains to be decided is whether in fact there is

a specific provision for including the income earned from the

Sikkim lottery ticket prior to 01.04.1990 and after 1975, in the

income-tax return or not. We have gone through the relevant

provisions but there seems to be no such provision in the IT

Act  wherein  a  specific  provision  has  been  made  by  the

legislature for including such an income by an assessee from

lottery  ticket.  In  the  absence  of  any  such  provision,  the

assessee in the present case cannot be subjected to double

taxation.  Furthermore,  a  taxing  Statute  should  not  be

interpreted in such a manner that its effect will be to cast a

burden  twice  over  for  the  payment  of  tax  on  the  taxpayer

unless the language of the Statute is so compelling that the

court  has  no  alternative  than  to  accept  it.  In  a  case  of

reasonable  doubt,  the  construction  most  beneficial  to  the

taxpayer  is  to  be  adopted.  So,  it  is  clear  enough  that  the

income in the present case is taxable only under one law.  By

13

virtue of clause (k) to Article 371F of the Constitution which

starts with a non-obstante clause, it would be clear that only

the Sikkim Regulations on Income-tax would be applicable in

the present case. Therefore, the income cannot be brought to

tax any further by applying the rates of the IT Act.

14)  In view of the aforementioned discussions, we are of the

considered view that once the assessee has paid the income

tax at source in the State of Sikkim as per the law applicable

at  the  relevant  time  in  Sikkim,  the  same  income  was  not

taxable under the IT Act, 1961. Having decided so, the other

issue  whether  the  income  that  is  to  be  allowed  deduction

under section 80 TT of the IT Act is on ‘Net Income’ or ‘Gross

Income’, becomes academic.  

15) In view of the above, the appeal is allowed.

...…………….………………………J.                (R.K. AGRAWAL)                                  

.…....…………………………………J.         (ABHAY MANOHAR SAPRE)         

NEW DELHI; APRIL 19, 2018.  

14