1999 (3) TMI 57 - HC - Income Tax

Summary

Issues Involved:
1. Liability to deduct tax at source under section 194B of the Income-tax Act for unsold/unclaimed prize-winning lottery tickets.
2. Applicability of section 194B in the context of payments to organizing agents for unsold or unclaimed prize-winning tickets.
3. Maintainability of the writ petition in the presence of an alternative statutory remedy.

Detailed Analysis:

Liability to Deduct Tax at Source under Section 194B:
The petitioner challenged the orders demanding payment for failing to deduct tax at source on lottery winnings. The petitioner argued that unclaimed and unsold prize money does not constitute "winnings from lottery" under section 194B, thus not requiring tax deduction. The court examined section 194B, which mandates tax deduction at the time of payment of lottery winnings exceeding Rs. 5,000. The term "income" under section 2(24)(ix) includes winnings from lotteries, but the petitioner contended that unsold/unclaimed tickets do not fall under this definition.

Payments to Organizing Agents:
The Revenue argued that the petitioner must deduct tax at source for prizes on unsold/unclaimed tickets, as these are considered winnings from lotteries. The agreement between the State Government and the organizing agent required the agent to deposit prize money in advance, and any unclaimed prize money was to be carried over to the next draw. The Revenue maintained that unsold tickets participate in the draw, making their prizes taxable under section 194B.

Maintainability of the Writ Petition:
The Revenue contended that the petitioner did not exhaust the alternative remedy of appealing to the Commissioner of Income-tax (Appeals) under section 246(1) of the Act, thus questioning the maintainability of the writ petition. However, the court considered the legal question of whether unsold/unclaimed tickets constitute winnings from lotteries as a pure question of law, making the writ petition maintainable.

Court's Findings:

1. Unsold/Unclaimed Prize-Winning Tickets:
The court held that unsold and unclaimed prize-winning tickets do not constitute "winnings from lotteries" under section 2(24)(ix). The organizing agent does not participate in the draw with an intent to win a prize, and the income from such tickets is part of the business income, assessable under section 28 of the Act. The court agreed with the Bombay High Court's decision in *Commercial Corporation of India Ltd. v. ITO*, which held that prizes on unsold tickets are not winnings from lotteries.

2. Applicability of Section 194B:
The court clarified that section 194B requires tax deduction at the time of actual payment of lottery winnings. Since there was no actual payment in the case of unsold/unclaimed tickets, the provisions of section 194B were not applicable. The court emphasized that tax deduction at source under section 194B is obligatory only at the time of payment, not at the time of credit.

3. Maintainability of the Writ Petition:
The court found the writ petition maintainable, as it involved a pure question of law regarding the interpretation of section 194B and the nature of income from unsold/unclaimed lottery tickets.

Conclusion:
The court quashed the impugned notices demanding tax deduction at source for unsold/unclaimed prize-winning tickets, holding that such tickets do not constitute winnings from lotteries under section 194B. The court allowed the petitions, with each party bearing its own costs. The Revenue was advised to assess the income from unsold/unclaimed tickets as business income, not as lottery winnings.