Is The Prize In Kind Taxable ?

I have a credit card for which the bank ran a promo/contest between October and December 2007. Every 1 lakh transaction in a week for the 12 weeks of the contest was gifted a car. The winner was supposed to pay Registration,Road Tax and Insurance and VAT(Extras) , if he wished to take delivery of the car as the Bank paid the (Main ) cost of the Car to the Car manufacturer. Essentially there was NO CASH PRIZE given.I being one of the winners paid the relevant extras for registration/taxes/insurance as mentioned above and got the card home. Am I liable to any income tax here ? If yes how do I pay the tax as I do NOT have the cash to pay and I never got Cash ..?

I am surprised that the prize was given without tax deduction at source , because the prize whether in cash or in kind is taxable . Income is defined under section 2(24). Sub-clause (ix) under income includes income from winnings from lotteries or games. Th exact wordings given are :

(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.]

Explanation.For the purposes of this sub-clause,

(i) lottery includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;

(ii) card game and other game of any sort includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game ;

Therefore, the car won under an scheme by the credit card company is definitely a game of sort which put card holders in a contest and made the "transactions falling under 1 lakh criteria" a matter of chance . The value of the car is certainly your income taxable under the I T Act.

Whether TDS necessary?
Why in the very beginning I expressed surprise for non deduction of tax at source is that section 194B of the I T Act provides that payments for winnings should be subject to tax at source . The exact wordings of the said section is as under:

194B. The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in an amount exceeding five thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force :

Provided that in a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings.

As can be seen that the TDS provision takes care of TDS on even kind. In my opinion , there is certainly misinterpretation of the provision given under section 194B by the credit card . But anyway that is not your headache because dedcution tax was their problem.

Special tax rate !

Section 115 BB of the I T Act is tax rate for winnings from game or lottery etc . The said section provides as under :

115BB. Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of

(i) the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of thirty per cent; and

(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).

So , the rate of tax on your winning will be 30 % of the value of winnings . Remember , general rate of tax is not applicable for your winnings. You will have to pay the tax on the winnings .