Bahadursingh T. Waghela vs Wealth-Tax Officer

Mr. K.S. Jhaveri, J. (Oral) - By way of these appeals, the appellant-assessee has challenged the order of the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") whereby the Tribunal confirmed the order of the Commissioner (Appeals) and the lottery prize was won in the individual capacity of the assessee and not by the Trust.

These appeals were admitted by this court for consideration of the following substantial question of law: Tax Appeal No. 88 of 2002:

"Whether in the facts and circumstances of the case, the ITAT has not erred in law in holding that the appellant is liable to pay wealth tax on the whole of the lottery income in spite of the fact that the other beneficiaries of the Neha Trust have paid taxes on their respective share of income from the said lottery prize ?"

Tax Appeal No. 89 of 2002 :

"Whether in the facts and circumstances of the case, the ITAT has not erred in law in holding that the appellant is liable to pay tax on the whole of the lottery income in spite of the fact that other beneficiaries of the Neha Trust have paid taxes on their respective share of income from the said lottery prize ?"

Tax Appeal No. 90 of 2002 :

"Whether in the facts and circumstances of the case, the ITAT was right in law in giving a finding that the appellant was liable to pay tax on an assumed income of Rs. 1,66,949/- at 12% on the balance of the lottery prize ?"

The facts of the case are that the assessee is one of the trustees of Neha Trust which is registered on 21.12.1981. The assessee purchased a lottery ticket from the trust fund. The draw of lottery was made on 14.7.1983 which was published on 15.7.1983. It has come on record that the assessee made an application to the Director of Lotteries on 16.7.1983 which is on page No. 43 of the paper book. It is specifically stated that the claim form is to be filled in by only one person and the assessee gave the form filled in his name being the trustee and holder of the ticket. It has come on record that 1983 application was never received which is made after the prize was received by him. The Trust Deed is produced on record. Clause 6 of the Trust Deed on page No. 7 reads as under :

"In purchase of lottery tickets proclaimed by the State or Central Government to the extent that it does not exceed Rs. 200/- in the year.

3.1 It has come on record that the amount which has been received in the year 1984-85 during the financial year 1983-84 was distributed and T.D.S. amount was also shown in the trust amount. Learned counsel for the appellant has also shown the expenses of the lottery ticket in the trust account and the individual persons who have paid tax is shown on the last page of the paper book. Learned advocate Mr. Soparkar has contended that the trust deed was made only for the family trust. Taking into consideration the above facts, he contended that the authorities have committed serious error in holding that the lottery prize was won in individual capacity. He has contended that the other beneficiaries have also paid taxes.

Learned counsel for the revenue has contended that in view of the concurrent finding of fact that there is only book entry and there is no evidence to show that the amount was withdrawn from the trust amount and the trust which is not registered and merely a trust deed is executed, the amount which has been shown withdrawn in the books of account cannot be accepted. Individual Bahadursingh T. Waghela has withdrawn the amount. He was the buyer of the ticket and he will be entitled to receive it and is liable to pay tax. He has relied on the decision of this court in the case of Tuticorin Alkali Chemicals and Fertilizers Ltd. v. Commissioner of Income-tax reported in (1997) 227 ITR 172 where at page No. 181 it is observed as under :

"In other words, if the capital of a company is fruitfully utilised instead of keeping it idle, the income thus generated will be of revenue nature and not an accretion to capital. Whether the company raised the capital by issue of shares or debentures or by borrowing, will not make any difference to this principle. If borrowed capital is used for the purpose of earning income, that income will have to be taxed in accordance with law. Income is something which flows from the property. Something received in place of property will be capital receipt. The amount of interest received by the company flows from its investments and is its income and is clearly taxable even though the interest amount is earned by utilising borrowed capital."

We have heard learned counsel for the parties. The question which is posed for our consideration is whether the appellant is liable to pay income tax on the whole of the lottery income in spite of the fact that other beneficiaries of Neha Trust have paid taxes on their respective share of income from the said lottery prize in their individual capacity. On going by the record, the amount has been transferred to the trust and it is distributed and tax is paid. In our view, not accepting the trust deed and trust account, the authorities have seriously committed an error. The amount of ticket is from the trust account and the amount of prize is distributed amongst beneficiaries. Even T.D.S is shown in the balance sheet of the trust account. The learned counsel for the appellant has contended that the 1983 letter in the paper book is recently produced in the last week of July. Considering these facts, we are of the opinion that the amount is withdrawn from the trust account and it is not purchased by the appellant from the individual account. Taking into account the overall circumstances and the trust deed, distribution as per the trust deed and beneficiaries have paid taxes, all the authorities have seriously committed error in holding that the assessee is liable to pay tax. In the facts and circumstances of the case, we hold that the amount was received by the trust and not by the individual in his individual capacity. In that view of the matter, we answer the question in favour of the assessee and against the revenue. However, we make it clear that the amount of TDS and amount of tax collected from the appellant may be refunded to the appellant and lottery amount TDS may be refunded to Neha Trust.

So far as Tax Appeal No. 90 of 2002 is concerned, in view of the fact that in Tax Appeal No. 89 of 2002, we have answered the question in favour of the assessee and against the revenue, we hold the issue in favour of the assessee and against the revenue.

As far as Tax Appeal No. 88 of 2002 is concerned, since income of trust is accepted, the assessee-appellant cannot be assessed under Wealth Tax Act. In that view of the matter, we answer the question in favour of the assessee and against the revenue. All the appeals are allowed accordingly.