TMI Blog1992 (12) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... company conducted the lotteries for a considerable period without any difficulty under the agreement when, all of a sudden, the Ex-officio Director of Lotteries, Government of Goa, respondent No. 2, in the petition, wrote a letter dated February 25, 1992, demanding a sum of Rs. 2,53,78,080 by way of income-tax (Rs. 2,26,59,000 and surcharge of Rs. 27,19,080) on an amount of Rs. 5,68,47,500 credited to the petitioner under clause 15 of the aforementioned agreement dated December 21, 1989, for the period March 5, 1990, to January 30, 1992. The director further threatened the petitioner that, with effect from February 1, 1992, the income-tax and surcharge will be deducted as per rates in force while giving credit to the petitioner in respect of unsold prize-winning tickets produced by the petitioner for adjustment of prize money for future draws. The petitioner's inquiry revealed that the said letter of February 25, 1992, came into being because the Income-tax Officer, Ward No. 2, Panaji, Goa, demanded the said sum of Rs. 2,53,78,080 by way of income-tax and surcharge for enforcing the liability of the ex-officio Director under section 194B of the Income-tax Act, on the basis that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uffer. The Bench, therefore, directed that the petition be listed for final hearing. On behalf of the Income-tax Department, some adjournments were sought on account of which we made some interim order to release some amount to the petitioner. Under the agreement dated December 21, 1989, the company has been styled as an agent. Since the company had experience in organizing and running several State lotteries throughout India, the Goa Government engaged the company. The company is prohibited under the terms and conditions of that agreement from operating within the territory of Goa for sale of the lottery tickets. The Government is to continue to conduct existing weekly/mini/bumper/special lottery draws as usual within the State of Goa with a prohibition that the Government of Go a shall not start lottery on an all-India basis without consulting the company. The company is required to submit schemes from time to time to the Government for holding weekly, monthly, bumper, instant and super-bumper draws to obtain the turnover envisaged. The company is required to follow the guidelines in respect of prize money as laid down by the Government of India. Clause 10 under the heading " D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company. Under clause 20 of the stipulation, the company shall be liable to pay such taxes as may be levied anywhere in India on the sale of lottery tickets or incidental thereto, and clause 24 makes provision for reference of disputes or differences arising out of or in any way relating to or concerning the agreement to an arbitrator appointed by the Secretary to the Finance Department, Government of Goa. The ex-officio Director of Lotteries, Government of Goa, and the State of Goa who are arrayed as respondents Nos. 2 and 3 are supporting the petitioner. On their behalf, an affidavit has been filed by respondent No. 2. A brief affidavit has been filed on behalf of the first respondent who is the Income-tax Officer, Ward No. 2, Panaji. Shortly stated, the stand of the Income-tax Department is that the petition is not maintainable as an alternative remedy by way of appeal or revision under the Income-tax Act is available. Clause 15 of the agreement is construed to mean that the company is earning income as defined in section 2(24)(ix) of the Incometax Act and that there is no return of money deposited by the petitioner towards the prize money ; that what is credited to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, including the locus standi of the petitioner. It may be advantageous to record neatly the objections taken: In the first, the action of the Income-tax Officer, Panaji, Goa, in issuing notice under section 226(3) of the Income-tax Act, 1961, on January 31, 1992, to the Principal Officer, State Bank of India, Treasury Unit, Panaji, requiring him to pay income-tax on account of the Goa Government and the demand made under section 194B of the Act is no order made against the petitioner-company and, therefore, no cause of action arises and hence the petitioner has no locus standi to challenge that action. Secondly, even if the petition seems to be good and worthy of challenge, it is premature because the petitioner has an alternate remedy by way of an appeal or a revision under the very Act. It is next contended that there is nothing onerous if the petitioner is made to seek remedies under the Act and in any event, the Income-tax Officer, Panaji, Goa, has no jurisdiction over the petitioner-company for the assessing authority of the company is at Mangalore. It is next argued that the order is made against the Director of Lotteries- Therefore, if at all, the director is an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ex-officio Director of Lotteries. Plainly stated, the Department is seeking to create a bar to decide the main controversy and wants to get the petitioner non-suited on the preliminaries. According to the petitioner, the order made vitally affects the company, as the incidence of tax is on the company. The genesis of the order and object of the Department is to go against the petitioner through the Director of Lotteries. Therefore, the company is the aggrieved party and hence the main question is required to be decided one way or the other by this court; that it is impossible for the company to submit meekly to the Situation created by the respondents and await orders from the assessing authority in future and, in the meantime, be out of business under the agreement ; what is more, the issue is forced upon the petitioner by the Revenue and, therefore, the Income-tax Officer cannot be heard to say that the petitioner has no locus standi in the petition. Whether the petitioner-company is in reality an aggrieved person is necessary to be seen to determine the locus standi. The order affects them prejudicially and the question is whether article 226 can be closed down (sic) on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servation extracted is that article 226 confers a wide power on the High Court to issue directions and writs for the enforcement of any of the rights conferred by Part III or for any other purpose. That persons other than those claiming fundamental rights can also approach the court was recognized. These observations were reiterated in Gadde Venkateswara Rao v. Government of Andhra Pradesh, AIR 1966 SC 828. The remedy of writs is not confined to the parties alone but it extends to any person aggrieved which, as a principle, has been accepted, based upon several English authorities mentioned in the report. We may refer to an authority cited at the Bar by Shri Jetley, learned counsel appearing for respondent No. 1, in the decision of Siliguri Municipality v. Amalendu Das [1984] 146 ITR 624 (SC) as to how the court has viewed the matter. This decision is plainly against granting of stay from recovery of taxes. We think Mr. Kakodkar, learned counsel for the petitioner, is right in pointing out that the decision is restricted to interlocutory orders only. We do not think that this petition can be thrown out at the threshold on the ground that the petitioner has no locus. The Departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitrable, then the Department will be in jeopardy and, therefore, such a contention must be held to be not acceptable to this court for we cannot concede that jurisdiction to the arbitrators. In our opinion, this is a typical case where the Department itself has forced the issue and this court cannot shy away from it having regard to the facts and circumstances of the case. We will, therefore, come to the merits of the petition. Presently, what is required to be determined is whether unsold tickets can get a prize and the return of the money deposited by the petitioner-company can be said to be winnings from lottery. Mr. Kakodkar's contention is that regard being had to the definition of a lottery which is a chance for a prize for a price and when there is no participation in the draw, the company is not a purchaser of lotteries. We are now driven to look into decided cases which are shown to us by learned counsel for the company. The Supreme Court is directly in the field in the decision in H. Anraj v. Government of Tamil Nadu and Shri Dipak Dhar v. State of West Bengal [1986] 61 STC 165, where the question was whether sales tax can be levied by the State Governments on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that Lucky Centre was an agent for selling lottery tickets, the lottery being conducted by the State of Karnataka. The agent was getting a commission at 15 per cent. In the return filed for the assessment year 1978-79, he disclosed a total income of Rs. 88,240 comprising the commission received from sales of lottery tickets as well as a sum of Rs. 1,00,000 received as bonus/commission on account of the fact that one of the tickets sold by the Centre in a particular draw had won the first prize of Rs. 10,00,000. The Lucky Centre claimed the benefit of section 80TT of the Income-tax Act. The assessment was made but in the appeal preferred against the assessment, a claim was made that the bonus/commission of Rs. 1,00,000 earned was in fact a lottery winning within the meaning of the expression. The Appellate Assistant Commissioner granted the benefit and allowed the appeal. The Revenue took up the matter before the Income-tax Appellate Tribunal which allowed the appeal of the Revenue and set aside the order of the Appellate Assistant Commissioner and denied the benefit of section 80TT of the Act. At the instance of the assessee, reference was made under section 256(1) of the Act to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the authorities, it is clear that a lottery is a chance for a prize against a price and, therefore, the element of purchase of a lottery ticket must be present and, secondly, the purchaser of a lottery ticket has a right to participate in the draw. Undoubtedly, it is a sale of goods and lastly it is an income liable to tax. We are, however, not concerned with the question whether a purchaser of a lottery ticket is liable to pay tax and the authority which conducts and organizes the lottery is liable to deduct the tax at source, for these are not disputed. In the present petition, we are plainly concerned with the point whether the petitioner-company can be said to be the purchaser of the unsold tickets lying with them and whether, on an overall view of the agreement dated December 21, 1989, the company can be said to be the purchaser of the tickets. We have not been able to satisfy ourselves as to why it has been contended on behalf of the Department that there are disputed questions of law involved in this petition. The question, in our view, is plainly one of fact which are not disputed and, secondly, the interpretation and construction of the agreement the petitioner-comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000 per draw are required to be paid in advance to the Government along with the prize money and all this is against the guaranteed profit as stipulated in clause 17. Referring to clause 15 of the agreement, it is the contention of Mr. Jetley that the petitioner-company is the beneficiary and the prize that is paid by the Director of Lotteries arises out of the draw of the lottery. Taking all these provisions together with clause 20 of the agreement whereby the company is made liable to pay such taxes as may be levied anywhere in India on the sale of lottery tickets or incidental thereto, it is submitted that taxes will also include income-tax wherever liable to be paid. It was next urged that, apart from the pure construction of the agreement, the parties also understood the contract in the spirit in which it is written and duly executed. This, according to him, is clear from two factors, namely : (1) clause 15 clearly stipulates that the petitioner-company is entitled for credit in respect of the prizes for unsold tickets ; the emphasis is on the word "prizes", and this is what the parties have themselves understood. In the second place, he says that a reference to the lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XII of the Incometax Act was introduced whereby the income by way of winnings from lotteries was brought under the head 'Income from other sources" and as from April 1, 1987, such amendment was brought into force with the result that a flat rate of tax had to be paid without any deduction. Mr. Jetley now says that in the light of the principle of contemporaneous exposition, the court will have to come to a finding that no agreement between the parties can in fact alter or modify the statutory liability to tax and secondly, how the matter is required to be viewed. On the principle of contemporaneous exposition, he has placed reliance on the decision in K. P. Varghese v. ITO [1981] 131 ITR 597 (SC). We will look into this authority a little later, for some more material has been shown to us to show as to how the principle of contemporaneous exposition of law has been accepted by the courts. We have been shown a Circular bearing No. 264 [F. No. 275/58/79IT(B)L dated February 11, 1980, being a Circular issued by the Ministry of Finance in the matter of section 194B, winnings from lotteries or crossword puzzles. The Circular reads thus : " 577. Prizes awarded to agents under 'lucky d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance, under assessment and short levy of tax in lottery business resulting in substantial loss to the national exchequer and the said report reveals that the Public Accounts Committee viewed thus : " 6. The Committee have found that in three cases in Madhya Pradesh, prizes worth Rs. 20,39,70,500 were declared on unsold tickets and Govt. deprived of a sum of Rs. 5,38,83,350 as otherwise recoverable. According to the Department of Revenue, the liability to deduct tax at source arises only at the time of actual payment of the lottery prize, under section 194B of the Income-tax Act and a mere declaration of prize is not sufficient to attract the provisions of the section. The Committee have recommended that the question of leakage of revenue on this account should be examined in consultation with the Ministry of Law and corrective action taken within a period of six months." From the aforesaid extracted paragraph, it is clear that a definite grievance was made by the Committee that the prizes worth crores of rupees were declared on unsold tickets and the Government deprived of a large revenue which was otherwise recoverable. All this material has been shown to us by Mr. Jetley to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ometax Act, nor is it an authority under the Act. Mr. Kakodkar is right in pointing out that instructions issued by the Ministry or Department for the guidance of its officers are of no assistance for considering a taxing statute. This principle has been clearly, recognised in the decision in J. K. Steel Ltd. v. Union of India, AIR 1970 SC 1173. It is not possible to ignore two more decisions of the Supreme Court which are of recent origin and they are available in J. K. Cotton and Spinning and Weaving Mills Ltd v. Union of India [1988] 68 STC 421 ; AIR 1988 SC 191 and Doypack Systems Pvt. Ltd. v. Union of India [1989] 65 Comp Cas 1 ; AIR 1988 SC 782. In the case of J. K. Cotton Spinning and Weaving Mills Ltd. [1988] 68 STC 421, the observations of the Supreme Court are that the maxim contemporanea expositio is applicable in construing ancient statutes but not to interpreting Acts which are comparatively modern. The observation further reads that, in a modern progressive society, it would be unreasonable to confine the intention of a Legislature to the meaning attributable to the words used at the time the law was made and, unless a contrary intention appears, an interpretation s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld obviously be rendered by the principals, and the price at which the ultimate purchasers purchased the goods were controlled by the manufacturer. The manufacturer had similar control over publicity. The agreement authorized the agent to issue invoices on behalf of the manufacturers. The agents were entitled to a fixed stipulated commission in consideration of the guarantee, and when the ultimate purchaser failed to pay the price for the goods supplied, the manufacturer agreed to authorize the agent to sue in the name of the manufacturer to realize the same. It was, therefore, held that the agreement was as between principal and agent and not an agreement between vendor and vendee. In the decision in Hyderabad Chemicals and Fertilizers Ltd. v. State of Andhra Pradesh [1968] 22 STC 298 (AP), a question again arose in relation to the proper construction of an agreement between the manufacturing company and its sole selling agent and whether such a relationship envisaged is that of principal and agent and not that of vendor and purchaser. The question had to be viewed in the context of whether the commission paid to the agent was within the meaning of the appropriate section of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement is intended to be. In the light of these settled propositions and principles of law, the agreement dated December 21, 1989, will have to be construed to find out whether it is an agreement of agency or whether the petitioner-company becomes a purchaser of lottery tickets from the State Government. Before we come to our conclusions, we may now refer to what was urged on behalf of the Director of Lotteries and the State of Goa by Mr. Bharne, the learned Additional Government Advocate, appearing for them. We have already indicated earlier that the ex-officio Director of Lotteries of the Goa Government and the State of Goa, are supporting the petitioner-company. Mr. H. R. Bharne, Additional Government Advocate, contended before us that the Income-tax Department is trying to place wrong interpretation upon section 194B. He produced agreements similar to the agreement in question by which the States of Nagaland, Manipur, Himachal Pradesh and Madhya Pradesh have entered into similar agreements with some parties who are agents of the State Government to organise and conduct lotteries. He thereafter contends that, on a true interpretation of this agreement, section 226(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spelled out from the terms of the document and the surrounding circumstances and having regard to the course of dealings between the parties. While interpreting the terms of the agreement, the court has to look to the substance rather than the form of it. The mere fact that the word " agent" or " agency " is used or the words " buyer " and " seller " are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conferred. There is a lot of merit in the contention of Mr. Kakodkar. We will presently point out that, in the first place, this agreement can, by no stretch of imagination, be said to be an agreement under which the petitioner-company purchases lottery tickets from the State Government for the purposes of resale. It is an agreement in reality for organising and conducting lotteries for and on behalf of the State Government as the agent of the State Government and there is no manner of looking at it differently. Section 4 of the Sale of Goods Act, 1930, says what is " contract of sale ". A contract of sale of goods is a contract whereby the seller transfers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control will be inconsistent with the theory of sale. Take for instance, even in the matter of each and every lottery scheme to be floated from time to time, prior written permission is required to be had from the Government. Even if there is any alteration or modification of any scheme, prior written permission of the Government is required. All the guidelines of the Government of India and directives of the State Government are required to be followed. The basic framework of the design of the lottery tickets is required to be approved, that too in writing from the Government. Though the tickets are printed at the cost of the company, the company is required to furnish an undertaking in writing from the concerned printing press. Unless there is release order issued, the company cannot obtain delivery of tickets printed from the printing press and that too after deposit of the prize money with the Government after which a release order is to be handed over to the company. Rightly, the face value of the tickets is required to be commensurate with the prize structure. A proper account of ticket books received from the printing press and of the tickets sold, unsold, condemned, is requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and cost of printing of the tickets and for its publicity. This being a contractual term bearing costs in advance, it cannot be said to be a purchase. It was indeed urged by Mr. Jetley for the Income-tax Department that in meeting the cost of printing and publicity, there is even payment in advance which is nothing but the price paid for purchase by the company and, therefore, the company must be held to be the purchaser of lottery tickets from the Goa Government. In, our opinion, expending money for printing lottery tickets and on publicity in advance is no ground to hold that the same amounts to payment towards the purchase price so as to make the agreement dated December 21, 1989, as agreement of purchase. Even in an agreement of agency, an agent can pay money in advance to the principal and such an advance payment would not render an agency agreement as agreement of purchase. A Division Bench of the Madras High Court in the decision in State of Tamil Nadu v. State Trading Corporation of India Ltd. [1986] 61 STC 341, while construing whether an agreement is one of sale or of agency, held that the factum of pre-payment of the price or advance payment can be ignored, for payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answer the question in favour of the petitioner-company and against the Department, the question of deciding the matter whether it is return of capital or otherwise, what sort of income it is, are not necessary to be gone into in this petition. We accept the case of the petitioner-company that, in their returns, they show all the accounts in relation to the conduct of the lotteries in Goa before the assessing authority. We direct the petitioner-company to do so in future also. Whether there is return of capital and/or income other than winning from lotteries is left at large for the appropriate assessing authority at Mangalore to decide. It must be indeed mentioned that Mr. Kakodkar heavily relied upon the decision in Acharya D. V. Pande v. CIT [1965] 56 ITR 152 (Guj) to show that return of money or crediting money in favour of the petitioner by the Goa Government is not income. More particularly, he referred, to the connotation of the word " income " that, for the purposes of tax, it must be money or money's worth and that what saves the pocket is not income, but income is what goes into the pocket. We need not go into the question at all. As mentioned earlier, the matter is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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