TMI Blog1999 (3) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... section 194B of the Income-tax Act in respect of 1494 Nos. of lottery draws held during the period from February 6, 1992, to December 12, 1992. As the civil rules involve common questions of law and facts I propose to dispose of these two writ petitions by a common judgment and order. Pursuant to the powers conferred on the States under article 298 of the Constitution of India the State of Assam has been carrying on the business of State organised lottery through its organising agents, after executing the agreements between the parties. Lotteries are run under various names. The petitioner appointed MS Associates as an organising agent. The petitioner is responsible for making payments of the prize money to the prize winners in terms of the agreement made with the organising agent. The liability for deduction of income-tax at source under section 194B of the Income-tax Act, 1961 (for short "the Act"), rests with the petitioner and the petitioner is to deduct tax at source while making payments towards prizes, provided the payments exceed Rs. 5,000. The petitioner is also responsible for making payments to the organising agents in respect of prize winning tickets which either re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time deposit of Rs. 10 lakhs towards disbursement of taxable prize money. In case the taxable prize remained unclaimed or was among the unsold tickets of the organiser, the said one-time deposit with the Government was to be carried over to the next draw as prize money deposit, hence, the organiser was allowed credit to that extent. From the above clause it is clear that all prizes from unsold tickets and all unclaimed prizes shall be the property of the organising agent and he shall be entitled to claim the same. According to these respondents all tickets printed for a particular draw, whether sold or unsold, participated in the draw for prize and prizes won on sold or unsold tickets constitute income from "winnings from lottery". Since the prizes won by unsold tickets remaining with the organiser and the unclaimed prizes on winning tickets are the property of the organiser which shall be refunded to him such prizes attract the provisions of section 194B of the Act. As the petitioner is responsible for making the payment or adjusting towards the one-time deposit, it amounts to payment to the organiser by the petitioner, therefore, the petitioner is responsible to deduct tax at s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or respondent No. 5/4, MS Associates, supported the contention of the petitioner. Dr. Saraf further submitted that the petitioner is responsible for making payment of the prize money to the prize winners in terms of the agreement made with the organising agents, and thereby, as per section 194B of the Act the petitioner is responsible for deduction of tax at source, if required, and this respondent who is an organising agent of the State lotteries is not at all connected with the matter of deducting tax at source. Further, it has been submitted that the unsold and unclaimed prize winning tickets might have presented in the draws but because of the said facts, liability for deduction of tax at source on such tickets is not attracted inasmuch as unsold lottery tickets remaining in the possession of the organising agent cannot be deemed to have been sold to the organising agents. As per the agreement between the State of Assam and the organising agent, this respondent has to organise the lotteries on behalf of the State Government, therefore, this respondent, who is an organising agent cannot become the purchaser of the tickets. From the various clauses of the agreement it is clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt or from gambling or betting of any form or nature whatsoever." On the basis of the rival contentions of the parties the questions for determination are : (i) Whether the petitioner is liable to deduct tax at source under section 194B of the Act in respect of unsold/unclaimed prize winning tickets, and (ii) Whether the payment to organising agent in respect of unsold or unclaimed prize winning tickets by the petitioner calls for deduction under section 194B of the Act. Apparently, the stand of the Revenue is that the provisions contained in section 194B of the Act read with the terms and conditions of the agreement dated December 2, 1991, arrived at between the petitioner and the organising agent affirms that the petitioner is bound to deduct tax at source in respect of prize winning tickets which remained unsold or unclaimed. Counsel for the Revenue in support of his contention pointedly referred to some of the clauses of the agreement, which are reproduced below : Clause 10(a) of the agreement runs thus : "10(a) Organising agent (0/A) shall deposit entire taxable prize amount at least two days ahead of the scheduled date of each draw." Clause 10(b) runs thus : "10(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause 24 of the agreement dated December 2, 1991, made it clear that the entire lot of tickets printed for draw are deemed to be sold out and participate in the draw and that otherwise the question of any unsold ticket winning a prize cannot arise. According to learned counsel for the Revenue, the petitioner is liable to pay as per the demand notice dated January 25, 1994 and April 17, 1994. Even if the relationship of the petitioner and respondent No. 4/5 (organising agent) is that of principal and agent, it does not alter the position as the principal is obliged under the Act to make appropriate deduction of tax at source. Replying to the preliminary objection of maintainability of the writ petition, Dr. A. K. Saraf, learned counsel for respondent No. 5/4 (organising agent), submitted that the question raised in these writ petitions is a pure question of law and the facts are not in dispute, i.e., whether the State Government is liable to deduct tax at source in respect of prize money on unsold tickets which are in the possession of the organising agent; that both the petitioner and respondent No. 5(0/A) are carrying on business of sale of lotteries and the income received b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is to be seen whether an agent who deals and sells lottery tickets is a winner of a lottery and whether a seller/trader of lottery tickets can be treated as a winner of a lottery in a similarly situated way/class. Dr. Saraf referring to a decision of the apex court in H. Anraj v. Govt of Tamil Nadu [1986] 61 STC 165, has submitted that the decision of this case squarely covers the case of the petitioner. In H. Anraj v. Govt. of Tamil Nadu [1986] 61 STC 165 (SC), lottery tickets became taxable in the State of Tamil Nadu at the point of first sale in the State, in view of the insertion of entry 163 in the First Schedule to the Tamil Nadu General Sales Tax Act, 1959. Under the raffle scheme promulgated by the State Government the first sale of lottery tickets issued thereunder was by the State Government to various licensed agents, wholesalers, stockists, etc.., and the State Government became liable to pay sales tax as the first dealer. With a view to reducing the burden of tax on Tamil Nadu raffles, the State Government issued notification dated March 31, 1984, bringing into force an arrangement whereby while retaining the sale price of the ticket at its face value, the tax was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther directly or indirectly by the participants of a consideration for the right or privilege of participating'. (Robb and Rowely United v. State Tex Civ Appl 127 SW 2d, 221, 222) (at page 470)." In his concurring judgment Mr. Justice Sabyasachi Mukharji held and observed thus (page 188) : "Under the Rules, the promoter is not able to participate in the draw or claim a prize in such a draw. Therefore, the right that is transferred to the purchaser of the lottery ticket is not the same right which was existing in the grantor, in this case the promoter. By the sale by the promoter and purchase by the grantee of the ticket, there is no transfer of the same property, namely, the property which existed in the grantor, namely, disability from participating in the draw which is granted to the purchaser or the grantee of the lottery ticket. . ." Apparently, there is a distinction between the rights and status of the participants and that of the trader in respect of his participation in the draw. The agent is not entitled to participate in the draw and claim a prize in such a draw whereas a participant is entitled to participate in a draw and claim a prize from such draw. Relying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e context of various clauses of the agreement, there are no "winnings from the lotteries" as the organising agent has not participated in the draw intending for a prize. I find merit in the submission of Dr. Saraf that any income which is incidental to the business activities carried on by the assessee is a business income and cannot be treated as income from other sources as one of the necessary ingredients of lottery is that the winner should be a participant in the lottery, and that the organising agent does not participate in lottery draw with an intention to win prize, but derives income from selling lottery tickets. In view of the above reasons, I agree with the decision of the Bombay High Court in Commercial Corporation of India Ltd. v. ITO[1993] 201 ITR 348. In this case the Bombay High Court held that prizes on unsold tickets cannot be considered as winnings from lotteries. Two issues were raised in this case for decision, i.e., (a) whether the money credited by the State Government to the account of the petitioner-company is income from the winnings from lotteries which are unsold and lying with the Government; and (b) whether on a true construction of the agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of deducting taxes at source in respect of winnings from lottery, the person responsible for paying to any person any income at the time of payment thereof (emphasis1 supplied) is obliged to deduct income-tax thereon at the rates in force. So, it is clear that in respect of section 194B, it is only in cases where actual payment is made that a person is responsible for deducting income-tax and not at a stage of credit, if any. In that view of the matter, under section 194B, no deduction of tax at source from the payment can be made in the absence of an actual payment. It is an admitted fact that in the present case there is no actual payment. In that view of the matter and consequent to the position as discussed above, the provisions of this section 194B of the Act are not applicable in the instant case and the petitioner is not liable to deduct tax at source under section 194B of the Act in respect of unsold/unclaimed prize winning tickets. Section 194B imposes an obligation to deduct tax at source at the time of payment and not at the time of credit, unless there is actual payment, either in cash or in kind at the time of making payment the impugned notices are li ..... X X X X Extracts X X X X X X X X Extracts X X X X
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