1. This is an appeal by the assessee, which is directed against the order of the Commissioner passed under Section 263 of the Income-tax Act, 1961 ('the Act') on 13-9-1984. In that order the Commissioner revised the order of the ITO passed under Section 143(3) of the Act for the assessment year 1981-82. In the assessment order the ITO considered the winnings from lottery at Rs. 10 lakhs by the assessee and deducted the cost of lottery tickets of Rs. 2,000 and a sum of Rs. 69,000 out of Rs. 84,000 said to have been incurred on encashment and court expenses and, thus, allowing a deduction of Rs. 71,000 before allowing deduction under Section 80TT of the Act. In this way the ITO computed the income from lottery winnings at Rs. 4,62,090.
2. The Commissioner invoked his revisionary jurisdiction as according to him, the order passed by the ITO was erroneous and prejudicial to the interests of revenue inasmuch as he was of the opinion that the expenditure was incurred by the assessee after the income was earned and, therefore, it could not be attributed to the earning of any income. Further, there was no evidence even according to the assessee's own version for the so-called expenditure incurred on encashment and court proceedings. According to him, the ITO was bound to confine himself to the specific deduction permitted under Section 80TT and not the general deduction permitted under Section 57 of the Act.
Accordingly, the deduction of Rs. 71,000 allowed by the ITO towards cost of lottery tickets and other expenses was to be withdrawn.
Therefore, he directed the ITO to allow deduction as contemplated under Section 80TT and nothing else. Hence, the appeal by the assessee.
3. The assessee raised grounds stating that the Commissioner erred in holding that the sum of Rs. 71,000 was not deductible, he ought to have appreciated that real income alone could be taxed and not any notional gross income and the Commissioner has not appreciated the fact that there was another claimant and, therefore, the assessee had to substantiate his entitlement to the amount in the court and, consequently, incurred court expenses and also incurred expenditure in realising the lottery amount. Further, the Commissioner ought to have appreciated that the deduction under Section 80TT is an extra deduction allowed for a particular type of income besides the expenses permissible under Section 57.
4. The learned counsel for the assessee reiterated the grounds taken by the assessee and stated that the winnings from lottery constituted income from other sources in terms of Section 56(2)(ib) of the Act, and, therefore, the deduction specified under Section 57 ought to be allowed in computing such income. In the case of the assessee not only litigation expenses but also expenses were incurred on politicians in order to influence the Director of Lotteries to make over the payment to the assessee without waiting for court proceedings, wherein another person claimed title to the lottery ticket, which won the prize. In the circumstances he pointed out that the Commissioner ought to have at least estimated the expenditure involved though full details or vouchers could not be furnished by the assessee. Relying on Clause (iii) of Section 57 he urged that the expenditure incurred by the assessee ought to be allowed.
5. The learned departmental representative on the other hand submitted that the prescription under Section 57(iii) is different from the prescription under Section 37(1) of the Act and in view of the rigorous test laid down under Section 57(iii) the assessee was not entitled to the deduction of expenditure incurred.
case. At the outset it is to be observed that the assessee has not challenged the jurisdiction of the Commissioner by raising any specific ground although a general ground is taken stating that the order passed by the Commissioner is contrary to law on the facts and in the circumstances of the case. Therefore, the grounds as urged by the assessee relate to the merits of the case which is also evident from the fact of submission of the learned counsel for the assessee before us, viz., the Commissioner ought to have estimated the expenditure incurred by the assessee. There is no dispute about the fact that the income by way of winnings from lottery is included as one of the items under the head 'Income from other sources' vide Section 56(2)(ib), which refers to income defined in Sub-clause (ix) of Clause (24) of Section 2 of the Act, which was introduced by the Finance Act, 1972 with effect from 1-4-1972. Section 57 deals with deductions which should be made while computing the income from other sources. Clauses (i) and (ii) are not relevant to the case before us and as rightly claimed by the learned counsel for the assessee Clause (in) is only relevant which is reproduced below : (iii) any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income. [Emphasis supplied] The Supreme Court in the case of Seth R. Dalmia v. CIT [1977] 110 ITR 644 at p. 650 observed that before provision of Section 12(2) of the Indian Income-tax Act, 1922 ('the 1922 Act') equivalent to Section 57(i) of the 1961 Act could apply the following conditions must be fulfilled, viz., (i) the expenditure must have been incurred wholly and exclusively for the purpose of earning income or making profit, (ii) the expenditure should not be in the nature of capital expenditure, (iii) the amount in question should not be in the nature of personal expenses of the assessee, (iv) that the expenditure should be incurred in the accounting year, and (v) there must be a clear nexus between the expenditure incurred and the income sought to be earned. The Madras High Court in the case of Addl. CIT v. Madras Fertilizers Ltd. [1980] 122 ITR 139 at p. 145 observed that for Section 57 to apply the following conditions must be simultaneously satisfied, viz., (1) there must be an expenditure not being in the nature of capital expenditure (2) such expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning such income. It was also observed that if all these requirements are not simultaneously satisfied the provisions of this Section will not be attracted.
Therefore, the case of the assessee has to be decided with reference to the various tests laid down by the Supreme Court and the Madras High Court cited supra. In this connection it is also necessary to point out that the Supreme Court in the case of Madhav Prasad Jatiav. CIT [1979] 118 ITR 200 at p. 208 observed that the expression 'for the purpose of business' occurring in Section 10(2)(iii) of the 1922 Act and also in Section 10(2)(;cv) is wider in scope than the expression 'for the purpose of earning income, profits or gains' occurring in Section 12(2) and, therefore, the scope for allowing a deduction under Section 10(2)(iii) or Section 10(2)(xv) would be much wider than the one available under Section 12(2). Applying the aforesaid various tests to the case of the assessee, we find that only the cost of tickets purchased can be said to have nexus or connection with the winnings from lottery which can be said to be laid out or expended wholly and exclusively for the purpose of making or earning such income.
Consequently, we hold that there is no nexus or connection between the expenditure incurred by the assessee in the court proceedings and for encashment as such expenditure does not satisfy the strict tests laid down in Section 57(iii). In this view of the matter we are of the opinion that the Commissioner is not wholly correct in his view that only deduction under ection 80TT was permissible and not the deduction under Section 57. For the same reason there is force in the contention of the learned counsel for the assessee that the deduction under Section 57(iii) is to be made before computing the income before allowing separate deduction under Section 80TT. In the case of the assessee income from lottery is made or earned by the holder of the winning ticket the moment the result of the draw is announced by declaring the winning ticket number. It is windfall in nature vide CIT v. G.R. Karthikeyan [1980] 124 ITR 85 (Mad.). Nothing more is to be done by the ticket holder to make or earn that lottery income. Other expenses incurred for claiming the amount from the Director of Lotteries is for the purpose of collecting the lottery amount and not for earning or making such income. The details of court expenses and other expenses for encashment were not furnished before the authorities or before us. Such expenses in our view do not fall for consideration under Section 57(iii) in view of the tests laid down by the Supreme Court and other courts cited supra. Such expenses were incurred only after earning or making the income and not for earning or making such income. In this view of the matter the Commissioner was right in exercising his revisionary jurisdiction under Section 263 but he was not correct in disallowing the cost of tickets which was allowed by the ITO and which has a direct nexus or connection with the winnings from lottery. However, he was quite justified in disallowing a sum of Rs. 69,000 which was wrongly allowed by the ITO. There is no dispute about the statutory deduction under Section 80TT. Accordingly, we accept the claim of the assessee partly.