TMI Blog2013 (11) TMI 619X X X X Extracts X X X X X X X X Extracts X X X X ..... n 201 against the assessee, was without jurisdiction - Section 271C and Section 270B make reference to the second proviso to Section 194-B, i.e., the proviso as it stands today - Proceedings against the person under section 201, such as the assessee in the present case, who fails to ensure payment of tax, as contemplated by proviso to Section 194B, before releasing the winnings, is not maintainable or the proceedings against such person is without jurisdiction – Decided against the Revenue. - ITA.No.144,142/2007 - - - Dated:- 30-8-2013 - Dilip B Bhosale And B Manohar, JJ. For the Appellant : Sri K V Aravind, Adv, Sri Kamaladhar, Adv For the Respondent : Sri Percy Pardiwala, Sr Adv, T Suryanarayana, Adv JUDGEMENT:- PER : Dilip B Bhosale These appeals arise from common order dated 7.3.2006 rendered by the Income Tax Appellate Tribunal (for short the Tribunal ), Bangalore Bench A , in ITA Nos.1290 and 1291/Bang/2002 whereby both the appeals preferred by the respondent-assessee were allowed. The appeals before the Tribunal were directed against the order of Commissioner of Income Tax-V (for short the Appellate Authority or AA ), Bangalore, dated 21.6.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a to receive the prize, nevertheless they had participated in the scheme by purchasing the products advertised to take a chance at winning the prize. It was further held that what has been paid as prize in kind in various schemes conducted by the respondent is a lottery on which the tax was deductible under Section 194B of the Act and as the respondent neither deducted the tax nor ensured payment thereof before the winnings were released, treated the respondent as an assessee in default. He passed similar order dated 28.3.2002 for the Assessment Year 2002-03. The computation of tax made by the AO in both these matters read thus: In ITA 142/2007 Computation of tax: A.Y.2002-03 Total amount of prize given away : Rs.54,73,643 Tax on the same @ 30% Rs.16,42,093 Add: Surcharge @ 2% Rs. 32,843 Total : Rs.16,74,936 Add: Int. u/s. 201(1A) Rs. 98,966 Rs.17,73,902 In ITA 144/2007 Computation of tax: A.Y.2001-02 Total amount of prize given away : Rs.6,51,238 Tax on the same @ 40% Rs.2,60,495 Add: Surcharge @ 12% Rs. 31,259 Total : Rs.2,91,754 Add: Int. u/s. 201(1A) : Rs. 86,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the Act and erroneously relying on a non-existent CBDT Circular No. 956.? 5. We have heard learned counsel for the parties at considerable length and after having heard them, we have framed the following substantial questions of law, which also cover the question of law as framed in the memo of appeal. We make it clear that in the course of hearing, by consent of learned counsel for the parties, we formulated the following questions and heard them on these questions at considerable length. The questions of law which, in our opinion, fall for our consideration in the present appeals are as follows: i. Whether the assessee failed to discharge its obligation under Section 194B of the IT Act, while conducting the Schemes that tantamount to lottery? 2. Whether the amendment made by the Finance Act, 2001, inserting an explanation to Section 2(24)(ix) has a retrospective effect? 3. In the facts of this case whether proceedings under Section 201 can be taken against an assessee for a failure to discharge its obligation under the proviso to Section 194B, merely because the assessee did not ensure that tax had been paid in respect of winnings, wholly in kind, before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the respondent-assessee, at the outset, submitted that the Schemes conducted by the respondent cannot be regarded as lottery as there was no price paid by the customer for participating in the chance to win a prize. In short, he submitted that prior to insertion of the definition of Lottery in the Act the Schemes that were conducted by the respondent would not qualify to be regarded as a lottery for the purpose of the Act. Mr.Pardiwala further submitted that the substantive part of Section 194B provides for an obligation to deduct tax from a payment of winnings in cash. If the prize in kind is to be paid, he submitted that the question of deducting any amount cannot arise as the term deduction postulates a reduction of an amount from a gross sum and payment of the net amount thereafter. It is for this reason, he submitted that the Central Board of Direct Taxes (for short the CBDT ) in Circular No.390 dated 8.8.1984 had clarified that there is no obligation to deduct tax at source in the substantive provisions of Section 194B where the prize is given only in kind. It was then submitted that having regard to the plain language used in the proviso to Section 194B, the person who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd or partly in cash or 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. From plain reading of the proviso, it is clear that it does not provide for deduction of tax at source where the winnings are wholly in kind and it simply puts a responsibility to ensure payment of tax, where winnings is wholly in kind. In the present case, admittedly, the winnings was wholly in kind. 12. We are concerned with Section 201 as it stood before its amendment by Finance Act, 2008, which reads thus: Consequences of failure to deduct or pay. 201. (1) If any such person [referred to in section 200] and in the cases referred to in Section 194, the principal officer and the company of which he is the principal officer does not deduct [the whole or any part of the tax] or after deducting fails to pay the tax as required by or under this Act, he or it shall, without prejudice to any other consequences which he or it may incur, be deemed to be an assessee in default in respect of the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, therefore, has cast duty/responsibility on such person to ensure that the tax is paid before the winnings is released. Thus, it is mandatory for the person who is responsible for paying any income by way of winnings wholly in kind, to ensure that tax has been paid in respect of the winnings, before it is released to the winner. 15. In short, the conjoint reading of Section 201 and Section 194B would show that the person responsible to deduct tax at source, if he either fails to deduct or after deducting, fails to pay, is deemed to be an assessee in default, in respect of the tax. However, where the payment of the winnings is wholly in kind and not in cash at all, the question of deduction does not arise and in that eventuality, the only responsibility, as casts under Section 194B, is to ensure that tax is paid by the winner of prize before the prize/winnings is released in his favour. 16. Having so observed, in our opinion, initiation of the proceedings under Section 201 against the assessee, was without jurisdiction. We observe, that the authorities under the Act in such situation would not render remediless against such person who fails to ensure that tax is paid before t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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