TAXABILITY OF BETTING OR GAMBLING SERVICES

[Dr. Sanjiv Agarwal]

Meaning of Betting or Gambling [Section 65B (15)]

“Betting or gambling” means putting on stake something of value, particularly money, with consciousness of risk and hope of gain on the outcome of a game or a contest, whose result may be determined by chance or accident, or on the likelihood of anything occurring or not occurring.

Betting is a form of wagering contract in which money or money’s worth is made payable by the parties on the result of an uncertain event, usually a game or sport.

There is no gaming in which the element of the wager is wanting but there is betting which the term “Gambling” is not commonly used to express.

Though betting and gambling each has a meaning more or less different from the other, is often, used for the other. Gambling according to the common use and understanding of that word is a generic term, and includes within the meaning every act, game, and contrivance by which one intentionally exposes money or other thing of value to the risk or hazard of lass by chance.

According to Oxford dictionary,

Betting means the action of gambling money on the outcome of a race, game, or other predictable event.

Gambling means playing game of chance for money or risky action undertaken with the hope of success.

According to Advanced Law Lexicon by P. Ramanatha Aiyar, 3rd ed, 2005, in common usage the term “betting” may sometimes be employed interchangeably with gaming, but not always. If two persons play at cards for money they are said to be gambling or gaming; but they are gaming because they lay a wager, or make a bet on the result of the game; and therefore to say they are betting is equally appropriate. If two persons lay a wager on the result of a pending election, it will be said that they are betting, but not that they are gaming. There is no gaming in which the element of the wager is wanting, but there is betting which the term” gaming” is not commonly use to express. (People v. Weith of , 47 Am. Rep. 557).

Some other meanings of ‘gambling’ are as follows -

Gambling according to the common use and understanding of that word is a generic term, and includes within its meaning every act, game, and contrivance by which one intentionally exposes money or other thing of value to the risk or hazard of loss by chance Risk taking for the purpose of gain or loss, based on games of chance, sports outcomes, or games of skill and chance. (Cyber Law) Applied figuratively to the commitment of money on, any highly risky venture. Gambling on a stock market is similar to speculation in that it is shorter-term. riskier and less serious-minded than investment. See also bet the ranch. (Banking). The Act of betting money that a particular uncertain event will happen, involving a high degree of risk. A bookmaker or casino owner euphemistically calls it, speculation, with the stake as an investment. (Investment)

The act of risking something of value, esp. money, for a chance to win a prize. Gambling is regulated by state and federal law. 18 USCA Ss. 1081 et seq.-Also termed gaming. (Black, 7th Edn..(999).

Gaming in all its forts is too big an evil for the regulation of positive law. Subject it to that, and the event is you restrain it not at all; but the honest party, suffers doubly; and the knave escapes and triumphs. The former loses, he pays; it is a debt of honour: the latter happens to lose, then the condition is changed: would have taken, if I had won; but now, I’ll pay you in law. This is gaming very high indeed Lord. “Mansfield, Coote v. Thackeray, (1773) Lofft. 153.

The public Gambling Act, 1867 prohibits the activity of gambling in India. This legislation defines gaming houses and declares gambling illegal, where it is being done as a business to earn profit. Section 3 of the Act defines casinos/ gaming houses as under:-

“any house, walled enclosure, room or place in which cards, dice, tables or other instruments of gaming are kept or used for the profit or gain of the person owning, occupying, using or keeping such house, enclosure, room or place, whether by way of charge for the use of the instruments of gaming or of the house, enclosure, room or place, or otherwise”.

Gambling and gaming are frequently treated as synonymous, although gaming commonly applies to playing with stakes at cards dice, or their contrivance to determine which shall be the winner and which the loser. A wager is a contract by which two or more’ parties agree that a certain sum of money or other thing of value shall be paid or delivered to one of them upon the happening of an uncertain event; it implies that each of the parties shall jeopardize something and have a chance to gain something or to recover the stakes or thing bet or wagered upon the determining of the contingent or of uncertain event in his favour, and hence is a form of gambling.

In Future Gaming Solutions India (P.) Ltd. v. Union of India 2013 (11) TMI 1003 - SIKKIM HIGH COURT, it was held that ‘lottery’ is covered under ‘betting and gambling’. Lottery is an act of betting and gambling and the power to enact law for imposition of tax on lotteries have to be construed as inherent in the expression of ‘betting and gambling’, lottery being one such activity;

Meaning of Lottery

Lottery is a game of chance (e.g. lottery, bingo, Lotto etc.) which may include online games. A lottery is a form of gambling which involves the drawing of lots for a prize. The word stems from the Dutch word loterij, which is derived from the noun lot meaning fate or destiny. A lottery is considered as an actionable claim and does not get covered in the definition of goods and services.

According to Lexicon dictionary, lottery means a scheme, in whatever form and by whatever name called, for distribution of prizes by lot or chance to those persons participating in the chances of a prize by purchasing tickets [Lotteries (Regulation) Act, (17 of 1998), S. 2(b)]; Lottery includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called. [Income Tax Act, (43 of 1961), S. 2(24)(ix) expl. (i)].

According to Black’s Law Dictionary, it has been defined as a chance for a prize; a scheme for distribution of a prize by a lot or chance, the number and value of which is determined by the operator of the lottery.

Thus, lottery has the following three essential characteristics, viz;

• Prize

• Chance

• Consideration paid to participate.

Taxation of Betting, Gambling or Lottery

Betting, gambling or lottery, all three activities are covered under negative list. (Clause L of Section 65D)

The payment for admission to horse race as a spectator gets excluded from the levy of Service Tax net because this transaction is covered under the entry relating to ‘admission’ to entertainment event or access to amusement facility. Since, horse race is a sporting event, it is excluded. This entry seeks to cover the amount which is involved in the betting.

At times, clubs indulge in betting and gambling activates. Any amount received by club for admission to club or rendering support services does not have the attribute of risk of loss or hope of gain so it will be liable to Service Tax. However, betting done in club is not liable to Service Tax being in negative list.

Auxiliary services that are used for organizing or promoting betting or gambling events are not coved in negative list. These services are in the nature of services used for providing the negative list services of betting or gambling. As per the principle laid down in sub section (1) of section 66F of the Act, the reference to a service by nature or description in the Act will not include reference to a service used for providing such service.

It may also be noted that Sikkim High Court in Martin Lottery Agencies Ltd v. Union of India 2007 (9) TMI 39 - HIGH COURT, SIKKIM  has held that lotteries cannot be considered as service and taxed under business auxiliary service. Lottery tickets were held to be actionable claims and not goods as per the Sale of Goods Act, 1930 by apex court in Sunrise Associates v. Government of NCT of Delhi and Ors. 2006 (4) TMI 118 - SUPREME COURT of INDIA . Sikkim High Court in 2007 (8) TMI 67 - HIGH COURT, SIKKIM held that purchase of lottery tickets in bulk from Government does not constitute service as goods are purchased from the State by a third party.

In Union of India and Others v. Martin Lottery Agencies Ltd 2009 (5) TMI 1 - SUPREME COURT OF INDIA the apex court has held that service tax cannot be levied on sale of lottery tickets but sales promotion or marketing of lottery tickets shall be exigible to levy of service tax under business auxiliary service.

In Martin Lottery Agencies Ltd. v. Union of India (2007 (9) TMI 39 - HIGH COURT, SIKKIM, High Court held that where assessee was engaged in purchase of lottery tickets from State Government and subsequent sale and where lottery tickets have beenheld to be actionable claims and not goods as per the Sale of Goods Act, 1930, it was held that petitioner was not rendering services in relation to promotion of client’s goods and service tax liability did not.

In Finanzamt Gladbeck v. Edith Linneweber (2012) 37 STT 462 (ECJ), it was held that betting or gambling was not liable to service tax irrespective of whether it takes place in a licensed public casino or in restaurants and amusement arcades. Department shall not seek levy of service tax there on merely because betting or gambling was done unlawfully.

In United Utilities plc v. CCE (2013) 39 STT 1 (ECJ), where call centre services involved providing staff, premises, telephone and computer equipments which was necessary to take bets, it was held that it did not amount to carrying out ‘betting’ transactions, therefore, same was not covered in negative list under section 66D(i).

In Karlheinz Fischer v. Finanzamt Donaueschingen (2013) 39 STT 9 (ECJ), it was held that betting or gambling was covered under negative list, therefore, was not liable to service tax even if it was done unlawfully.

In Future Gaming Solutions India (P.) Ltd. v. Union of India 2013 (11) TMI 1003 - SIKKIM HIGH COURT , it was held that transactions of purchase and sale of lottery tickets are outside scope of service tax under clause (i) of section 66D ‘betting, gambling or lottery’.

However, any service for promotion, marketing or organizing such events will not be included in negative list and shall be a taxable service.

It may be noted that betting and gambling is a state subject (S.No. 34, List II) for the purpose of taxation. As such, only state governments are empowered to levy any tax on betting, gambling and lottery.