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Lottery worries

Ashraf, Kozhikode

I WON a Kerala State lottery for Rs 2,00,000, from which, tax was deducted at source. I made an investment of Rs 50,000 in National Savings Certificates in that previous year itself.

I filed my return claiming refund of Rs 10,000 on the basis of the above. But the assessing officer (AO) did not allow the same on the ground that lottery income is not eligible for the rebate under Section 88. Is he correct?

Lottery income, in terms of Section 115BB of the Income-Tax (I-T) Act, 1961, is now taxable at a flat rate of 30 per cent. Till the assessment year (AY) 2001-2002, the rate was 40 per cent. Under Section 194B, the person responsible for paying any income by way of winnings from lottery, among other things, is required to deduct tax at source at the rates in force should the amount paid by him exceed Rs 5,000.

The reason why winnings up to Rs 5,000 has been spared from TDS is not far to seek. Under Section 10(3), casual income is exempt from tax up to Rs 5,000. It is true that Section 115BB prescribes a special flat rate of tax. But it does not oust the applic ability of Section 88 rebate. Nor does Section 88 contain any provision saying that from the tax relatable to the income specified in Section 115BB, tax rebate under this section is not available. Therefore, the AO is not correct.

You may refer to Section 112 dealing with flat rate of tax on long-term capital gains. That section makes it categorical that tax rebate under Section 88 is not allowed from the tax liability on long-term capital gains. In the absence of a similar provis ion in Section 115BB, the AO was not right in disallowing your claim for refund of tax.

S. Murlidharan

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