1. These appeals relate to the assessment year 1978-79. Appeal No. 1197 is by the assessee and the other No. 1767 is by the department.
2. The facts of the case in brief are that the assessee purchased two small savings prize, bonds of Bank of Madurai for Rs. 500 each on 8-1-1976. In respect of one of the deposits, the assessee received Rs. 50,000 as the third prize on 24-9-1977 and a certificate of the Bank of Madurai was filed before the ITO. There was no dispute regarding the receipt of prize money from the Bank of Madurai. But the only dispute in this case is regarding the status in which the prize money was received. The claim of the assessee is that as a matter of chance, he got commission of Rs. 540 from Usman & Brothers on 29-12-1975 and about Rs. 500 commission was received from M.T. & Sons. Also in the status of HUF, the assessee was being assessed for the last decade and so but the commission income was utilised by the assessee for the purchase of small savings prize bonds of Bank of Madurai of Rs. 500 each on 9-1-1976. The assessee filed affidavit on 15-9-1980 that this money belonged to him in his individual capacity. The members of the HUF also filed affidavits stating that the deposits were made by Dharam Prakash Jain in his individual capacity and the said deposits did not belong to the HUF.3. The assessee filed the return, declaring interest income of Rs. 1,637. It was stated that winning from lottery of Rs. 50,000 was not taxable. The ITO was of the view that the said amount of Rs. 50,000 was taxable under Section 2(24)(ix) of the Income-tax Act, 1961 ('the Act'). He also held that the said amount was to be taxed in the hands of the HUF.4. The learned AAC in appeal held that the winning from the lottery was assessable in the hands of the assessee (in his individual capacity) under Section 2(24)(ix).
5. Before the Tribunal, the only point for determination was whether the winning from the lottery was taxable under Section 2(24)(ix). On behalf of the assessee, it was contended that though the prize was won but the winning cannot be equated with prize. According to the learned counsel under the existing provision of the Income-tax Act, receipts which are casual and of non-recurring nature are exempt from tax except where the receipts constitute capital gains, or arise from a business or the exercise of profession, vocation or occupation or are by way of additions to the remuneration of an employee. In view of this exemption, no tax is currently chargeable in respect of winnings from lotteries, crossword puzzles, races, card games or from gambling or betting. According to the learned Counsel, in the present case, no gambling was involved and as such the present case is not hit by the provisions of Section 2(24)(ix). The learned Counsel mainly relied on the ratio of the decision of the Supreme Court in the case of State of Bombay v. R.M.D. Chamarbaugwala [1957] 2 MLJ 87. Reference was also made to the ratio of decisions in the cases of CIT v. Sanjiv Kumar [1980] 123 ITR 187 (Punj. & Har.), Amara Kondaiah v. ITO [1977] 106 ITR 73 (AP) and Bhola Nath Kesari v. Director of State Lotteries [1974] 95 ITR 171 (All.).
6. The learned departmental representative supported the order of the AAC. It was submitted by him that Sub-clause (ix) which was inserted in Section 2(24), with effect from the assessment year 1972-73 enacts that income includes any income from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever, while the amended Section 10(3) of the Act provides that winnings from lotteries are not exempt from tax as being of a casual and non-recurring nature. Thus, the learned departmental representative contended that in view of the amended Section 10(3), the winnings from lotteries in the present case is taxable and the finding of the AAC to this effect is quite correct.
The departmental representative contended that the decisions relied on by the learned Counsel for the assessee are not helpful to him but they help the revenue. It was further contended that the ratio of the decision of the Supreme Court is not applicable on the facts of the present case.
7. We have heard the parties and perused the entire material on record.
The facts of the case are not in dispute. They were correctly stated in the orders of the authorities below. Under the Small Savings Prize Deposit Scheme, a person was required to deposit Rs. 500 or its multiples just once. Under the said Small Savings Prize Deposit Scheme, any person could have the luck of draw for one of the really worth winning prizes. The first prize was Rs. 2 lakhs, second prize was 1 lakh and the third prize was Rs. 50,000 under the said Small Savings Prize Deposit Scheme.
9. The other point for consideration is whether the said winning is taxable under Section 2(24)(ix). Prior to 1972, winning from lotteries used to be exempt from income-tax as being receipt of casual and non-recurring nature. By the Finance Act, 1972, certain amendments were made to the Income-tax Act, 1961, as a result of which the winnings from lotteries, and certain other games, gambling or betting also became taxable. The following amendment was made in the Income-tax Act, In Section 2(24), which defines income, a new Sub-clause (ix) was added which reads as under: (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever;" Section 10(3), which provides that in computing the total income of any person any receipts which are of a casual and non-recurring nature shall not be included, was replaced by the following: In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-- (3) any receipts which are of a casual and non-recurring nature, not being winnings from lotteries, to the extent such receipts do not exceed one thousand rupees in the aggregate: Section 56(2) provides as to what income shall be chargeable to income-tax under the head 'Income from other sources'.
10. It is not disputed that the word 'lottery' is not defined under the Income-tax Act. In Webster's New International Dictionary, the word 'lottery' has been defined to mean a scheme by which one or more prizes are distributed by chance among persons, who have paid or promised a consideration for a chance to win them, usually as determined by the members on tickets as drawn from a lottery wheel. In Legal and Commercial Dictionary by S.D. Mitra, the word 'lottery' has been defined as under: A lottery has been compendiously defined as a scheme for the distribution of money by chance. It usually, if not always, takes the form of the creation of a fund by the participants in the lottery, who buy tickets or pay subscription in consideration of an offer by the promoters to award them a prize on some contingency the happening whereof depends on chance.
11. A lottery is a scheme for the distribution of prizes by lot or chance. In Corpus Juris Secundum, the word 'lottery' has been defined as follows: Pooling the proceeds derived from chances or tickets taken or purchased and then allotting such proceeds or a part of them or their equivalent by chance to one or more such takers or purchasers are indicia of a lottery.
12. From the definitions of the word 'lottery', as given by various authors, reference to which has already been made, it is clear that the element of chance is one of the important relevant factors for considering whether a particular scheme of things falls within the definition of the word 'lottery'. A lottery and a wagering contract are two distinct things. A scheme may amount to a lottery though none of the competitors is a loser. A scheme would be a lottery even if the prize money came out of the interest earned from the subscribers' contributions. The touchstone is that if the subscribers have a chance of winning a prize, it can make no difference whether the prizes are paid circuitously from the interest earned on the subscribers' contributions or are paid directly from those contributions. The risk of loss is not necessary. If we apply the aforesaid proposition on the facts of the present case, it would be clear that the assessee by chance won a prize of Rs. 50,000 in the Small Savings Prize Deposit Scheme.
13. In view of the amendment made in Sections 2(24) and 10(3), referred to above, it is clear that winnings from lotteries, crossword puzzles, etc., became taxable as income from other sources at a concessional rate, the concession being that tax on such winnings is leviable only on half the prize money minus Rs. 5,000.
14. At this stage, we may also state that income is not necessarily a recurrent return from a definite source; in fact, it may never recur at all and the source may never yield a periodic return. An isolated adventure may constitute business. Even a casual and non-recurring receipt may be income, though it is partly exempt from taxation in certain circumstances under Section 10(3). Anything which can properly be described as income is taxable under the Act unless it is expressly exempted. Reference may be made to the ratio of decision in the case of Rani Amrit Kunwar v. CIT [1946] 14 ITR 561 (All.).
15. In view of the aforesaid discussion, the winning of Rs. 50,000 from lottery, crossword puzzles is definitely income and is taxable under Section 2(24)(ix).
16. The decision in CIT v. G;R. Karthikeyan [1980] 124 ITR 85 (Mad.) is not applicable on the facts of the present case. In that case, the assessee participated in a race which involved a skill in the performance of driving of the vehicle. He had to cover a very long distance and had to qualify by getting the least of the penalty points.
The idea obviously was to encourage the motorists to comply with all the regulations. It was not mere speed that counts. Perhaps, in the said case, speed would be only a secondary thing for winning the race, in the sense that he had to complete the race within the particular time but the emphasis is on the least number of penalty points being incurred by the motorists concerned.
17. The other decision relied on by the learned Counsel for the assessee in the case of R.M.D. Chamarbaugwala (supra) is also not applicable in the present case. In that case, their Lordships of the Supreme Court were called upon to consider the validity of the Bombay Lotteries & Prize Competitions Control and Tax Act, as amended by Act XXX of 1952. The question was whether the Act fell within entry 34, List II of the Seventh Schedule of the Constitution of India, viz., gambling. The said decision was given by the Lordships of the Supreme Court on the facts of that case.
18. We may state here that it is the duty of the Court and the Tribunal in construing a statute to give effect to the intention of the Legislature. If, therefore, giving a literal meaning to a word used by the draftsman, particularly in a penal statute, would defeat the object of the Legislature which is to suppress a mischief, the Court and the Tribunal can depart from the dictionary meaning or even the popular meaning of the word and instead give it a meaning which will advance the remedy and suppress the mischief. Reference may be made to the ratio of the decision in the case of Kanwar Singh v. Delhi Administration AIRBolani Ores Ltd. v. State of Orissa AIR 1975 SC 17, the Supreme Court ruled as under: As usual references have been made to the dictionaries but quite often it is not possible to hold a dictionary in one hand and the statute to be interpreted in the other for ascertaining the import and intent of the word or expression used by the Legislature. The shade of meaning of a word, its different connotations and collocations which one finds in a dictionary does not relieve us of the responsibility of having to make the ultimate choice of selecting the right meaning. We choose that meaning which is most apt in the context, colour and diction in which the word is used.
The use of a dictionary ad lib without an analysis of the entire Act, its purpose and its intent, for ascertaining the meaning in which the Legislature could have used the word or expression may not lead us to the right conclusion....
In view of the amendments made in Sections 2(24) and 10(3) discussed above, all the winnings from lotteries, crossword puzzles, etc., are taxable as income from other sources.