Assessment of persons in lottery business. - Income Tax - 1845/1990

INSTRUCTION NO. 1845/1990 Dated: April 9, 1990 The Comptroller and Auditor General of India has conducted a review of the assessment of lottery business and it has been observed that the persons directly involved in this business, such as organisers, stockists and sub-agents, receive substantial amounts as service charges, bonus, royalty and selling agents commission. It has also been observed that the scheme of lottery generally provides for deduction towards bonus, selling agents commission etc. in respect of prize winning amounts and the amounts so deducted are paid to the concerned stockists/sub-agents. Some of these persons have not been disclosing these amounts in their returns of income. The State Governments have complete data in respect of these persons, which is not being utilized by the Income-tax Department for the purpose of bringing such persons on its records. 2. In the C AG's review, it has also been observed that the quarterly statements of tax deducted at source being filed with the assessing officers contained the names of the prize winners. Despite this information being available with the Income-tax Department, a large number of prize winners are not borne on the registers of the Income-tax Department. Even such persons who have filed their Income-tax returns have not filed their corresponding wealth-tax returns. 3. Some of the State Governments conduct lotteries departmentally and some through private agencies, who either pay royalty to the State Governments or acts as sole selling agents on commission basis. The promoters of private lotteries have also been found to engage organising agents to conduct the lotteries on guaranteed profit basis or appoint stockists and agents on payment of commission for arranging the sales of lottery tickets. 4. The present provisions of Sec. 194B and Section 206 of the Income-tax Act, read with Rules 36A and 37 of the Income-tax Rules lay down that every person responsible for paying to any person income by way of winning from lotteries in an amount exceeding Rs. 5000 is to deduct Income-tax therefrom at the rates specified in the Finance Act of the relevant year. The person deducting tax at source u/s 194B shall file an annual return in Form No 26B to the designated Income-tax officer, or, if there is no designated Income-tax officer, to the Income-tax officer within whose area of jurisdiction the office of the person responsible for deducting tax is situated, by the 31st May following the financial year in which tax was deducted. 5. In view of the findings of the C AG, following steps should be taken:- (i) Central Information Branches should collect information regarding the payment of service charges, bonus, royalty, selling agents commission and service charges on prize winning tickets made to organisers, stockists and sub-agents by the State Governments or by the private promoters of lottery authorised to conduct lottery by the State Governments. The information collected should be verified and disseminated to the concerned assessing officers to ensure that the income earned by such persons is brought to tax. The collection of information from the above sources may be done on a regular basis, as this is likely to lead to detection of considerable tax evasion. (ii) While collecting information specified in (i) above, Central Information Branches should also obtain names and addresses of persons liable to deduct tax at source from winnings from lotteries. This information should be sent to the designated officers and if there is no designated officer, to the concerned assessing officers. (iii) The designated officers/assessing officers should then ensure that the annual returns in Form No. 26B are filed by all such persons liable to deduct tax u/s 194B. For this purpose, provision of Section 272(2) (c) may be used. (iv) Central Information Branches should collect information relating to recipients of prize money from the annual statements in form No. 26B from the concerned officers, verify the same and then disseminate it to concerned assessing officers of the winners of lottery so as to enable them to take further action under the Wealth-tax Act. In view of the provisions of Sec. 115BB, the question of loss of revenue under the Income-tax Act may not arise if tax has been correctly deducted from the lottery winnings because the rates for tax deduction at source at present are the same as laid down in Sec. 115BB. Information in respect of recipients of lottery prize may be collected in respect of prize money of Rs. 1,00,000 and above. Information from this source should be collected every year.