TMI Blog2000 (8) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax erred in law facts in not allowing the claim of the assessee under section 80TT at Rs. 1,31,37,733 and the learned CIT(A) erred in law and facts in confirming the disallowance of claim under section 80TT amounting to Rs. 1,31,37,733." 3. The Division Bench noted that Assessing Officer had disallowed the claim of the assessee on the basis of assessment orders for assessment year 1984-85 and 1985-86 and order of the CIT(A) for these two assessment years but during the course of hearing the learned counsel for the assessee placed reliance on the decisions of ITAT Delhi Bench "E" in the case of Dy. CIT v. Ashwani Khurana [IT Appeal No. 580 (Delhi) of 1990] for assessment year 1986-87 in which the claim of the assessee was allowed after following the decision of Hon'ble Madras High Court in the case of CIT v. G. Krishnan [1997] 228 ITR 557 in which it was concluded that bonus is a winnings from lottery and not business income. The Bench further noted that in the case of assessee himself the identical question came up before ITAT Delhi Bench "B" in ITA Nos. 2370 and 2371/Del./88 and that Bench after following the decision of Hon'ble Karnataka High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------- 6. In the year under consideration the assessee claimed the above referred to income as winnings from the lottery and claimed deduction of Rs. 1,31,37,733 u/s 80TT of the Act. The Assessing Officer while completing the assessment noted that identical claims were made by the assessee during assessment year 1984-85 and 1985-86 which were disallowed by his predecessor. The appeals preferred by the assessee were also dismissed by the CIT(A). Following the same, the Assessing Officer rejected the claim of the assessee for the year under consideration and in appeal the CIT(A) followed the order of his predecessor while confirming the order of Assessing Officer. In view of these facts, it was necessary to go to the assessment order for assessment year 1984-85, copy of which is appearing at pages 27 to 41 of the paper book. A perusal of the said order reveals that assessee had shown a net profit of Rs. 38 lakh but filed return of income at Nil on the basis of deduction u/s 80TT of the Act claimed at Rs. 2,14,78,716. The Assessing Officer noted that assessee was organising agent to conduct lotteries on behalf of State of Nagaland and that of State of Manipur. He reproduced the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount is not winning of any person but reduction in liability of the provisions created by the person responsible for disbursing the winning prizes. The Assessing Officer observed that had this amount not been shown on the credit side of P L a/c and provision not created on the debit side what would have come in the debit side of the profit loss a/c, would have been the actual prize winning ticket liability as per tickets sold. As every winning is the organiser's liability as per the agreement, then liability of any person cannot be to himself. The profit of the assessee were broadly sale less expenses and prize winnings being one of those expenses. 9. The Assessing Officer took also note of the order of ITAT in the case of the assessee for earlier years and noted that in assessment years 1976-77 to 1978-79 prize winning money was not the assessee's trading liability because he was an agent and stockist of lotteries but not an organiser. However, during the year under consideration the assessee acted as an organiser and prize winning monies being the trading liability of the assessee, the reduction in its liability on receipt and finalisation of actual prize winning claims c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and expenditure as credit and debit and the balance-sheet contains the assessee's liabilities and assets. Prize winnings paid and to be paid were being taken by the assessee as his expenses in Profit Loss a/c and liability in the balance sheet. Taking note of the provision of section 41(1) of the Act the Assessing Officer noted that prize winning money was assessee's expenses being trading liability and if there was remission or cessation of that liability then the same shall be deemed to be profits gains of business or profession as per that section and cannot be "winnings of lottery". 11. On the basis of above discussion the Assessing Officer ultimately noted that "In these circumstances it shall be wrong to first claim complete prize winning as per the scheme as his liability and expenses on the debit side of the P L A/c and then take the excess provision created on the credit side and claim benefit of section 80-TT by presenting accounts in that manner". He further noted that amount on which deduction u/s 80TT was claimed was merely cessation of assessee's trading liability which was not so in assessment years 1976-77 to 1978-79. He thus rejected the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee under section 80TT as is evident from copy of assessment order appearing at pages 24 to 26. Subsequently the learned counsel referred to the decision of ITAT 'E' Bench of Delhi in the case of Ashwani Khurana for assessment year 1986-87 decided on 12-11-1998, copy of which is appearing at pages 79 and 80 of the paper book in which the Bench has allowed the claim of deduction under section 80TT in an amount of Rs. 11,10,364 after placing reliance on the decision of ITAT in the case of assessee itself in ITA Nos. 1225, 1351 and 1352/Del./81 decided on 3-4-1992 referred to above and after rejecting the submission of the learned D.R. who had placed reliance on the decision of Punjab Haryana High Court in the case of CIT v. Sanjiv Kumar [1980] 123 ITR 187/4 Taxman 97 and that in the case of Bhola Nath Kesari v. Director of State Lotteries [1974] 95 ITR 171 (All.).The contention of the learned counsel is that identical point is involved in the present case of the assessee. Further, learned counsel submitted that the assessee had earned the above referred to amount of Rs. 2,62,70,467 as winnings from the lottery and that was not income from the business. The above submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould not be raised to the status of 'trade and commerce', as understood at common parlance or as used under Article 301 of the Constitution of India. The plea of the learned counsel was that once lottery is not to be treated as trade or commerce then authorities below were not justified to treat the amount of prizes on unsold tickets, unclaimed prizes, agents' bonus and stockist bonus, which remained unclaimed as income of the assessee from business. It was pleaded that these have to be treated as income from lottery. 15. The learned counsel also tried to distinguish the case law referred to by the ITAT "B" Bench which decided the appeal of the assessee for just preceding two years and contended further that the factual position had not been appreciated in those cases in proper perspective, while the case of the assessee was fully covered in view of the earlier order of the ITAT in assessee's own case for assessment years 1973-74 to 1978-79. In the end the learned counsel also submitted that amount of unclaimed bonus of agent and stockist was fully allowable in view of the decision of Hon'ble Madras High Court in the case of G. Krishnan in which it was concluded that bonus was de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Bombay High Court in the case of Commercial Corporation of India Ltd. v. ITO [1993] 201 ITR 348/71 Taxman 528 in which the decision of Hon'ble Supreme Court in the case of H. Anraj, relied upon by the learned counsel, was also considered. The learned D.R. further placed reliance on the decision of Hon'ble Gauhati High Court in the case of Director of State Lotteries v. Asstt. CIT [1999] 238 ITR 1 which, according to the learned D.R., is direct authority on the point. In this case the issue was relating to deduction of tax at source and Their Lordships have discussed the meaning of lottery and in that case the income as defined under section 2(24)(ix) relating to winnings from lotteries was also considered and ultimately it was concluded that an agent or trader in lottery ticket was not entitled to participate in the draw and to claim the prize in such a draw whereas a participant is entitled to participate in a draw and claim the prize. The agent of trader does not participate in the lottery draw with intention to win the prize but derives income from sale of lottery tickets and thus the gains and commission from the sale of lottery tickets is a business income assessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that assessee was having no chance to win the prize as he had not paid consideration for the purchase of the ticket. He himself being the organiser of the lottery, could not be said to have purchased tickets of lottery from himself. Question of chance was absolutely absent nor assessee was having any intention of winning any prize because he himself is the organiser of the lotteries. The learned D.R. also distinguished the case of G. Krishnan and submitted that it was a case of selling agent who received commission at 11.5% and bonus of 10% on prize winning ticket. The learned D.R. argued that the facts of the present case are quite different as assessee is not selling agent but himself is organising the lottery on behalf of the State Government. Thus said ratio is not applicable whereas the case of Director of State Lotteries and the case of Commercial Corpn. of India Ltd. and that of Visveswaraiah Lucky Centre's case are direct on the point and their ratio are fully applicable. 20. The learned D.R. also pointed out that no doubt the assessee had filed a letter from State Government of Nagaland issued on 19-5-1985 showing deduction of TDS of Rs. 27,63,725 but it is deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eproducing the definition of income from winning from lotteries etc. appearing under section 2(24)(ix) inserted by the Finance (No. 2) Act, 1972. It reads as under: "2(24)'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." 24. At the same time it will be in the fitness of things to reproduce the section 80TT which was existing at the relevant periods: " 80TT. Deduction in respect of winnings from lottery --- Where the gross total income of any assessee, not being a company, includes any income by way of winnings from any lottery (such income being hereafter in the section referred to as winnings), there shall be allowed, in computing the total income of the assessee, a deduction from the winnings of an amount equal to,--- (a) in a case where the winnings do not exceed five thousand rupees, the whole of such winnings; (b) in any other case, five thousand rupees as increased by a sum equal to fifty per cent of the amount by which the winnings exceeded five thousand rupees." 25. So far as word 'income' is concerned it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "It cannot be disputed that in every raffle scheme based on the sale of lottery tickets, similar to the schemes sponsored by each of the two States in this case, every participant is required to purchase a lottery ticket by paying a price therefor (the face value of the ticket) and such purchase entitles him not merely to receive of claim a prize in the draw, if successful but before that also to participate in such draw. In other words, a sale of a lottery ticket confers on the purchaser thereof two rights: (a) a right to participate in the draw; and (b) a right to claim a prize contingent upon his being successful in the draw." 29. From the above it is quite clear that three ingredients are must in the lottery viz., --- (1) purchaser; (2) right to participate; and (3) right to claim prize contingent upon his winning. We have to examine as to whether the income shown by the assessee from prize on unsold tickets, unclaimed prize and unclaimed agent's bonus and stockist bonus is to be treated as income from winnings from the lottery or not. 30. In order to appreciate the pleas of the assessee we have to look into the factual position as emerging from the record. Prior to 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the face value of the total number of tickets and not less than Rs. 33 lakh in an year. Total prize money payable for every draw was to be deposited by the assessee one day before the final date of each running draw and to incur all other expenses to conduct the said lottery. He was also supposed to furnish bank guarantee and to make other advance deposits of Rs. 5 lakh and Rs. 20 lakh respectively. About unclaimed or undisbursed prize money clause 11 of this agreement provided that same belonged to the Government. 33. From the perusal of the above terms and conditions, it is evident that assessee had undertaken to conduct the lottery for both the State Governments and undertook to deposit the guaranteed profit with respective Government as well as to deposit the amount of prize money of each respective draw and to incur all the expenses. The status of the assessee is quite different from that of the stockists, agent, retailer and other sellers, as the assessee himself was to formulate schemes for appointments of stockists, agents, retailers etc. with the approval of the State Government(s). In nut shell the assessee was all in all so far as conduct of the lottery draw is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in between Bombay Commercial Corporation ofIndia, the assessee in that case, and State ofGoawas an agreement of agency and State ofGoawas the Principal and company was its agent. It was also opined that no transaction of sale can be read into the agreement. Their Lordships have further opined that there is no sale of lottery tickets by State to the organising agent and therefore prizes on unsold tickets are not winnings from lottery because assessee cannot be treated to have participated in the draws by not purchasing the ticket. Their Lordships observed (at page 373 of the decision) that by no stretch of imagination it can be said that the assessee purchased a ticket under that agreement as it is State Governments who are selling the tickets to stockists, agents, retailers etc. through the agency of the assessee and purchasers are those who are purchasing tickets from those persons. 37. The agreement in between the assessee and State of Nagaland as well as State of Manipur is on identical terms as of State of Goa and after going through the terms and conditions of both the agreements which have been reproduced by us in the above para it can safely be concluded on the basis of ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold or unclaimed. Director of State Lotteries made payments of such amount to M.S. Associates and Department was of the opinion that the amount so paid by the State Government to its organising agent was winnings from lottery. The case of the State Government as well as of M.S. Associates was that it is not income from winnings from lotteries but business income. The definition of "lottery" as appearing in different dictionaries as well as in case laws were cited before the Hon'ble High Court and the following is another relevant definition in the case of Robb Rowely United v. State Tex Civ. Appl. 127 SW 2d, 221 which is appearing at page 10 of the said report : "Three things must concur to establish a thing as a 'lottery': A prize or prizes; the award or distribution of the prize or prizes by chance; and the payment either directly or indirectly by the participants of a consideration for the right or privilege of participating." 41. Their Lordships after going through the definition as well as on the basis of terms and conditions of the agreement entered into between the State Government and the organising agent concluded that organising agent cannot be said to have purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et bonus @ 10% of the prize winning ticket. The CIT(A) allowed the relief under section 80TT and Tribunal also confirmed the view. The Hon'ble High Court confirmed the view of Tribunal by taking note of the relevant fact that while assessee was selling ticket, he was retaining counterfoils and it could not be said that he was not participating in the draw as in such position two persons are participating viz., (i) purchaser of ticket; and (ii) selling agent. This ratio is not at all applicable to the facts of the present case as assessee is not selling the tickets and assessee has not claimed bonus on prize winning tickets but he has claimed the unclaimed agents' bonus and unclaimed stockist's bonus as winnings from lotteries. These amounts might be winnings from lottery in the case of selling agents as they were entitled to get such bonus as in the case of G. Krishnan though different view of another High Court in the case of Visveswaraiah Lucky Centre is there but in the case of the assessee facts are quite different as assessee had stepped into the shoes of State Government so far as conducting the lottery is concerned. He is doing all acts on behalf of the State Government. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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