2013 (11) TMI 619 - HC - Income Tax

TDS deduction u/s 194B - Prize money given in kind Assessee in default u/s 201 - Held that - it is clear that provisions of Section 194B does not provide for deduction of tax at source where the winnings are wholly in kind and it simply puts a responsibility to ensure payment of tax, where winnings is wholly in kind. In the present case, admittedly, the winnings was wholly in kind. - Decided in favor of assessee. Proceedings u/s 201 - Held that - the conjoint reading of Section 201 and Section 194B would show that the person responsible to deduct tax at source, if he either fails to deduct or after deducting, fails to pay, is deemed to be an assessee in default, in respect of the tax. However, where the payment of the winnings is wholly in kind and not in cash at all, the question of deduction does not arise and in that eventuality, the only responsibility, as casts under Section 194B, is to ensure that tax is paid by the winner of prize before the prize/winnings is released in his favour. Initiation of the proceedings under Section 201 against the assessee, was without jurisdiction - Section 271C and Section 270B make reference to the second proviso to Section 194-B, i.e., the proviso as it stands today - Proceedings against the person under section 201, such as the assessee in the present case, who fails to ensure payment of tax, as contemplated by proviso to Section 194B, before releasing the winnings, is not maintainable or the proceedings against such person is without jurisdiction Decided against the Revenue.

Summary

Issues Involved:

1. Obligation under Section 194B of the Income Tax Act.
2. Retrospective effect of the amendment to Section 2(24)(ix) by the Finance Act, 2001.
3. Jurisdiction of proceedings under Section 201 against the assessee for failure to discharge obligations under the proviso to Section 194B.

Detailed Analysis:

1. Obligation under Section 194B of the Income Tax Act:

The core issue revolves around whether the schemes conducted by the respondent-assessee were tantamount to a lottery and if the respondent failed to discharge its obligation under Section 194B. The Assessing Officer (AO) treated the respondent as an assessee in default for not ensuring tax payment before releasing winnings, as required by Section 194B. The Tribunal, however, held that the schemes were not a lottery as understood up to the Assessment Year 2001-02 since the customers did not pay any excess amount for participating in the scheme. Therefore, the schemes did not fall within the ambit of Section 194B. For the Assessment Year 2002-03, the Tribunal accepted the respondent's contention that there was no obligation to deduct tax at source for prizes paid in kind based on Circular No.390 dated 8.8.1984.

2. Retrospective effect of the amendment to Section 2(24)(ix) by the Finance Act, 2001:

The amendment inserted an explanation to Section 2(24)(ix) defining "lottery." The revenue argued that this amendment, although effective from 1.4.2002, was clarificatory and should apply retrospectively. The Tribunal did not explicitly address this issue due to their findings on the first issue. The High Court also refrained from addressing this question due to its decision on the third issue.

3. Jurisdiction of proceedings under Section 201 against the assessee:

The High Court focused on whether the AO had jurisdiction to initiate proceedings under Section 201 for the assessee's failure to ensure tax payment before releasing winnings in kind. Section 194B obliges the person responsible for paying winnings to ensure tax payment before releasing winnings if they are wholly in kind. The Court noted that the term "deduct" implies a reduction from a gross sum, which is not possible when the winnings are wholly in kind. The Court concluded that the AO's proceedings under Section 201 were without jurisdiction since the obligation under Section 194B was only to ensure tax payment, not to deduct tax at source.

Conclusion:

The High Court held that the initiation of proceedings under Section 201 against the assessee was without jurisdiction. Consequently, the appeals filed by the revenue were dismissed. The Court refrained from addressing the retrospective effect of the amendment to Section 2(24)(ix) and the obligation under Section 194B in detail, leaving these questions open for future consideration.