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."