2004 (9) TMI 19 - HC - Income Tax

Whether the petitioners who are either conducting kuries or conducting business in consumer goods giving prizes by taking lots either for prompt payment of kuri instalments or for increasing the sale of consumer products is liable to pay advance tax under section 194B - ITO (TDS) had issued notices regarding deduction of tax at source u/s 194B directing the petitioners to appear before him for a personal hearing. Since the petitioners did not respond to the said notices they were asked to furnish details regarding the scheme under which the lottery is taken. - it is for the Income-tax Officer (TDS) Division No. II, Thrissur, who issued notices to consider the objections to be taken by the petitioners -petitioners to file detailed objections to the notices issued by the Income-tax Officer (TDS) Division No. II, Thrissur, within a period of three months

Issues Involved:
1. Liability to pay advance tax under section 194B of the Income-tax Act, 1961.
2. Definition and applicability of the term "lottery" in the context of kuri companies and consumer goods dealers.
3. Consideration of the essential elements constituting a lottery.
4. Evaluation of prize schemes by the Income-tax Officer (TDS).

Detailed Analysis:

1. Liability to Pay Advance Tax under Section 194B of the Income-tax Act, 1961:
The central issue in these writ petitions is whether the petitioners, who conduct kuries or business in consumer goods with prize schemes, are liable to pay advance tax under section 194B of the Income-tax Act, 1961. The Income-tax Officer (TDS) issued notices for tax deduction at source, which the petitioners challenged, arguing that no independent consideration is involved in the prizes given.

2. Definition and Applicability of the Term "Lottery":
The petitioners contended that their schemes do not constitute a lottery as defined by law. They referenced the Full Bench decision of the Madras High Court in Sesha Ayyar v. Krishna Ayyar, AIR 1936 Mad 225, which identified essential elements of a lottery: a prize, distribution by chance, and consideration paid or promised. The Supreme Court in H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165 approved these elements. The petitioners argued that their schemes did not meet these criteria.

3. Consideration of the Essential Elements Constituting a Lottery:
The court examined whether the prize schemes of the kuri companies and consumer goods dealers involved independent consideration. The Full Bench of the Madras High Court and the Supreme Court's decisions emphasized three elements to constitute a lottery: (1) a prize, (2) distribution by chance, and (3) consideration paid or promised. The court noted that unless all three elements are satisfied, the scheme cannot be considered a lottery.

4. Evaluation of Prize Schemes by the Income-tax Officer (TDS):
The court directed the Income-tax Officer (TDS) to evaluate the prize schemes of the petitioners in light of the principles laid down by the Full Bench of the Madras High Court and the Supreme Court. The petitioners were instructed to file detailed objections to the notices within three months. The Income-tax Officer (TDS) must consider these objections and pass orders after affording the petitioners an opportunity to be heard.

Conclusion:
The court concluded that the applicability of section 194B depends on whether the prize schemes meet the essential elements of a lottery. The Income-tax Officer (TDS) must evaluate each case individually, considering the principles discussed in the judgment. The writ petitions were disposed of with directions for further proceedings by the Income-tax Officer (TDS). The interim orders will continue until final orders are passed.

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