Whether every kind of lottery is an income taxable under Income tax Act or the meaning of lottery is restricted for the purpose of taxation. In case of CIT vs Tilak Raj Kalra (2012) 206 Taxman 126 / 240 CIT 205 (P & H ) , the very issue was before hon’able high court which held that the lottery won by an investor in PPF under a scheme formulated by State government is not covered within the meaning of income under section 2(24) of the Income Tax Act.
The Facts of the sase of lottery winning sin PPF scheme
The assessee-respondent subscribed Rs. 10,000/- to PPF .The scheme formulated by the Government of Punjab provided incentive to encourage small savings to augment its resources. According to the scheme the Government issued lucky coupon on every investment of Rs. 5,000/-, which also covered investment in PPF. The assessee was also issued a lucky coupon which won the prize of 1Kg. Gold.
The Assessing Officer regarded the prize as income and found that it was worth Rs. 4,68,000/-. However, the assessee-respondent claimed exemption in respect of the value of gold arguing that it was actually an incentive and, therefore, it was not covered by the definition of expression ‘income’ within the meaning of Section 2(24)(ix) of the Act, which deals with winning of 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.
Both CIT(A) and ITAT gave verdict against department and in favour of assessee.
The High Court held as under
12. Therefore, the reasoning adopted by the Commissioner and the Tribunal deserves to be approved when they hold that the expression ‘lottery’ would involve an element of ‘chance’ whereas when a person is making investment in a scheme like Savings Scheme then there is no element of ‘chance’ nor he loses any money invested by him. On the contrary the prize of the lottery ticket can never come back to the person purchasing the same. The investment in savings are paid back to the investor on maturity of the scheme irrespective of the fact whether he has won the prize or not and, therefore, there is no element of ‘chance’.
13. Moreover, the case of the assessee-respondent is covered by the Division Bench judgment of Madras High Court in the case of Dy. Director of Small Savings (supra) and Division Bench judgment of Karnataka High Court in the case of B.K. Suresh (supra). In both the cases the prize money has been won under the Saving Schemes. Accordingly, it has to be held that the incentive prize received by the assessee-respondent on account of the coupon given to him on the strength of Small Savings Certificate would not fall within the definition of ‘lottery’ and would, thus, not be included in the expression ‘income’. We are in agreement with the view taken by the Madras and Karnataka High Court.
Every time one wins a lottery , it does not mean that it becomes taxable under Income Tax Act !