COMMISSIONER OF INCOME TAX, MADRAS VS. G.R. KARTHIKEYAN 1999 SUPP (3) SCC 222

 

COMMISSIONER OF INCOME TAX, MADRAS VS. G.R. KARTHIKEYAN 1999 SUPP (3) SCC 222

 

FACTS

• The assessee, G.R. Karthikeyan (Respondent), participated in All-India Highway Motor Rally during the assessment year 1974-75. He was awarded Rs 20,000 by the Indian Oil Corporation and Rs 2,000 by the All-India Highway Motor Rally for winning first prize in motor rally.
• The rally was not a race but rather a test of skill, endurance, and reliability of the vehicles involved. It was designed to test endurance driving and the reliability of automobiles, with participants required to adhere to traffic regulations and regulations prescribed by the Rally Committee. 
• The Income Tax Officer included the winning prize of Rs.22,000/- in the assessee’s income u/s 2 (24)(ix) of the Income Tax Act,1961. However, The Appellate Assistant Commissioner held that the rally was not race and hence, the amount received can’t be treated as income u/s 2 (24)(ix) of Act,1961 for the assessment.
• The Revenue's appeal was dismissed by the Tribunal, which held that the rally was not a race or a game, and the receipt was casual in nature, falling outside the provisions of Section 10(3) of the Act,1961.
• The High Court held in favour of the assessee, stating that the term "winnings" under section 2 (24)(ix) should be interpreted differently from its literal meaning. The term should be understood to mean money won from gambling and betting, whereas the prize won by the assessee was a result of his driving skills.
• Hence, the present appeal before the Supreme Court

 

ISSUE

• Whether the Appellate Tribunal & HC was correct in its decision to not impose a tax on the sum of Rs. 22,000/- received by the assessee from winning first prize in the Motor Rally?

 

RULES

• Sec2(24) of Income-tax Act, 1961-

 "income" includes—

 [(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;]

• The expression "income" in section 2(24) should be interpreted in a broader sense i.e., literal meaning despite its inclusive definition.

 

HELD

• The definition of income in Section 2(24) is an inclusive one, its ambit, in our opinion should be the same as that of the word income occurring in entry 82 of List I of the Seventh Schedule to the Constitution.
• In Bhagwandas Jain v. Union of India, 128 I.T.R. 315-S.C. the SC held the expression income is of the widest amplitude and that it includes not merely what is received or what comes in by exploiting the use of the property but also that which can be converted into income. The assessee in this case was residing in the house of his occupation and was not earning any income from it. However, the court still upheld the tax levied under section 23(2) of the Act, 1961 because the taxpayer was receiving monetary benefits from living in the house.-Ratio
• The words "other games of any sort" are of wide amplitude. Their meaning is not confined to games of gambling nature alone. It thus appears that Sub-clause (ix) is not confined to mere gambling or betting activities.
• The assessee participated to get the prize money and won the first prize for his skills and endurance. Which in the widest sense must be construed as income under the Act, 1961.
• The idea to provide an inclusive definition of income u/s 2(24) is not to limit the meaning but to read it in a wider sense i.e., grammatical meaning.
• In sec 10(3) a casual income is included in total income if the amount exceeds Rs. 1000/-The clause though exempts particular receipts to the limited extent still relevant to the expression “income”.
• The High Court erred in its finding that the receipt in question cannot be categorized under Section 2(24)(ix). The High Court interpreted the sub-clauses of Section 2(24) as exhaustive of the definition of income, which is not the case.
• The receipt (i.e., winning amount) in question is deemed as "income" under Clause (24) of Section 2 of the Act. The appeal was allowed and the referred question was answered in favour of the Revenue.