1993 (2) TMI 143 - AT - Income Tax

Summary

Issues Involved:
1. Whether the organizing activity of the lottery for Indian Naval Benevolent Fund was of the individual or the firm.
2. In whose hands the income from organizing the lottery is assessable.
3. The validity of the refusal of registration to the firm.
4. The legitimacy of the addition of Rs. 2,09,000 as income.
5. Disallowance of entertainment and sundry expenses.
6. Disallowance of accounts with Swastic Lottery Agency & New Vijay Agency.
7. Levy of interest under sections 139(8) and 217 of the Act.

Issue-wise Detailed Analysis:

1. Whether the organizing activity of the lottery for Indian Naval Benevolent Fund was of the individual or the firm:

The agreement between Indian Naval Benevolent Fund (INBA) and SSM (individual) was signed on 28-9-1983, empowering SSM to organize the Naval Welfare Bumper Raffle. SSM was allowed to form a partnership for efficient running of the raffle. The firm Marwah & Co. was formed with a partnership deed signed on 20-12-1983, effective from 28-9-1983. However, the bank account in the name of the firm was opened only on 16-2-1984, just two days before the draw. The Assessing Officer (AO) observed that all transactions were done through SSM's proprietary bank account, indicating that the raffle was organized by SSM in his individual capacity. The Tribunal upheld this view, concluding that the raffle was organized by SSM individually.

2. In whose hands the income from organizing the lottery is assessable:

Given the conclusion that SSM organized the raffle in his individual capacity, the income from the raffle should be assessed in SSM's hands substantively. The Tribunal found that the firm was merely a front and that SSM retained control over the raffle's organization and finances.

3. The validity of the refusal of registration to the firm:

The refusal of registration to the firm was based on the finding that the firm was a front for SSM. The Tribunal upheld the refusal of registration, agreeing with the AO's observations that the firm did not genuinely exist for the purpose of organizing the raffle, as all significant transactions were conducted by SSM individually.

4. The legitimacy of the addition of Rs. 2,09,000 as income:

The amount of Rs. 2,09,000 was disallowed as an expenditure and added back to the firm's income on the reasoning that the prize-winning ticket was an unsold ticket and was sold after the draw. The Tribunal found that the conclusion that the winning ticket was sold after the draw was based on surmise and conjecture, not on evidence. Therefore, the addition of Rs. 2,09,000 was deleted.

5. Disallowance of entertainment and sundry expenses:

The issues relating to the disallowance of entertainment expenses and sundry expenses were not insisted upon during the hearing and were thus treated as dismissed by the Tribunal.

6. Disallowance of accounts with Swastic Lottery Agency & New Vijay Agency:

Similarly, the disallowances out of the accounts with Swastic Lottery Agency & New Vijay Agency were not insisted upon during the hearing and were treated as dismissed.

7. Levy of interest under sections 139(8) and 217 of the Act:

The levy of interest under sections 139(8) and 217 of the Act was stated to be consequential. The Tribunal directed the AO to recalculate the interest while giving effect to the order.

Conclusion:

The Tribunal allowed the quantum appeals of the firm and the individual in part, quashed the protective assessment of the income in the hands of the firm, and upheld the refusal of registration to the firm. The appeal against the refusal of registration was dismissed, and the addition of Rs. 2,09,000 was deleted. The issues of disallowance of entertainment and sundry expenses, as well as the disallowance of accounts with Swastic Lottery Agency & New Vijay Agency, were dismissed. The levy of interest was directed to be recalculated.