2019 (11) TMI 260 - AT - Income Tax

Taxability of Value of 1 kg. of gold as winning from Lottery - assessee did not pay any consideration for the price coupons. - the price coupon given to the assessee was under a scheme of the Kasargod Vyapari Vyavasaya Ekopana Trust (KVVES Trust) - HELD THAT - It is customary in Kerala to buy new clothes during onam festival. The intention of the assessee was to purchase new clothes for himself and his family. The assessee approached the cloth merchant with this predominant intention. This particular scheme of distributing free coupons at the time of festival seasons like Onam is offered by almost all the merchants in the town, be it Textiles, Footwear, Groccery, Jewellry etc. In the case of this assessee, the choice of a particular cloth merchant was the availability of the desired dress material at his affordable price and not the offer of a free coupon. Hence it cannot, by any stretch of imagination, be presumed that the assessee visited a particular merchant and purchased the dress material from him with intention to participate in the lot. Hence there is no intention to participate . Essential ingredients of lottery as it stood prior to the insertion of Explanation to section 2(24)(ix) of the I.T.Act is absent in the facts and circumstances of the case and the same cannot be taxed as a lottery . Hence, we reverse the order of the CIT(A). It is ordered accordingly.

Issues Involved:
1. Whether the value of 1 kg of gold won by the assessee is considered as winnings from a "lottery."
2. Whether the essential elements of a "lottery" are present in the scheme under which the assessee received the gold.
3. Whether the prize won by the assessee can be taxed under section 115BB of the Income Tax Act.
4. Whether the decision of the CIT(A) to uphold the assessment order was justified.

Detailed Analysis:

Issue 1: Whether the value of 1 kg of gold won by the assessee is considered as winnings from a "lottery."
The Tribunal examined the definition of "income" under section 2(24) of the Income Tax Act, which includes "winnings from lotteries." The Finance Act, 2001 added an explanation to section 2(24)(ix) effective from April 1, 2002, expanding the definition to include winnings from prizes awarded by draw of lots or by chance under any scheme or arrangement. However, since the assessment year in question is 2000-2001, this explanation does not apply retroactively.

Issue 2: Whether the essential elements of a "lottery" are present in the scheme under which the assessee received the gold.
The Tribunal analyzed the term "lottery" as it stood before the insertion of the explanation to section 2(24)(ix). According to various judicial precedents and definitions, a lottery requires:
1. Distribution of prizes by chance.
2. Participants must have paid a price or valuable consideration for the chance to win.
3. Risk of loss.
4. Intention to participate.

The Tribunal found that the assessee received a free coupon without any payment or contribution, and there was no risk of loss involved. The assessee's primary intention was to purchase clothes, not to participate in a lottery. Therefore, the essential elements of a lottery were not present.

Issue 3: Whether the prize won by the assessee can be taxed under section 115BB of the Income Tax Act.
Since the essential elements of a lottery were not present, the Tribunal concluded that the prize won by the assessee could not be taxed as winnings from a lottery under section 115BB. The Tribunal also referenced several judicial decisions, including those from the Hon’ble Madras High Court and the Hon’ble Kerala High Court, which supported the view that mere gratuitous distribution without any price paid by participants does not amount to a lottery.

Issue 4: Whether the decision of the CIT(A) to uphold the assessment order was justified.
The Tribunal found that the CIT(A) had relied on an old decision of the Madras High Court in the case of Sesha Ayyar v. Krishan Ayyar, which was not applicable to the present case. The Tribunal noted that the CIT(A) failed to consider the relevant judicial precedents and the specific facts of the case. Consequently, the Tribunal reversed the order of the CIT(A) and allowed the appeal filed by the assessee.

Conclusion:
In conclusion, the Tribunal held that the prize won by the assessee could not be considered as winnings from a lottery for the assessment year 2000-2001. The essential elements of a lottery were absent, and thus, the prize could not be taxed under section 115BB. The Tribunal reversed the order of the CIT(A) and allowed the appeal filed by the assessee.

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