2002 (4) TMI 49 - HC - Income Tax

Summary

Issues Involved:
1. Applicability of Section 194B of the Income-tax Act, 1961, to refunds of prize money from unsold and unclaimed lottery tickets to the organizing agent.
2. Nature of the relationship between the Director of State Lotteries and the organizing agent.
3. Interpretation of the term "income" under Section 2(24)(ix) of the Income-tax Act in the context of lottery winnings.

Detailed Analysis:

1. Applicability of Section 194B of the Income-tax Act, 1961:

The primary legal question was whether the refund by the Director of State Lotteries to the organizing agent of the prize money from unsold tickets of lotteries and unclaimed prizes attracts the provisions of Section 194B of the Income-tax Act, 1961. The Assistant Commissioner of Income-tax had demanded substantial sums from the Director of State Lotteries for failing to deduct tax at source under Section 194B for lottery draws held in specified periods.

The court analyzed Section 194B, which mandates tax deduction on any income by way of winnings from lotteries. The term "income" was further defined under Section 2(24)(ix) of the Act to include winnings from lotteries. The court concluded that Section 194B applies only if the payment is income by way of winnings from a lottery. The refund to the agent did not constitute such income because the agent was not the prize winner.

2. Nature of the Relationship Between the Director of State Lotteries and the Organizing Agent:

The court examined the agreement between the Director of State Lotteries and the organizing agent, which clarified that the relationship was one of agency rather than sale. The agent was responsible for organizing the lottery and selling tickets but did not purchase the tickets from the Director. The agreement stipulated that unsold tickets and unclaimed prizes were the property of the agent and would be refunded to them.

The court referred to the judgment of the Bombay High Court in a similar case, which held that such agreements did not involve a sale of tickets but rather an agency relationship. The court agreed with this interpretation, emphasizing that the agent did not purchase the tickets and thus did not participate in the lottery as a ticket holder.

3. Interpretation of the Term "Income" Under Section 2(24)(ix) of the Income-tax Act:

The court discussed that for Section 194B to apply, the payment must be considered income from lottery winnings. The refund to the agent for unsold or unclaimed prizes did not meet this criterion. The court reasoned that the agent was not receiving the refund as a lottery winner but as part of the agency agreement. Therefore, the refund did not constitute income from lottery winnings under Section 2(24)(ix) of the Act.

Conclusion:

The court upheld the learned single judge's decision, concluding that the refund of prize money from unsold and unclaimed lottery tickets to the organizing agent did not attract the provisions of Section 194B of the Income-tax Act, 1961. The relationship between the Director of State Lotteries and the organizing agent was one of agency, not sale, and the refund did not constitute income from lottery winnings. The appeals were dismissed, affirming the lower court's judgment.