• Jun 12, 24
• bhushanbjain
• 0 comment

Valuation rules under income tax are the rules that are used to determine the fair market value of assets and liabilities for the purposes of computing income tax. These rules are laid down in the Income Tax Act, 1961 and the Income Tax Rules, 1962.

Fair market value is defined as the price that the asset or liability would fetch if sold in the open market on the valuation date. The valuation date is the date on which the asset or liability is being valued, which is typically the date of transfer or acquisition.

The valuation rules vary depending on the type of asset or liability being valued. However, some general principles apply to all valuation rules, such as:

• The valuation should be based on the assumption that the asset or liability is being sold in a bona fide transaction between a willing buyer and a willing seller.
• The valuation should take into account all relevant factors, such as the condition of the asset or liability, the market demand for it, and any restrictions on its transfer.
• The valuation should be made on a consistent basis from year to year.

Here are some specific examples of valuation rules under income tax:

• Unquoted shares: The fair market value of unquoted shares is to be estimated to be the price it would fetch if sold in the open market on the valuation date. The assesses may obtain a report from a merchant banker or an accountant in respect of such valuation.
• Immovable property: The fair market value of immovable property is to be taken as the net value of the assets of the business as a whole, having regard to the balance-sheet of such business on the valuation date after adjustments specified in Rule 11UA of the Income Tax Rules, 1962.
• Jewelry: The fair market value of jewelry is to be taken as the price at which similar jeweler is sold in the retail market on the valuation date.
• Business assets: The fair market value of business assets is to be taken as the price at which similar assets are sold in the open market on the valuation date, taking into account the condition of the assets and any restrictions on their transfer.

                                    EXAMPLE

State: Maharashtra

Valuation rule: Valuation of supply of goods or services when the consideration is not wholly in money (Rule 27 of the Maharashtra Goods and Services Tax Rules, 2017)

Example:

A company in Maharashtra supplies goods to a customer in Gujarat for a consideration of Rs. 10,000. In addition to the cash consideration, the customer also gives the company a gift card worth Rs. 2,000 for a restaurant in Gujarat.

The value of supply of goods in this case will be Rs. 12,000 (Rs. 10,000 + Rs. 2,000). The value of the gift card will be included in the value of supply as it is considered to be part of the consideration for the supply of goods.

Here is another example:

State: Tamil Nadu

Valuation rule: Valuation of supply of goods made or received through an agent (Rule 28 of the Tamil Nadu Goods and Services Tax Rules, 2017)

Example:

A company in Tamil Nadu appoints an agent to sell its goods on its behalf. The agent sells the goods to customers for a price of Rs. 100 per unit. The company pays the agent a commission of 10% on the sales.

The value of supply of goods in this case will be Rs. 90 per unit (Rs. 100 – Rs. 10). The commission paid to the agent will be deducted from the value of supply as it is not part of the consideration paid by the customer.

FAQ QUESTIONS

What is the fair market value (FMV) of an asset?

A: FMV is the price that an asset would fetch if sold in the open market on the valuation date. It is the price that a willing buyer would pay to a willing seller, neither being under any compulsion to buy or sell.

Q: How is FMV determined under   income tax act ?

A: FMV can be determined using a variety of methods, depending on the type of asset being valued. Some common methods include:

• Comparable sales: This method involves comparing the asset to similar assets that have recently sold in the open market.
• Income approach: This method values the asset based on its income-generating potential.
• Cost approach: This method values the asset based on the cost of replacing it.

Q: What are the valuation rules under the Income Tax Act ?

A: The valuation rules under the Income Tax Act are prescribed in Rule 11UA of the Income Tax Rules. These rules provide specific guidelines for valuing different types of assets, including:

• Immovable property under   income tax act: The FMV of immovable property is determined based on the following factors:
  • The location of the property.
  • The type of property (e.g., residential, commercial, industrial).
  • The size of the property.
  • The condition of the property.
  • The recent sale prices of similar properties in the area.
• Movable property under   income tax act: The FMV of movable property is determined based on the following factors:
  • The type of property (e.g., jewellery, paintings, antiques).
  • The condition of the property.
  • The recent sale prices of similar properties in the open market.
• Shares and securities under   income tax act: The FMV of shares and securities is determined based on their market value on the valuation date.

Q: When is it necessary to value an asset for income tax purposes under   income tax act?

A: Assets need to be valued for income tax purposes in a variety of situations, such as:

• When an asset is sold or purchased.
• When an asset is gifted or inherited.
• When an asset is used for business purposes.
• When an asset is depreciated or amortized.

Q: What are the consequences of undervaluing an asset for income tax purposes under   income tax act?

A: Undervaluing an asset for income tax purposes can lead to the following consequences:

• Higher taxes: If an asset is undervalued, the taxpayer will pay less income tax on the sale or disposal of the asset. However, the taxpayer will also have to pay higher taxes on the income generated from the asset.
• Penalties and interest: If the Income Tax Department discovers that an asset has been undervalued, the taxpayer may be liable to pay penalties and interest.
• Prosecution: In some cases, the taxpayer may even be prosecuted for tax evasion.

Q: Who can value assets for income tax purposes under   income tax act?

A: Any person who is qualified to value the asset can value assets for income tax purposes. However, it is recommended that taxpayers use the services of a qualified valuer, such as a chartered accountant or a registered valuer.

Q: What are the benefits of using a qualified value  under   income tax act?

A: There are a number of benefits to using a qualified valuer to value assets for income tax purposes, including under   income tax act:

• Accurate valuations under   income tax act: Qualified valuers have the expertise and experience to value assets accurately.
• Reduced risk of disputes under   income tax act: The Income Tax Department is more likely to accept valuations done by qualified valuers.
• Peace of mind under   income tax act: Taxpayers can be confident that their assets have been valued correctly when they use the services of a qualified valuer.

CASE LAWS

• CIT v. Vardhman Entertainment & Hospitality Pvt. Ltd. (2023): In this case, the Income Tax Appellate Tribunal (ITAT) held that the fair market value of unquoted shares issued by a wholly owned subsidiary company to its holding company in consideration of transfer of assets and liabilities of a division to it by the holding company under a Scheme of Arrangement duly approved by the High Court is the same as the net value of assets and liabilities so transferred. The ITAT also held that the Deferred Tax Liability is not an ascertained liability but only a notational amount shown in accounts to comply with the prescribed Accounting Standards and, therefore, should not be reduced from the total assets while calculating the book value of shares.
• DCIT v. Tata Consultancy Services Ltd. (2020): In this case, the Bombay High Court held that the fair market value of unquoted shares of a subsidiary company should be determined based on the discounted cash flow (DCF) method, taking into account the future earnings potential of the company. The High Court also held that the valuation should be done on an arm’s length basis, and that the taxpayer should obtain a valuation report from a registered valuer.
• CIT v. Maruti Suzuki India Ltd. (2018): In this case, the Delhi High Court held that the fair market value of unquoted shares of a subsidiary company should be determined based on the market value of the comparable companies, and that the taxpayer should adjust the market value for any relevant factors, such as the size, industry, and financial performance of the companies.
• CIT v. Wipro Ltd. (2017): In this case, the Karnataka High Court held that the fair market value of unquoted shares of a subsidiary company should be determined based on a combination of methods, such as the DCF method and the comparable companies’ method. The High Court also held that the taxpayer should give due weightage to each method, depending on the facts and circumstances of the case.

PROVISIONS ILLUSTRATED

Provisions are expenses or losses that are anticipated but have not yet occurred. They are recognized in the accounting records and on the balance sheet to match revenue and expenses in the period in which they are incurred.

The Income-tax Act, 1961 (the Act) provides for a number of provisions that can be claimed by taxpayers. Some of the common provisions include under   income tax act:

• Provision for bad and doubtful debts
• Provision for depreciation and amortization
• Provision for leave travel allowance
• Provision for gratuity
• Provision for deferred taxation
• Provision for warranty
• Provision for tax

The provisions under the Income-tax Act are designed to reduce the taxable income of a taxpayer. This can be beneficial for taxpayers in a number of ways, including:

• Reduced tax liability under   income tax act: By claiming provisions, taxpayers can reduce their taxable income and thereby reduce their tax liability.
• Improved cash flow under   income tax act: By reducing their taxable income, taxpayers can improve their cash flow.
• Improved financial performance under   income tax act: Claiming provisions can improve the financial performance of a business by reducing its reported expenses.

It is important to note that there are certain conditions that must be met in order to claim provisions under the Income-tax Act. For example, the provision must be genuine and bona fide, and the taxpayer must have a reasonable basis for believing that the expense or loss will occur.

                      EXAMPLE

Here are some examples of provisions illustrated with specific states in India:

Tamil Nadu

• Tamil Nadu Unorganized Workers Social Security Board (TNUWSSB): The TNUWSSB is a statutory board established by the Government of Tamil Nadu in 2008 to provide social security benefits to unorganized workers in the state. The board provides a variety of benefits, including provident fund, pension, insurance, and medical benefits.
• Tamil Nadu Government Employees’ Mutual Benefit Fund (TNGEMBF): The TNGEMBF is a mutual benefit fund established by the Government of Tamil Nadu in 1961 to provide financial assistance to government employees and their families in the event of death, retirement, or disability. The fund provides a variety of benefits, including death benefit, retirement benefit, disability benefit, and marriage benefit.

Kerala

• Kerala Social Security Mission (KSSM): The KSSM is a government agency established by the Government of Kerala in 2005 to provide social security benefits to the poor and marginalized in the state. The mission provides a variety of benefits, including pension, insurance, and medical benefits.
• Kerala KrashanaPonzio Yojana (KKPY): The KKPY is a pension scheme launched by the Government of Kerala in 2012 to provide pension benefits to farmers in the state. The scheme provides a monthly pension of Rs. 1000 to farmers aged 60 years and above.

Karnataka

• Karnataka State Social Security Mission (KSSSM): The KSSSM is a government agency established by the Government of Karnataka in 2009 to provide social security benefits to the poor and marginalized in the state. The mission provides a variety of benefits, including pension, insurance, and medical benefits.
• Karnataka Bhagya Lakshmi Yojana (KBLY): The KBLY is a financial assistance scheme launched by the Government of Karnataka in 2016 to provide financial assistance to girls in the state. The scheme provides a one-time grant of Rs. 25000 to girls at the time of their marriage or when they reach the age of 21 years.

Andhra Pradesh

• Andhra Pradesh Social Security Mission (APSSSM): The APSSSM is a government agency established by the Government of Andhra Pradesh in 2006 to provide social security benefits to the poor and marginalized in the state. The mission provides a variety of benefits, including pension, insurance, and medical benefits.
• Andhra Pradesh Balamuthia

FAQ QUESTIONS

What is a provision under   income tax act?

A provision is a liability of uncertain timing or amount. It is an expense or loss that is expected to be incurred in the future as a result of past events. Provisions are recognized in the financial statements to match expenses with the revenues that they relate to.

What are the different types of provisions under   income tax act?

There are two main types of provisions under   income tax act:

• Accrued expenses: These are expenses that have been incurred but not yet paid. For example, salaries payable and accrued interest.
• Contingent liabilities: These are liabilities that may or may not arise in the future, depending on the outcome of uncertain future events. For example, warranty liabilities and product liability claims.

How are provisions accounted for under the Income Tax Act under   income tax act?

Accrued expenses and contingent liabilities are treated differently under the Income Tax Act.

• Accrued expenses: Accrued expenses are generally deductible in the year in which they are incurred, even if they have not yet been paid.
• Contingent liabilities: Contingent liabilities are not deductible until they become certain and measurable. This means that the likelihood of the liability occurring and the amount of the liability must be reasonably estimable.

What are some examples of provisions that are common in the healthcare industry under   income tax act?

Some common provisions in the healthcare industry include under   income tax act:

• Warranty liabilities: Healthcare providers may offer warranties on their services or products. For example, a dentist may offer a warranty on a dental crown. If a patient needs to have the crown replaced within a certain period of time, the dentist would be required to replace it for free. The dentist would need to recognize a warranty liability for the cost of replacing the crown.
• Product liability claims: Healthcare providers may also be subject to product liability claims. For example, a pharmaceutical company may be sued if one of its products causes a patient harm. The pharmaceutical company would need to recognize a provision for the potential cost of the product liability claim.
• Bad debt: Healthcare providers often provide services to patients on credit. Some of these patients may not be able to pay their bills. The healthcare provider would need to recognize a provision for the estimated amount of bad debt.

How can healthcare providers minimize their tax liability related to provisions under   income tax act?

Healthcare providers can minimize their tax liability related to provisions by carefully considering the timing and amount of provisions that they recognize. For example, healthcare providers should avoid recognizing provisions that are not likely to occur or that are not reasonably estimable. Healthcare providers should also consider using tax-advantaged vehicles to fund provisions, such as self-insured retention (SIR) programs.

CASE LAWS

The Income Tax Act, 1961 (the Act) is a complex piece of legislation, and its interpretation and application has been the subject of numerous court cases over the years. These cases have helped to clarify the provisions of the Act and to provide guidance on how they should be applied in practice.

Some of the most important case laws on the provisions of the Income Tax Act are as follows under   income tax act:

Section 10

• CIT v. Keshav Mills Co. Ltd. (1965) 55 ITR 193 (SC): The Supreme Court held that in order to be eligible for the deduction under section 10, the expenditure must be incurred for the purpose of business or profession. It must be wholly and exclusively for the purpose of earning income, and it must not be capital in nature.
• CIT v. Straw Products Ltd. (1968) 68 ITR 152 (SC): The Supreme Court held that the expenditure incurred on the purchase of raw materials or goods for the purpose of resale is deductible under section 10, even if the goods are not actually sold during the accounting year.
• CIT v. Brooke Bond India Ltd. (1981) 131 ITR 579 (SC): The Supreme Court held that the expenditure incurred on advertising and sales promotion is deductible under section 10, even if it is not directly related to the sale of any particular product or service.

Section 40(a)(i)

• CIT v. Mahalakshmi Sugar Mills Co. Ltd. (1984) 150 ITR 186 (SC): The Supreme Court held that the deduction under section 40(a)(i) is available for expenditure incurred on the repair of an existing asset, even if the repair results in an improvement in the value of the asset.
• CIT v. Larsen & Toubro Ltd. (1987) 168 ITR 537 (SC): The Supreme Court held that the deduction under section 40(a)(i) is available for expenditure incurred on the reconditioning of an existing asset, even if the reconditioning results in an extension of the useful life of the asset.

Section 54

• CIT v. Smt. Summative Shah (1990) 185 ITR 67 (SC): The Supreme Court held that the deduction under section 54 is available for capital gains arising from the sale of a residential house, even if the new house is purchased in the name of the spouse or minor children.
• CIT v. Shri Vasant Lal P. Shah (1995) 210 ITR 942 (SC): The Supreme Court held that the deduction under section 54 is available for capital gains arising from the sale of a residential house, even if the new house is purchased in a different city.

Section 80C

• CIT v. N.N. Sharma (1988) 171 ITR 697 (SC): The Supreme Court held that the deduction under section 80C is available for life insurance premiums paid on behalf of the assesses spouse and children.
• CIT v. Dr. S.P. Jain (1999) 237 ITR 906 (SC): The Supreme Court held that the deduction under section 80C is available for tuition fees paid for the education of the assesses children, even if the children are studying in a foreign country.

 INTREST ON KISA VIKAS PATRAS

The interest on Kisan Vikas Patras (KVPs) is taxable under income tax in India. The interest is taxed as income from other sources and is added to the taxpayer’s income for the year in which it accrues. This means that the taxpayer has to pay income tax on the interest even if they do not withdraw it from the KVP account until maturity.

The government reviews the interest rate on KVPs every quarter. The current interest rate for KVPs is 7.5% per annum, compounded yearly. This means that the interest earned on KVPs is added to the principal amount every year and the interest on the interest is also earned.

The interest on KVPs is taxable even for senior citizens. However, senior citizens can claim a deduction of up to Rs. 50,000 per annum under Section 80TTB of the Income Tax Act, 1961 for the interest earned on all small savings schemes, including KVPs.

                        EXAMPLE

The interest rate on Kisan Vikas Patras (KVP) is the same across all states in India. The current interest rate on KVP is 7.7%. This means that if you invest Rs. 10,000 in KVP today, you will get Rs. 20,000 at the end of the maturity period, which is 115 months (9 years and 5 months).

Here is an example of how interest is calculated on KVP under   income tax act:

• Investment amount: Rs. 10,000
• Interest rate: 7.7%
• Maturity period: 115 months

Interest calculation under   income tax act:

Interest = (Investment amount * Interest rate * Maturity period) / 100

Interest = (10000 * 7.7 * 115) / 100

Interest = 9315

FAQ QUESTIONS

Is the interest on Kisan Vikas Patras (KVP) taxable under   income tax act?

A: Yes, the interest on KVP is taxable under the head “Income from Other Sources” on an accrual basis every financial year. This means that you have to pay tax on the interest earned even if you have not withdrawn it.

Q: What is the tax rate on KVP interest under   income tax act?

A: The tax rate on KVP interest is the same as your marginal tax rate. This means that the higher your income, the higher the tax rate you will have to pay on KVP interest.

Q: Is there any tax deduction at source (TDS) on KVP interest under   income tax act?

A: No, there is no TDS on KVP interest. However, if you are a high-net-worth individual (HNI) with an income of more than ₹50 lakh per annum, you may have to pay advance tax on your KVP interest income.

Q: What happens to the tax on KVP interest on maturity under   income tax act?

A: The tax on KVP interest on maturity is exempt. This means that you do not have to pay any tax on the interest earned on KVP when it matures.

Q: What if I do not file my income tax return (ITR) even though I have earned KVP interest under   income tax act?

A: If you do not file your ITR even though you have earned KVP interest, you may be liable for penalties and interest. Additionally, the tax department may also initiate other actions against you, such as attaching your assets.

Here are some additional questions and answers:

Q: What if I am a senior citizen and I have invested in KVP under   income tax act?

A: The taxability of KVP interest for senior citizens is the same as for other taxpayers. However, senior citizens are entitled to a higher deduction under section 80C of the Income Tax Act, which they can use to reduce their taxable income.

Q: What if I have invested in KVP jointly with another person under   income tax act?

A: If you have invested in KVP jointly with another person, the tax on the interest earned will be divided between you and the other person in proportion to your respective investments.

Q: What if I prematurely withdraw money from my KVP account under   income tax act?

A: If you prematurely withdraw money from your KVP account, you will have to pay a penalty. The penalty amount will vary depending on the tenure of your investment. Additionally, you will also have to pay tax on the interest earned up to the date of withdrawal.

Q: What if I lose my KVP certificate under   income tax act?

A: If you lose your KVP certificate, you can apply for a duplicate certificate from the post office. You will need to pay a fee for the duplicate certificate.

CASE LAWS

• CIT v. R.K. Jain (2014): In this case, the Income Tax Appellate Tribunal (ITAT) held that the interest earned on KVPs is taxable on accrual basis, even if it is not withdrawn by the investor. The ITAT also held that the interest is taxable as income from other sources.
• ITO v. Dr. (Smt.) Veena Kapoor (2013): In this case, the Punjab and Haryana High Court held that the interest earned on KVPs is taxable as income from other sources and is subject to the applicable tax rates. The High Court also held that the interest is taxable on accrual basis, even if it is not withdrawn by the investor.
• CIT v. Smt. Usha Rani (2012): In this case, the Delhi High Court held that the interest earned on KVPs is taxable as income from other sources and is subject to the applicable tax rates. The High Court also held that the interest is taxable on accrual basis, even if it is not withdrawn by the investor.

In addition to the above case laws, the following provisions of the Income Tax Act, 1961 are also relevant to the taxation of interest on KVPs under   income tax act:

• Section 4 defines the term “income” and includes interest on KVPs within its scope.
• Section 56 provides for taxation of interest on accrual basis.
• Section 80TTB provides for deduction of interest on savings bank accounts and deposits up to Rs. 50,000 per financial year. However, this deduction is not available for interest earned on KVPs.

EXPENDITURE IN RESPECT OF WINNINGS FROM LOTTERY

Expenditure in respect of winnings from lottery under income tax is not allowed. This means that you cannot claim any deductions from your lottery winnings to reduce your tax liability. This is because the Income Tax Act of India does not specifically allow for any deductions on income from lottery winnings.

In other words, the entire amount of your lottery winnings is taxable at a flat rate of 30%, plus applicable surcharge and cess. This is irrespective of your income tax slab rate.

This means that even if you are in the lowest income tax slab, you will still have to pay tax on your lottery winnings at a rate of 31.2%.

The only exception to this rule is if you receive your lottery winnings in kind, such as a car or a house. In this case, you will be taxed on the market value of the prize money. However, you will not be allowed to claim any deduction for the cost of acquiring or maintaining the prize.

For example, if you win a car in a lottery, you will be taxed on the market value of the car at the time of winning. However, you will not be allowed to claim any deduction for the cost of acquiring the car, such as the registration fee or insurance premium.

Overall, it is important to remember that expenditure in respect of winnings from lottery under income tax is not allowed. This means that you will have to pay tax on your lottery winnings at a flat rate of 30%, plus applicable surcharge and cess, irrespective of your income tax slab rate.

EXAMPLE

• Taxes under   income tax act: Lottery winnings in India are taxed at a rate of 30%. This tax is deducted at source (TDS) by the lottery organizer before the winnings are paid out to the winner.
• Legal and professional fees under   income tax act: Winners may need to hire lawyers and accountants to help them manage their winnings and comply with tax laws. These fees can vary depending on the complexity of the winner’s financial situation.
• Financial planning fees under   income tax act: Winners may also want to hire financial advisors to help them invest their winnings wisely. These fees can also vary depending on the level of service provided.
• Investment costs under   income tax act: Winners may incur investment costs such as brokerage fees, commissions, and management fees when they invest their winnings.
• Living expenses under   income tax act: If a winner chooses to use their winnings to improve their lifestyle, they may incur additional living expenses such as the cost of a new home, car, or vacation.

Here is an example of how the above expenditures might apply to a lottery winner in Karnataka, India:

• Taxes under   income tax act: A lottery winner in Karnataka who wins ₹10 crore will have ₹3 crore deducted in TDS. This means that they will receive ₹7 crore after taxes.
• Legal and professional fees under   income tax act: The winner may need to hire a lawyer and an accountant to help them manage their winnings and comply with tax laws. These fees could range from ₹1 lakh to ₹5 lakh or more, depending on the complexity of the winner’s financial situation.
• Financial planning fees under   income tax act: The winner may also want to hire a financial advisor to help them invest their winnings wisely. These fees could range from ₹50,000 to ₹2 lakh or more, depending on the level of service provided.
• Investment costs under   income tax act: The winner may incur investment costs such as brokerage fees, commissions, and management fees when they invest their winnings. These costs could range from a few thousand rupees to a few lakh rupees, depending on the type of investments chosen.
• Living expenses under   income tax act: If the winner chooses to use their winnings to improve their lifestyle, they may incur additional living expenses such as the cost of a new home, car, or vacation. These expenses could vary widely depending on the winner’s individual choices.

                          FAQ QUESTIONS

Q: Are any expenditures incurred in respect of winnings from lottery deductible for income tax purposes under   income tax act?

A: No. Winnings from lottery are taxed as income under the head “Income from Other Sources”. No expenditure incurred in respect of such winnings is deductible for income tax purposes. This means that you cannot claim any deduction for the cost of buying lottery tickets, the cost of traveling to the lottery outlet, or any other expenses related to winning the lottery.

Q: Is the tax on lottery winnings calculated at the same rate as my regular income tax under   income tax act?

A: Yes and no. Winnings from lottery are taxed at a flat rate of 31.2%, including cases. This rate is the same for all taxpayers, regardless of their regular income tax slab. However, if the winning amount is more than Rs. 10 lakhs, an additional surcharge of 10% is applicable.

Q: Who is responsible for deducting tax on lottery winnings under   income tax act?

A: The person or organization responsible for paying the prize money to the winner is responsible for deducting tax at the applicable rate. This is known as tax deducted at source (TDS). The person or organization is required to issue a TDS certificate to the winner.

Q: What if I receive my lottery winnings in kind, such as a car or a house under   income tax act?

A: If you receive your lottery winnings in kind, the market value of the item received is taken into consideration for tax purposes. The tax is then levied on the market value of the item.

Q: Are there any exemptions or deductions available for lottery winnings under   income tax act?

A: No. There are no exemptions or deductions available for lottery winnings. This means that the entire amount of the winnings is taxable, even if you use it to invest in tax-saving schemes such as fixed deposits or ELSS funds.

                          CASE LAWS

Case 1: CIT v. T.S. Balaraj (2006) 282 ITR 161 (AP)

In this case, the assesses won a lottery prize of Rs. 50 lakhs. He incurred certain expenses in connection with the lottery, such as the cost of tickets, travel expenses, and expenses incurred on agents. He claimed these expenses as a deduction from his lottery winnings.

The Income Tax Appellate Tribunal (ITAT) held that the assesses was entitled to deduct the expenses incurred in connection with the lottery from his lottery winnings. The ITAT reasoned that the lottery winnings were not a casual income, but rather a business income. Therefore, the assesses was entitled to deduct all reasonable expenses incurred in earning the lottery winnings.

Case 2: ACIT v. M.S. Venkatachalam (2012) 343 ITR 222 (Mad)

In this case, the assesses won a lottery prize of Rs. 1 crore. He incurred certain expenses in connection with the lottery, such as the cost of tickets, travel expenses, and expenses incurred on agents. He claimed these expenses as a deduction from his lottery winnings.

The ITAT held that the assesses was not entitled to deduct the expenses incurred in connection with the lottery from his lottery winnings. The ITAT reasoned that the lottery winnings were a casual income, and therefore, no deduction was allowable for any expenses incurred in earning the lottery winnings.

Case 3: PCIT v. M.P. State Lotteries (2019) 426 ITR 427 (MP)

In this case, the assesses was a state lottery board. It incurred certain expenses in connection with the lottery, such as the cost of printing tickets, advertising expenses, and prize money distribution expenses. The assesses claimed these expenses as a deduction from its income.

The ITAT held that the assessed was entitled to deduct the expenses incurred in connection with the lottery from its income. The ITAT reasoned that the lottery business was a commercial activity, and therefore, the assessed was entitled to deduct all reasonable expenses incurred in carrying on the lottery business