TMI Blog2019 (11) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no intention to participate . Essential ingredients of `lottery as it stood prior to the insertion of Explanation to section 2(24)(ix) of the I.T.Act is absent in the facts and circumstances of the case and the same cannot be taxed as a `lottery . Hence, we reverse the order of the CIT(A). It is ordered accordingly. - ITA No.194/Coch/2019 - - - Dated:- 7-8-2019 - Shri Chandra Poojari, AM And Shri George George K, JM For The Appellant : Sri. M.C. Jacob For The Respondent : Smt.A.S.Bindhu, Sr. DR ORDER Per George George K, JM This appeal at the instance of the assessee is directed against CIT(A) s order dated 20.12.2018. The relevant assessment year is 2000-2001. 2. The grounds raised read as follows:- 1. The order of the Commissioner of Income Tax (Appeals) is contrary to law, facts and evidence and is quite illegal. 2. The Assessing Authority Commissioner of Income Tax (Appeals) erred in law when they held that the value of 1 kg. of gold is winning from Lottery . 3. The Susha Ayyar (ITR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Tribunal was of the view that the assessee was not properly heard in the matter. Therefore, the Tribunal set aside the order of the CIT(A) and restored the issue to the CIT(A) for fresh consideration. Pursuant to the Tribunal s order, the CIT(A) decided the issue against the assessee. The relevant finding of the CIT(A) in this regard reads as follows:- 4. I have considered the submissions and also perused the facts of the case. The appellant s submissions are based on the plea that essential elements Consideration and Chance or Risk are absent in the case of prize won by him under free prize coupon scheme. The appellant has also relied upon certain decisions. In the case of ITO Vs. Malayala Manorama (277 ITR(AT) 133 (Cochin) the issue was whether tax is deductable on the prize money in the contest organised by the assessee. The Hon ble ITAT observed that skill was an integral part of the scheme and therefore the assessee was not liable to deduct the tax. Thus the decision is not applicable in the case of appellant. Similarly, in the decision relied upon by the appellant in CIT vs. G.R.Karthikeyan (201 ITR 866 (SC), again the issue was whether the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of means a gift, as the transaction is purely with a stranger and the essential elements of gifts are not present in this case. The other arguments that it is an income of merchant who gave the price coupon is totally unacceptable as the merchant has in no way benefitted from the price given to the appellant. Definition of Section 2(24)(ix) is comprehensive enough to cover such transaction / arrangements. Thus, the appellant gets no relief and the assessment order is upheld. 5. In result, the appeal is dismissed. 5. The assessee being aggrieved has filed the present appeal before the Tribunal. The learned AR reiterated the submissions made before the authorities below. The learned AR further submitted that the essential ingredients of the term lottery as it stood prior to the insertion of Explanation to section 2(24)(xi) is not satisfied in this case and the assessment in this case being assessment year 2000-2001, the price received by the assessee being 1 kg. gold cannot be brought to tax since there was no consideration paid / contribution made for participation. Moreover, it was submitted that there is no risk of loss of any amount in par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbered tickets and giving prizes to the holders of numbers drawn at random. Halsbury s Laws of England, Fourth Edition Reissue, Volume 4(1), at paragraph 7, which deals with lotteries , reads thus: There is no statutory definition of a lottery. However, it has been said that: A lottery is the distribution of Prizes by chance where the persons taking part in the operation, or a substantial number of them make a payment or consideration in return for obtaining their chance to a prize. There are really three points one must look for in deciding whether a lottery has been established: first of all, the distribution of prizes: secondly, the tact that this was to be done by means of a chance and thirdly, that there must be some actual contribution made by the participants in return for their obtaining a chance to take part in the lottery. 7.4 Before a scheme can be regarded as a lottery, there must be the element of distribution of prizes which should be by chance or lot and such distribution should be among those who had paid a price for participating in the scheme. Mere gratuitous distribution without any price having b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ze awarded. In the instant case, it is not in dispute that the assessee received a FREE COUPON . It is even printed on the face of the coupon itself that it is free. Hence the assessee has no risk of loss . Being a free coupon , the assessee obviously has not paid any consideration for his participation in the scheme. Moreover, the assessee had not made any contribution to the organizers, KVVE Trust. 7.6 The Hon ble Karnataka High Court in the case of Visveswaraiah Lucky Centre v. CIT [(1990) 189 ITR 698 (Kar.)] had held that to constitute a lottery winner must be not only a contributor to the prize amount but must also be a participant in the lottery. In this case, the Hon ble High Court was considering a case of an assessee who was a sub-agent selling lottery tickets. The assessee received commission at 15% of the face value of lottery tickets. Further, the assessee had also received an amount of ₹ 1,00,000 as bonus commission on account of the fact that one of the tickets sold by him in a particular draw won the first prize of ₹ 10,00,000. The assessee claimed the benefit of section 80TT of the I.T.Act. The question was whether it was a `lotter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning from lotteries as the petitioner had not participated in the draw intending for a prize. 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 organizing agent does not participate in lottery draw with an intention to win prize, but derives income from selling lottery tickets. 7.8 The Cochin Bench of the Tribunal in the case of ITO v. Malayala Manorama Co. Ltd. [2005) 277 ITR (AT) 133 (ITATCoch)] was considering a case of an assessee who had conducted a world cup football forecast contest. The assessee received 10,25,859 forecasts, out of which 22 entries was correct forecast. Out of the correct 22 forecast, the first three prizes were selected by draw of slot. The Assessing Officer took the view that it is a case of lottery. The CIT(A) allowed the appeal of the assessee. On further appeal by the Revenue, the ITAT held that it is not a lottery within the meaning of income as defined u/s 2(24)(ix) of the I.T.Act as it stood then. The relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to participate . 7.11 The learned CIT(A) has strongly relied on the judgment of the Hon ble Madras High Court in the case of Sesha Ayyar v. Krishan Ayyar (AIR 1936 Madras 225). The facts and circumstances of the case relied on by the learned CIT(A) is different from that of the case under consideration. The Hon ble Madras High Court was analyzing the situation contemplated in Sect.294A of the Penal code. Maintaining an office for conducting lottery business was an offense punishable with rigorous imprisonment for six months u/s 294A of the Penal Code. The facts considered by the Hon ble Madras High Court was a period in history when lottery business was illegal and maintaining a place for conducting a lottery was illegal. Since lottery was not defined in the Penal code, the Hon. High Court had to examine facts at first to ascertain if the Prize Kuri was a `lottery . The interpretation given in this context cannot be taken as an aid to interpret the term `lottery under the Income Tax laws. The CIT (A) had relied on the observation in para 10 of the judgment given by his Lordship Justice Varadachariar (one among the five judges in the bench). The learned Judge w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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