Prakash Krishna and Bharati Sapru, JJ.
1. This is an appeal under Section 260-A of the Income Tax Act against the order dated 18-12-1998 passed by the Income Tax Appellate Tribunal 'B' Bench, Allahabad in I.T.A. No. 1906 (Alld.)/1990 for the Assessment Year 1988-89. The facts which are not in dispute are as follows.
2. The assessee respondent received a lottery/prize money from Directorate of Lotteries, Government of Sikkim out of which a sum o( Rs. 8,088/- was deducted as tax at source. The assessee claimed before the Income Tax Officer Ward 'B' Allahabad that she had received a lottery prize to the tune of Rs. 90.000/-. She claimed exemption on the afore stated amount of Rs. 90.000/- under Section 91(1) of the Income Tax Act. The said claim was not accepted by the Assessing Officer and he added back the income from lottery as income in the hands of the assessee. The said order was confirmed by the order dated 21-5-1990 by the Commissioner of Income Tax (Appeals). Allahabad in Appeal No. 23/Ward 4/Alld./89-90. In further appeal, the Tribunal has held that the provisions of the Income Tax Act were not applicable to the income earned at Sikkim. A notification in this regard was issued by the Ministry of Finance, Department of Revenue, New Delhi on 7-1 1-1988 providing for application of provision of Chapter XVII of the Income Tax Act with immediate effect. The Tribunal held that as per the Press Note, the provisions of the Income Tax Act, under the aforesaid notification, were made effective from the Assessment Year 1990-91 and as a result, the assessee is not liable to tax for the relevant Assessment Year 11988-89) on lottery income.
3. Challenging the afore slated order of the Tribunal, the present appeal is al the instance of the Revenue. On the following questions of law, the appeal was admitted by the order dated 24-4-2007:
1. Whether on the facts and circumstances of the case, was the I.T.A.T.'s order dated IX-12-1998 legally correct and tenable in view of the fact that none of the notifications clearly spell out that the Act will apply to Sikkim from Assessment Year 1990-1991?
2. Whether on the facts and circumstance of the case, was the I.T.A.T. legally justified in holding that the Income Tax Act, 1961 will apply upon Sikkim from Assessment Year 1990-1991 and not before, in view of the notifications and the Press Note relied upon by the Assessee as well as Section 91(1) of the Act and Article 371 of the Constitution of India?
3. Whether on the facts and circumstances of the case, and on the materials on record, and on a true and correct interpretation of Section 91(1) and Chapter XVII of the Income Tax Act, 1961 and of Article 371 of the Constitution and of the Press Note and relevant notification issued by the Ministry of Finance, was the I.T.A.T. legally justified in reversing the order of the C.I.T. (Appeals) and in holding that the assessee is not liable to pay Income Tax on the lottery prize money of the Sikkim Government?
4. Heard Sri Shambhu Chopra, learned Standing Counsel for the Department in support of the appeal and Sri Rakesh Ranjan Agrawal, learned Counsel for the assessee respondent.
5. Sri Rakesh Ranjan Agrawal at the very outset raised a preliminary objection about the maintainability of the appeal in view of the Circulars issued by the Central Board of Direct Taxes in respect of filing of appeals before the Tribunal. High Court and the Apex Court. He submits that since the quantum of revenue involved is below the monetary limit as prescribed by the Central Board of Direct Taxes under Circular dated 4-1 1-1987. the present appeal is liable to be dismissed. Elaborating the argument he submits that the Circulars issued by the Central Board of Direct Taxes are binding on the Revenue Authorities including the Commissioner of Income Tax who is the appellant herein. Reliance was also placed on Section 119 of the Income Tax Act which empowers the Board to issue such orders, instructions and directions from time to time to the other Income Tax Authorities as it may deem fit for proper administration of the Income Tax Act and such the Authorities shall observe and follow such instructions, orders and directions of the Board. The matter was initially heard on 17-9-2007. A detailed order was recorded on the order sheet noticing the respective submissions of the counsel and the case was adjourned to enable the learned Standing Counsel for the Department to obtain clear cut instructions from the Department as to whether in the present case the Department wants to press the appeal, in spite of the fact that the tax involved in the appeal is below the monetary limit. Subsequently, the matter was taken up on 4-10-2007. On that day, the learned Standing Counsel for the Department submitted that he has instructions from the appellant to press the appeal as substantial question of law is involved in the appeal. The Assessing Officer as well as the Joint Commissioner of Income Tax are also of the view to press the appeal on merits, irrespective of the tax involved. The said letter is dated 19-9-2007. The appellant submits that the present case was under Clause 3(ii) of the said Circular dated 4-11-1987. Reference was also made to Instruction No. 1903 dated 28-10-1992 wherein the Board, after reconsidering the matter, has decided that the monetary limit be enhanced to Rs. 50,000/- so far as the reference before the High Court is concerned and the said monetary limit shall apply to the Appeals/References filed after 1-11-1992. For the sake of convenience, the relevant portion of paragraph-3 of the Circular, being Instruction No. 1777 dated 4-11-1987, is reproduced below:
3. The Board desire that while deciding the question of filing an appeal/reference in respect of an adverse judgment of High Court/ITAT etc., the Chief Commissioner should follow the following guidelines:
Filing of departmental appeal/reference should be selective. Guidelines were issued laying down monetary limits of revenue effect of Rs. 10,000/- for filing appeals before ITAT, Rs. 30,000/ for Reference before High Court and Rs. 60,000/- for appeals to Supreme Court (Instruction No. 1573 elated 12-7-1984 and 1612 dated 6-4-1985). These guidelines should be adhered to subject to the exceptions given below. For the purpose of working out monetary limit, the cumulative revenue effect of the issue in the assessee's case for all the years upto the year for which returns have been filed should be taken into consideration. Where the same issue is involved in different case of a group (e.g. Industrial house, family, connected cases etc.), the revenue effect of the group and not the individual case should be taken into account for the purpose of the monetary limit. While applying the monetary limits, the effect of carry forward, effect of consequential addition/deletions in other years should be kept in view. In cases of firms/AOP the revenue effect in cases of partners/members be also taken into account.
(ii) question of law:
Where a question of law arises for the first time before the High Court concerned, it should be contested irrespective of revenue involved. Where an adverse judgment is delivered by a High Court in such cases, slay of the operation of the lodgment should be obtained either from the High Court itself or from the Supreme Court.
As also the relevant portion of Instruction No. 1903 dated 28-10-1992 whereby the monetary limit for reference before the High Court was enhanced to Rs. 50,000/-. is reproduced below:
Reference is invited to refer to Board's Instructions No. 1573 and 1612 issued from F. No. 279/26/S3-IT on 12-7-84 and 6-4-85 respectively where in monetary limits of Rs. 10,000 for departmental appeal (in Income-tax matters) before the ITAT, Rs. 30000 for filing reference to the High Court and Rs. 60000 for filing appeal to the Supreme Court were laid down.
2. The Board has since reconsidered the matter and it has been decided that the monetary limits be enhanced as follows: Monetary limit
i) Appeal before the ITAT (Income tax matters) 25000 ii) Reference before the High Courts 50000 iii) Appeal in the Supreme Court 150000
3. The above monetary limits will apply to appeals/references filed after 1/11-1992.
The learned Counsel for the assessee could submit only this much that on correct reading of the relevant portions of the Circular, already reproduced above, no question of law is involved in the appeal as the question of taxability of lottery with regard to the State of Sikkim has been decided by the Bombay High Court in Nirmala L. Mehta v. A. Balasubramaniam CIT and Ors. . He could not dispute that there is no judgment of this Court on the issue involved in the appeal. However, reference was made to certain decisions of this Court which according to him lay down that the Circulars issued by the Board are binding on the Revenue Authorities.
6. Having considered the respective submissions of the learned Counsel for the parties, we are of the opinion that the preliminary objection raised by the learned Counsel for the assessee has no substance. Right to file an appeal is a statutory right conferred by the Act Section 260-A of the Income lax Act gives a right to file appeal before the High Court against every order passed in appeal by the Appellate Tribunnl if the High Court is satisfied that the case involves a substantial question of law. This Court, while admitting the appeal, was of prima facie view that the appeal involved substantial questions of law. The question arises as to whether the statutory right conferred on a person, may be a Revenue Authority or the assessee can be curtailed or enlarged or in any way impaired with by an Administrative Instruction. It is true that under Section 119 of the Income Tax Act power has been conferred on Board to issue such orders, instructions and directions to the other Income Tax Authorities for proper administration of the Income Tax Act. There are catena of decisions on the question as to whether the Departmental Circulars issued by the highest Authority is binding and if so under what circumstances. It is not necessary to notice them all in the present case as the case of the Department is that in the Circular itself an exemption from minimum monetary limit has been provided for in such cases involving question of law. There is another aspect of the case as pointed out by the Apex Court in Commissioner of Sales Tux v. India Industries (2001) 248 ITR 338 that a Circular issued by the Sales Tax Authorities is not binding on the Courts. It is not binding on the assessee. However, the interpretation that is therein placed by the taxing authority on the law is binding on that taxing authority. In other words, the taxing authority cannot be heard to advance an argument that is contrary to that interpretation. In Paper Products Ltd. v. Commissioner of Central Excise it has been held as follows:
Apart from the fact that the circulars issued by the Central Board of Customs and Excise in exercise of its power under Section 37B of the Central Excise Act, 1944, are binding on the Department, the Department is precluded from challenging the correctness of the said circulars even on the ground of the same being inconsistent with the statutory provisions. So far as the Department is concerned, whatever action it has to take, the same will have to be consistent with the circular which is in force at the relevant point of time.
In a case under Income Tax Act in Commissioner of Income Tax v. Hero Cycles Private Ltd. and Ors. (1997) ITR 463 it has been held that the circulars can bind the Income Tax Officer but will not bind the Appellate Authority or the Tribunal or the Court or even the assessee. There is another aspect of the case. It has been also held that circulars cannot override the statutory requirements. (See- (1) Sales Tax Officer v. Shree Durga Oil Mills 1998 (97) KLT 202 (SC) (2) State Bank of Travancore v. Commissioner of Income Tax, Kerala (1985) 158 ITR 102 (SC) and (3) Kerala Financial Corporation v. Commissioner of Income Tax ). In Collector of Central Excise, Vadodra v.
Dhiren Chemicals Industries it has been laid down in para 10 of the report that regardless of the interpretation that has been placed by the Apex Court on certain phrase, if there are Circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the revenue. Recently the Apex Court in Commissioner of Trade Tax U.P and Anr. v. Kajaria Ceramics Ltd. , repelling the argument of the assessee therein based on the aforesaid judgment of the Supreme Court in the case of Dhiren Chemicals (Supra), has held that the Circulars may be of varying kinds. The circulars relied on were merely official communications to the subordinate officers directing compliance with the decision of the High Court. They were not clarifications of statutory provisions in which even, as was held in CST v. Indra (supra), they would represent the official understanding of those statutory provisions and would be binding on the taxing authority. Nor was there any statutory provision in the U.P. Act corresponding to Section 37B of the Central Excise Act, 1944 by the Central Board of Excise and Customs which make circulars issued thereunder binding on the authorities as was held in Dhiren Chemicals (Supra).
7. On a reading of the aforesaid judgment, it is apt to note that circulars may be of various kinds. The circulars clarifying statutory provisions may represent the official understanding of those statutory provisions and would be binding on the taxing authority. The other kind of circulars are those which do not clarify any statutory provision but are issued for the administrative purposes. Latter kind of circulars, it has been held, are not binding on the Department. To put it differently, the circulars which do not clarify any statutory provision and are merely inter departmental instructions may not be binding on the authorities. The distinction pointed out in the case of Kajaria Ceramics Ltd. (supra) with regard to dealing with issue regarding binding nature of the circulars is material one and has to be borne in mind.
8. Reverting back to the circulars relied by the learned Counsel for the assess i.e. circular dated 4-11-1987 and another dated 28-10-1992, it is clear on its plain reading that these circulars do not in any manner clarify any statutory provision. They are more of less administrative in nature and are a sort of inter departmental communication. It provides a sort of guidelines to be followed by the authorities concerned in the matter of contesting a case by the Department by way of appeal or reference before the High Court or the Apex Court. No corresponding right is created by such type of circulars in favour of the assessee. Nor does it in any manner fetter the right of the Department to file appeal reference before the High Court or the Supreme court, as the case may be. The Apex Court In Binani Industries Ltd. Kerala v. Assistant Commissioner of Commercial Taxes reiterated its earlier view taken in the case of
Kajaria Ceramics Ltd. (Supra) and has held that there are various circulars, some are binding and some are not binding. Keeping the above pronouncements in mind, we are of the opinion that the circulars under consideration are not of binding nature on the Commissioner of Income Tax and they are inter departmental instructions. These circulars do not confer any corresponding right to the assessee to oppose or challenge the maintainability of any appeal or reference on the ground that filing of such appeal or reference is against the circulars issued by the Board.
9. We have considered the above point as an argument was raised by the learned Counsel for the assessee with regard to non-maintainability of appeal in view of the circulars issued by the Board from time to time and the fact that the quantum of disputed amount of tax is below the monetary limit as prescribed in the circulars. The learned Counsel for the assessee has placed strong reliance on a judgment of this Court in Commissioner of Income Tax v. Smt. Prakashwati with particular emphasis to last but one paragraph of the judgment. The Court by way of additional reason observed that the tax effect involved is very nominal and followed a decision of the Bombay High Court in CWT v. Executors of Late D.T. Udeshi . The case does not contain any ratio and by way of passing remarks while disposing of the application for calling the reference, the court as additional reason, dismissed the reference application. The judgment of the Apex Court in the case of Kajaria Ceramics Ltd. (supra) was obviously not available at that time for the benefit of the Court. The observation made in the case of Smt. Prakashwati (supra) should be read and understood in the light of the subsequent judgment of the Apex Court, which is also binding on us. However, we find that the matter has been dealt with by a later Division Bench of this Court in Jugal Kishore Arora v. Deputy Commissioner of Income Tax . The relevant extract is reproduced below:
As regards the contention that the appeal should not have been entertained in view of the direction of the Central Board of Direct Taxes dated 27-3-2000, we are of the opinion that the instructions of the Central Board of Direct Taxes regarding filing of appeals are only internal matters of the Department, and the assessee cannot object to filing of an appeal despite of such an instruction. The appeal is clearly maintainable before the Tribunal on behalf of the Department under Section 253(2) of the Income Tax Act, and this right to file appeal is a statutory right and cannot be taken away or prohibited by executive instructions. Moreover, the instructions itself state that an appeal can be filed if the matter is of a recurring nature.
The above observations are more elaborate and are in the line of the observations made by the Apex Court in the case of Kajaria Ceramics (supra) and Binani Industries (supra) and have greater persuasive value. Though for the purpose of the present case it was not required to consider the binding nature of such circulars as according to the learned Standing Counsel the present case falls under exemption clause of the circular, but we considered it appropriate to deal the matter with some details to keep the record straight and to meet the submissions of the learned Counsel for the assessee on the point. It is not necessary to dwell upon the point further for the reason that the stand of the Department is that the present case falls under exception clause as provided for in the circular. The learned Standing Counsel submits that in the present case a question of law is involved, therefore, it will be governed by Clause 3(ii) of the circular dated 4-11-1987 which provides that where a question of law arises for the first time before the High Court concerned, it should be contested irrespective of the revenue involved.
10. Undoubtedly a question of law is involved in the present appeal. Obviously, it falls in the exception clause and the learned Standing Counsel is right in his submission that the Commissioner of Income Tax has a right to press the present appeal irrespective of revenue involved. In contra, the learned Counsel for the assessee submits that since the question of taxability of prize money won in the lottery of Sikkim Government to tax under the Income Tax Act, 1961 for the Assessment Year prior to 1990-91 has been set at rest by the Bombay High Court in Nirmala L. Mehta (supra), no question of law arises for the first time before the High Court. The said submission has no force and is liable to be rejected for the simple reason that there is no pronouncement on the issue by Allahabad High Court so far. At least the learned Counsel for the assessee could not place before us any such pronouncement for our consideration. The use of word 'concerned' with the High Court is also indicative of the fact that question of law should not have arisen for the first time before that High Court. Strong reliance was placed also on Commissioner of Income Tax v. Cameo Colour Co. , a Division Bench judgment of the Bombay High Court holding that presentation of appeal by the appellant being in contravention to the instructions contained in the circular is binding. The appeal was dismissed on this count in limine. With great respect to the Hon'ble Judges, it is difficult to agree with the view, specially in view of the Division Bench decision of this Court, referred to above.
11. In nut shell, we find no substance in the preliminary objection regarding maintainability of the appeal in the light of the circulars issued by the Board. In other words, we hold that the Board's circulars cannot take away statutory right to file an appeal or override the statutory provisions conferring right of appeal to a party. Now we take up the real issue involved in the present appeal. The Tribunal was of the view that the provisions of the Income Tax Act, 1961 have been extended to the State of Sikkim from the Assessment Year 1990-91. The prize money earned by the assessee on winning of lottery of Sikkim Government is not liable to be taxed at the hands of the assessee. Sikkim became 22^nd State of Indian Union by and under Constitution (36^th Amendment) Act. 1975 w.e.f. 26-4-1975. Article 371F was inserted w.e.f. the same day in the Constitution of India. The said Article came up for consideration before the Apex Court in State of Sikkim v. Surendera Prasad Sharma . It was held that Article
371F is a special Constitutional provision with respect to the State of Sikkiin that is reason why it begins with non obstinate clause. The existing law or laws in force in the State of Sikkim came to be protected by Clause (k) added to Article 371F until amended or repealed to ensure smooth transition from the Chogyal's rule to the democratic rule under the Constitution. The President of India in exercise of its power conferred by Clause (n) of Article 371F of the Constitution, extended to the State of Sikkim the Income Tax Act. 1961 vide Notification No. S.O. 1028 (E) dated November 7, 1988 w.e.f. 1-4-1989. However, the commencement of the Income Tax Act, 1961 was deferred for one year making it effective from April 1, 1990, applicable from the Assessment Year 1990-91 and onwards. The Income Tax Act, 1961 was made applicable and came into force in the State of Sikkim from the Assessment Year 1990-91 (previous year 1989-90) and on coming into force of the Income Tax Act, 1961, the Sikkim Income Tax Mannual, 1948 stood repealed.
12. In Nirmala L. Mehta (supra), a Division Bench of Bombay High Court has held that the Income Tax Act was made applicable in the State of Sikkim from the Assessment Year 1990-91. The assessee who had won a lottery of the Government of Sikkim for a period anterior to it is not liable to pay the Income Tax, for the Assessment Year prior to 1990-91. The assessee is a resident of Allahabad. She purchased the lottery ticket at Allahabad and received the payment of the prize money at Allahabad after deduction of tax at source at Sikkim. On these facts the question arises about the taxability on the prize money of the lottery issued by the Government of Sikkim. Section 5 of the Income Tax Act is relevant for our purpose. In this Section all the assessees are divided into three categories (a) resident and ordinary resident (b) resident but not ordinarily resident (c) non resident. The resident and ordinary residents are defined in Section 6. The assessee is an ordinary resident of India. Sub-section (1) of Section 5 imposes a charge on income, received or deemed to be received in India, accrued or arose or deemed to be accrued or arisen outside India during previous year, subject to the provisions of the Act. On a plain reading of Clause (c) of Section 5(1) it would be clear that the income which accrued or arose to a person outside India during the previous year is also chargeable to Income Tax Act in India. Receipt in India attract tax, irrespective of the fact whether the income accrued or arose in India or outside India. In other words, the liability to tax depends upon the locality of the receipt, and it receipt is in India, the question of place of accrual does not arise at all. as held in the following cases:
1. CIT v. Mathias 7 ITR 48 (PC)
2. Raghava v. CIT 44 ITR 720 SC
3. Hira Mills v. ITO 14 ITR 417
Lottery income was not initially included in the definition of income under the Act. As a result of insertion of Section 2(24)(ix) by Finance Act. 1972, w.e.f. 1-4-1972, income from lottery has been included in the definition of income. In CIT v. Chaman Lal a
Division Bench of Punjab and Haryana High Court on consideration of various sections of the Income Tax Act including Section 5(1), with reference to lottery income earned by the assessee on a lottery ticket of Sikkim Government, held as follows:
After hearing the learned Counsel for the parties and on consideration of the matter, we are of the opinion that a wholly wrong view of law has been taken by the Tribunal in the first question. The definition of income includes winnings from lotteries as per Section 2(24)(ix). Even if such income accrues or arises outside India, still it has to be taken notice of while calculating the total income of a resident of India in view of Section 5(1)(c) and such income has to be treated as income derived by Section 56((2)(ib). Therefore, the Tribunal committed a serious error of law in concluding that charges in the statute did not change the nature of winnings from lotteries in a foreign country and they retained their character as receipts of a casual and non-recurring nature. Although reference was made to Section 10(3) of the Act, still the Tribunal did not understand its true import. Section 10(3) of the Act was also amended by the Finance Act of IV 72 and earlier to the amendment the income from lotteries even if derived in India, was being considered as "receipts of a casual and non-recurring nature" and was not taxable. By the amendment of Section 10(3), winnings from lotteries were specifically taken out from the purview of being considered as receipts of a casual and non-recurring nature. If a resident of India derives income, whether from source from within the country or from outside the country, that has to he considered while evaluating total income within the ambit of Section 5(1) and in doing so, under Clause (c), the income accruing or arising outside India also has to be taken notice of Hence, one fails to understand as to how the income drawn from the lotteries outside India did not come within the purview of the aforequoted sections and how it could be considered as income of a casual and nonrecurring nature when under Section 10(3) winnings from lotteries are not to be considered as income of a casual and non-recurring nature.
Thus, it is evident that there are divergent views on the issue involved in the appeal. The Bombay High Court has held that lottery income earned in the Assessment Year prior to Assessment Year 1990-91 on a lottery of Sikkim Government is not taxable under the Income Tax Act, 1961. A contrary view has been taken by the Punjab and Haryana High Court. On a careful consideration of the aforesaid two decisions and specially Section 5 of the Income Tax Act which in no uncertain terms provides the scope of total income which includes income earned by a resident from whatever source which accrues or arises to him outside India during the previous year, we are in respectful agreement with Punjab & Haryana High Court.
13. With great respect to the Hon'ble Judges who have decided the case of Nirma L. Mehta (supra), we respectfully disagree with them. Their attention was not invited towards Section 5 of the Income Tax Act. Prom the report it is evident that none appeared on behalf of the Department before them. The judgment of the Punjab and Haryana High Court is more elaborate and it has also taken into account various provisions of the Income Tax Act. We are of the opinion that the income accrued to a resident assessee even from outside India, subject to the provisions of the Income Tax Act, is liable to be included in the definition of 'income' for the relevant Assessment Year. The order of the Tribunal suffers with a serious legal infirmity and cannot, therefore, be sustained. The Tribunal has failed to take into account Section 5 of the Income Tax Act. This omission has materially affected the decision. We are of the opinion that even it the provision of the Income Tax Act have been extended to the State of Sikkim w.e.f. the Assessment Year 1990-91, the lottery income of the assessee respondent is subject to the provisions of the Income Tax Act and is accordingly taxable. In the result, the appeal succeeds and is allowed. The order of the Tribunal is hereby set aside and it is held that the lottery income of the assessee respondent is governed by the provisions of the Income Tax Act, 1961. No order as to costs.