By K. B. Bhujle, Advocate
New Page 1
50. Casual and non-recurring receipt :
Exemption u/s.10(3) of Income-tax Act, 1961 : A.Y. 1994-95 : Incentive prize
received on coupon given on the strength of NSC : Is not a lottery : Is casual
and non-recurring receipt exempt u/s.10(3).
[B. K. Suresh v. ITO, 221 CTR 80 (Kar.)]
The assessee, a professor in Engineering College, had
purchased National Saving Certificates (NSCs) in F.Y. 1992-93. The Director of
Small Savings, Government of Karnataka, as a measure to encourage small savings,
framed a scheme under which it offered different prizes to the persons who had
made investment in a small savings scheme, through a lucky draw. By virtue of
the purchase of NSCs, the assessee had become entitled for a coupon.
Accordingly, a coupon was issued to him. In a lucky draw he was adjudged as
prize winner, having bagged third prize. The prize was Indira Vikas Patra of
face value of Rs.5,00,000, the market value being Rs.3,50,000. The assessee
claimed exemption u/s.10(3) of the Income-tax Act, 1961 of the said amount of
Rs.3,50,000. The AO disallowed the same treating the same as a lottery and made
addition of Rs.3,50,000 in his order u/s.143(1)(a) of the Act. The Tribunal
confirmed the addition.
On appeal by the assessee, the following questions were
raised :
“1. Whether in the facts and in the circumstances of the
case, the Tribunal was right in law in holding that incentive award received
by the appellant-assessee constitutes lottery income on the facts and in the
circumstances of the case ?
2. Whether the Tribunal was right in law in holding that
the purchase of National Savings Certificates by the appellant-assessee
constitutes payment of consideration to participate in the lottery ?”
The Karnataka High Court concurred with the view of the
Madras High Court in CIT v. Dy. Direcor of Small Savings, (2004) 266 ITR
27 (Mad.) that giving of coupons against National Savings Certificates would not
fall within the definition of ‘lottery’. The Court allowed the assessee’s claim
and held as under :
“(i) The definition of ‘lottery’ inserted by the Finance
Act, 2001 is prospective and not retrospective.
(ii) We have no hesitation to hold that all the authorities
below committed an error in adding the prize money awarded to the assessee on
coupon and draw thereof to the income of the assessee. Thus the said orders
deserve to be set aside and quashed and are hereby set aside and quashed.”
