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TMI Blog1994 (8) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... vernments, realise sale proceeds against payment of guaranteed stipulated profit to the Governments. The number of tickets to be printed, printing press wherefrom the tickets were to be printed, the design of the tickets etc. was to be got approved from the State Governments. All incidental expenses necessary for organising different draws of lotteries were to be home by the assessee. The payment of lottery prizes of draws was the responsibility of the assessee, Prizes less than Rs. 1,000 were to be directly paid by the assessee, whereas prizes of denominations higher than Rs. 1,000 were to be paid by the State Governments after recovery from the assessee. The unclaimed prizes, unclaimed bonus and prizes on unsold tickets belonged to the assessee. These amounts were claimed as " winnings from lotteries " within the meaning of sec. 80TT of the Act. The assessee thus claimed sums of Rs. 1,07,41,858 and Rs. 1,58,07,446 as deductions u/s 80TT in A.Ys. 1984-85 and 1985-86, respectively. 3. The AO on consideration of terms of agreements with Governments of Nagaland and Manipur and the provisions of I.T. Act concluded that in respect of unsold tickets, there was cessation of liability o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s " winnings from lottery ". 5. The ld. CIT(A) was unable to agree with the submissions advanced on behalf of the assessee. He found no infirmity in the reasoning of AO and in his approach refusing to allow deduction u/s 80TT. He agreed with AO that prize money of Rs. 2,14,55,751 did not relate to winnings from any ticket held by the appellant as investment but represented reduction of his liability to this extent. The assessee was holding tickets as stock-in-trade and not investment and out of tickets sold some winning friends did not claim prize which belonged to the assessee. Such prize on the unsold tickets cannot be treated as lottery prize as " winnings from lottery " by the assessee. The fact that tax at source was deducted from an unclaimed prize money did not advance the case of the assessee. The ld. CIT(A) in support of his conclusion relied upon decision of ITAT, Bangalore Bench in the case of First ITO v. Visweswaraiah Lucky Centre [1983] 5 ITD 132. He accordingly upheld rejection of claim of deduction under section 80TT. Similar order was passed for A.Y. 1985-86. 6. The assessee has come up in appeal. Shri R. Santhanam, C.A. ld. counsel for the assessee strongly as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enabled to effect sales thereof till the draw actually takes place and therefore lottery tickets, not as physical articles but as slips of paper or memoranda evidencing the right to participate in the draw can be regarded as dealer's merchandise and therefore goods which are capable of being bought or sold in the market. With these observations, I respectfully agree with the conclusion reached by my learned brother and concur with the order proposed by him. " Shri Santhanam fairly conceded that decision of Hon'ble Bombay High Court in the case of Commercial Corpn. of India Ltd. v. ITO [1993] 201 ITR 348 and of Karnataka High Court in the case of Visveswaraiah Lucky Centre v. CIT 119911 189 ITR 698 were against the assessee but in the above cases the decision of Hon'ble Supreme Court referred to by the ld. counsel was not cited or considered. Having regard to decision of Hon'ble Supreme Court, the assessee was entitled to deduction by way of " winnings from lottery ". 9. Smt. Sinha ld. D.R. supported the impugned order of CIT(A). She contended that earlier decisions of the Tribunal given in assessee's case were not applicable in the year before us as in those years assessee was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On consideration of detailed judgment of Hon'ble Bombay High Court in the case of Commercial Corpn. of India Ltd., we find that assessee in that case was to organise lotteries on behalf of State of Goa against payment of guaranteed profit to the Government. The terms and conditions in the reported case are quite similar to the terms and conditions of agreements entered into by the assessee with the two State Governments. The question in the reported case was whether the prize money on unsold lottery tickets was income by way of " winnings from lotteries ". Their Lordships after considering the terms and conditions of the relevant agreement held that " prize " on unsold tickets was not winnings from lotteries. Their Lordships held that the assessee merely acted as an agent of the Government for organising lotteries and had neither purchased lottery tickets nor participated in the draws of the lotteries. In the said decision their Lordships considered dictionary meaning of the words "lottery ticket" and "lottery" and the relevant decisions of the different High Courts on the subject including the decision of Hon'ble Supreme Court in the case of H. Anraj and held : " It is clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parate observations made by S.S. Mukherjee, J. (as Hon'ble Chief Justice then was) and in particular to the remarks in the last para of the decision referred to above. 12. We have considered carefully the judgment of Hon'ble Supreme Court. We find nothing in the decision which would advance the case of the assessee. The relevant observations of their Lordships were considered and applied by the Hon'ble Karnataka High Court to arrive at conclusion that similar receipt was not " winnings from lotteries ". The decision of Supreme Court does not suggest that assessee as organiser of lotteries on behalf of the State Governments can be said to have purchased lottery tickets for a price and was entitled to participate in the draw. In our considered view, decision of Hon'ble Karnataka High Court fully covers the controversy against the assessee. Respectfully following the aforesaid decision and after examining the facts of the case, we hold that assessee is not entitled to deduction u/s 80TT of the IT Act. 13. In the next ground of appeal for the A.Y. 1984-85, the assessee has challenged the disallowance of Rs. 12,62,288 u/s 37(3A) of the Act. The learned CIT(A) upheld the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the following amounts are covered u/s 37(3A) : (a) to (e) .... Rs. 49,058 (f) Scheme Announcement or publicity expenses .... Rs. 49,17,611 Further 20 per cent of result publication expenses of Rs. 72,23,861 .... Rs. 14,44,772 -------------------------- Rs. 64,11,441 Less .... Rs. 1,00,000 ------------------------- Rs. 63,11,441 ------------------------- 20 per cent of the above Rs. 12,62,288 as against Rs. 24,51,780 disallowed by the ITO. Relief Rs. 11,89,492. " In appeal before us it was contended that inclusion of Rs. 14,44,772 in expenses to which section 37(3A) was applied is totally unjustified when after examination it has been seen that these expenses pertain to result publication which was mandatory for the assessee as per agreements with the State Governments. Merely because date of next draw was also announced, the result publication did not amount to advertisement. Likewise, announcement and publicity of schemes of different draws of lotteries was imperative for carrying the business of lotteries on all India basis. The assessee placed before us copies of result and other publications carried by the assessee. The ld. D. R. supported the impugned orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d application would be expeditiously disposed of. With above observations, we confirm the order of CIT(A) on this, ground. Assessment year 1985-86: 15. In the above assessment year the first ground of appeal relates to disallowance of Rs. 9,28,379 u/s 37(3A) of the IT Act. this disallowance also includes 20 per cent of expenses amounting to Rs. 16,25,081 incurred on publication of results. For the reasons given in order for A.Y. 1984-85, we see no justification for sustaining this disallowance. It is hereby deleted. The balance amount of disallowance u/s 37(3A) is upheld. 16. The next ground of appeal relates to disallowance of Rs. 4,51,490 claimed as embezzlement by an employee. The A.O. and on appeal the learned CIT(A) disallowed the claim as case of embezzlement came to the notice of assessee only in March 1986 when a report was lodged with S.H.0, Lajpat Nagar Police Station, New Delhi. The loss due to embezzlement, if any, thus according to the learned authorities arose in A.Y. 1985-86 and not in the assessment year under consideration. The loss claimed was accordingly disallowed. 17. The assessee has come up in appeal. We have heard submission of both the parties. Learne ..... X X X X Extracts X X X X X X X X Extracts X X X X
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