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TMI Blog2014 (5) TMI 159X X X X Extracts X X X X X X X X Extracts X X X X ..... income by way of winnings from lotteries. Relying upon Commissioner of Income-tax Versus Manjoo and Co. [2010 (9) TMI 754 - Kerala High Court] - the entire lottery tickets ceased to be stock-in-trade on the date of the draw because after the draw those tickets were unsaleable and have no value except waste paper – Section 115BB is a special provision under the Act to tax the income by way of winnings from lotteries - the agreement was for the appointment of stockist on the payment of commission on the tickets sold by the assessee - The unsold tickets for which the information has not been given within the stipulated period was deemed to be sold by the State Government to the assessee - being the purchaser, the assessee gets right to participate in the draw through such tickets - Thus, prize won on such tickets amounts to income by way of winnings from lottery - The provision of Section 115BB of the Act is fully applicable – thus, the order of the Tribunal is set aside - Decided decided Assessee. Disallowance of expenses – Addition u/s 68 of the Act - Held that:- It is not clear from the order of the Tribunal that from which source the money has been brought and credited in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,680/- (approximated by the assessing authority to Rs.2,00 lacs) could be disallowed and the finding to this effect is against the material and evidence on record? The brief facts of the case are that the appellant is a partnership firm and has been appointed as a stockist by the State of U.P. through the Governor of U.P. vide agreement dated 1.4.1988. Under the agreement the appellant was appointed as a stockist at Kanpur for the financial year 1988-89 on payment of such commission on the sale of lottery tickets under the terms and conditions provided in the agreement. The appellant filed income tax return declaring the total income at Rs.18,250/-. The assessing authority passed the assessment order on a total income of Rs.14,09,490/-. During the year under consideration, the appellant had disclosed income of Rs.14,43,685/-, gained by winning the prize on the unsold lottery tickets as a business income. The assessing authority has treated the said receipt as income by way of winning prize money on lottery tickets and subjected to the assessment under Section 115BB of the Income Tax Act (hereinafter referred to as the Act ) at the rate of 40%. The appellant had also claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch could not be made because in fact it makes time to submit statement to U.P. State Lottery and, therefore, unless the statement is submitted, it is not possible to create the provision and the provision has not been created as stated by the appellant in subsequent year. Moreover, the source of credit is explained and, therefore, Section 68 of the Act does not have any applicability. It has been held that genuineness of PWT creditors cannot be doubted. Being aggrieved by the order of the appellate authority deciding three issues in favour of the appellant, the revenue filed an appeal before the Tribunal. The Tribunal by the impugned order dated 20.11.2001 allowed the appeal and restored the order of the assessing authority. The Tribunal has recorded the following findings: Question Nos. 1 2. We have considered the rival submissions. From the details and specific reference to agreement, it is apparent that the assessee was not appointed as Agent by U.P. State Lotteries and in the capacity of stockist of lottery tickets, the assessee was selling lotteries tickets on agreed terms and conditions in specified area i.e. Kanpur. The fact remains that for sale of lottery ticket ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the impugned disallowance the CIT (A) is not justified in deleting the same since the nature of the amount in view of the facts and circumstances is such which is liable to be taxed, therefore, we are of the opinion that the Ld. CIT (A) is not justified in deleting the addition, therefore, the addition is directed to be restored, thus, we restore the addition made by the A.O. and ground of the revenue is treated as allowed. Question No. 4. We have considered the rival submissions. From the details it is apparent that the loss on account of unsold tickets is rising year after year and it is a fact in the year under consideration the assessee could furnish the details to the extent of Rs.19,22,168/- out of the total claim of loss of Rs.21,13,848/-. It was for the assessee to substantiate its claim and if the assessee failed to so, the ld. CIT (A) is not justified in deleting the addition. However, we find that the difference comes to Rs.1,91,680/- therefore, the loss could be disallowed to that extent only. Therefore, the A.O. is directed to restrict the disallowance to Rs.1,91,680/- and accordingly, the revenue's appeal is treated as partly allowed. We have heard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n placed on the decisions of the Gauhati High Court in the case of Director of State Lotteries v. Assistant Commissioner of Income Tax and others, reported in 238 ITR 1 and in the case of Assistant Commissioner of Income Tax and others vs. Director of State Lotteries, Assam and another, reported in 255 ITR 236. He submitted that amount received does not fall within the purview of Income by way of winning the lottery ticket . Thus, the provision of Section 115BB does not apply. In respect of addition of Rs. Rs.7,21,840/-, it is submitted that under clause 10 of the agreement, the appellant has to pay the amount prize to the winners below Rs.1,000/- and the same was to be reimbursed from the State Government. During the year under consideration, such amount payable to the winners was determined at Rs.1,30,08,093/- and the same had been shown as the creditors' account. During the year under consideration, a sum of Rs.1,22,86,253/- paid to the winners and the balance amount had been shown as the liability payable to the winners. According to learned counsel for the appellant, the same has been paid in the subsequent year. In the books of account, a sum of Rs.1,30,08,093/- had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he account of the creditors after debiting the amount in the account of State of U.P. was in the nature of revenue receipt and, therefore, any amount which remained unpaid during the year under consideration, being in nature of revenue receipt, is liable to be taxed. He submitted that the appellant could not furnish the complete details of those lottery tickets and the name of the winners to whom the said amount were payable and, therefore, it has been rightly treated as income. So far as disallowance of Rs.1,91,680/- is concerned, he submitted that the burden lies upon the assessee to prove the loss. The assessee could not furnish the details of total of Rs.1,91,680/- and, therefore, it has been rightly disallowed. We have considered rival submissions and perused the records. To adjudicate the question involved in the present appeal, it would be appropriate to refer the agreement dated 1.4.1988 which is as under: WHEREAS with a view to promote the sale of tickets of the DHAN LAXMI which is presently being run by the Government of Uttar Pradesh (hereinafter called 'The State Government') the State Government wants to appoint stockists at Kanpur for the period 1988- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own rubber stamp at its own cost, on the back of the tickets in such a partner as to appear partly on the ticket and partly on the left side counter foils before the tickets are issued for sale to the agents. 4-The Second party shall make his best endeavour to sell the tickets supplied to him as hereinabove stated. 5-The First party shall pay commission to the Second party on the tickets sold by him at such rates as may be decided by the First party from time to time. 6-The Second party shall pay to the first party immediately after the date of close of sale of the lottery tickets of the draw and latest within three days thereof the price of lottery tickets supplied to him by the First party after deducting the commission admissible to him as aforesaid. 7-The Second party shall immediately after the closing date of a draw and latest within 24 hours thereof send telegraphic information and a copy by post confirming details of the sold and unsold lottery tickets included in a daily/mini or main draw failing which the entire tickets supplied to him will be treated as sold and included in the draw and the second party will be liable to pay the price of all such tickets. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the Second party it shall on demand pay to the first party the difference thereof. 16-That without prejudice to other remedies, the State Government may on the certificate of the Director of Lotteries, U.P. which shall be final, conclusive and binding on the Second party recover all dues hereunder from the Second party as arrears of land revenue. 17-In case the Second party fails to sell the prescribed minimum number of tickets in a draw, his stockistship will automatically cease, unless the First party on the request of the Second party condones the lapse in the interest of lottery scheme. 18-This agreement shall continue to be in force for a period of one year with effect from 1st April, 1988 and may be renewed further for two years with the consent of both the parties. 19-This agreement can be evoked by either party without assigning any reason therefor by serving a written notice of at least 30 (thirty) days before the draw. 20-Every dispute, difference or question which may at any time arise between the parties hereto or any person claiming under them, touching or arising out or in respect of this deed or the subject matter thereof (except as to matters the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of-- (i) the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of thirty per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i). Explanation.--For the purposes of this section, horse race shall have the same meaning as in section 74A. Section 2(24) (i) and (ix). income includes- (i) profits and gains; (ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever. Explanation.--For the purposes of this sub-clause,-- (i) 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; (ii) card game and other game of any so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rizes of Rs.1,000/- for the ticket paid by him. Clause 17 provides that in case if the party fails to sell the prescribed minimum number of tickets in a draw, his stockistship will automatically ceased. The above clauses show that the assessee was appointed as a stockist on principle to principle basis and not an agent to sell tickets on behalf of the State Government. In case of non-intimation within 24 hours from the closing date of the draw about the unsold tickets through the telegraphic message, the said unsold lottery tickets would be treated as sold and included in the draw and the assessee was made liable to pay the price of the tickets to the State Government. Therefore, unsold tickets are deemed to be sold by the State of U.P. to the assessee and are included in the draw. The draw is being organized by the State Government and not by the assessee. The assessee has not been held to be organizer of the sale and to conduct draw of the lottery. The unsold tickets which remained with the assessee and deemed to have been sold by the State Government, the assessee got the right to participate in the draw through the tickets like any other purchaser of the lottery tickets gets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act to tax the income by way of winnings from lotteries. Thus, such income is liable to be taxed under the special provision and its nature of income whether it is a business income or income from other source is wholly irrelevant. We fully agree with the view taken by the Division Bench of the Kerala High Court in the case of Commissioner of Income-Tax v. Manjoo and Co (supra) wherein the amount received by winning prize from unsold lottery tickets has been treated within the purview of income by way of winnings from lotteries and held to be liable to tax under the special provision, under Section 115BB of the Act. The the Division Bench of the Kerala High Court has also considered the decision of the Gauhati High Court in the case of Director of State Lotteries v. Assistant Commissioner of Income Tax and others (supra) and two decisions of the Karnataka High Court in the case of Visveswaraiah Lucky Centre v. CIT, reported in [1991] 189 ITR 698 and Mysore Sales International Ltd. v. CIT [1979] 117 ITR 64 and distinguished both the decisions on the following reasonings : ..........Even though the issue is apparently considered both by the Karnataka High Court and by the Gauhati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointed organizing agent to sell and conduct the draws. The High Court has gone saying that in the context of various clauses of the agreement, there are no winnings from the lotteries as the organizing agent has not participated in the draw intending for a prize. The learned Single Judge of the Gauhati High Court has held that the income accrued to an agent/trader/stockists in respect of prize on unsold/unclaimed tickets in the possession of an organizing agent is income from business and does not constitute winnings from lotteries, and, therefore, it cannot be brought within the meaning of section 2(24)(ix) of the Act. The Division Bench of the Bombay High Court in the case of Commercial Corporation of India Ltd. v. ITO, reported in [1993] 201 ITR 348 on consideration of various clauses of the agreement wherein the assessee has been appointed as an agent to organize the lotteries on behalf of the State Government has held that the party has to print lottery tickets at his own cost and deposit the prize monies and cost of the draw with the State Government. On the basis of the various clauses of the agreement, it has been observed that the agreement dated 21.12.1989 is an agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to participate in the draw through such tickets. Thus, prize won on such tickets amounts to income by way of winnings from lottery. The provision of Section 115BB of the Act is fully applicable. We, accordingly, hold the view taken by the Tribunal is unjustified. The order of the Tribunal to this extent is liable to be set aside. So far as question no. 3, which relates to disallowance of Rs.7,21,840/- is concerned, we are of the view that the issue has not been properly examined by any of the authorities. It is not clear from the order that from which source the money has been brought and credited in the accounts of the creditors to the extent of Rs.1,30,08,093/-, out of which a sum of Rs.1,22,86,253/- was paid. Whether the amount of Rs.1,30,08,093/- has been brought from the account of the State Government by debiting their accounts or from some other accounts, it is not clear. If the amount has been credited in the creditors' accounts by debiting the account of the State Government, the source is fully proved and the addition of the balance amount of Rs.7,21,840/- cannot be added under Section 68 of the Act. If the amount has been brought from some other accounts, then on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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