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TMI Blog2004 (9) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... or taking lot for awarding certain prizes to subscribers who are making prompt payment of the kuri instalments was framed under which every month lot is taken with reference to prompt subscribers and gifts are given. It is the case of the said kuri companies that no independent consideration is involved so far as the gift is concerned. On the other hand, the Income-tax Officer (TDS) has taken a prima facie view that the prize amount either in kind or in cash given by taking lots is liable to tax under the Act. This is also the position, according to the petitioners, who are dealers in consumer goods. They also contend that no independent consideration is received in respect of the gift given to the winners in the lottery. Ordinarily this is a matter which has to be canvassed by the petitioners before the Income-tax Officer (TDS) pursuant to the notice issued by him. In some cases it so happened that the petitioners took up the matter with the Commissioner of Income-tax and the Commissioner of Income-tax has also taken the same view as taken by the Income-tax Officer (TDS) as is evident from the communication dated May 20, 1999, (exhibit P4 in O.P. No. 19342 of 1999). It is stated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question as to whether a kuri is a lottery. The Full Bench has formulated the elements which appear to be essential to constitute lottery, viz., (1) a prize or some advantage in the nature of a prize, (2) distribution by chance, (3) consideration paid or promised, and (4) risk or loss. Counsel submits that the transactions in question did not satisfy the essential elements mentioned above. Counsel submits that the aforesaid four elements stated by the Full Bench of the Madras High Court were approved by the Supreme Court in H. Anraj v. Government of Tamil Nadu [1986] 61 STC 165. Counsel took me to the observations of the Supreme Court at page 174 of the report where the Supreme Court referred to the decision of the Full Bench of the Madras High Court in Sesha Ayyar's case, AIR 1936 Mad 225 where in the context of the question whether a kuri chit fund was a lottery or not, the Full Bench has emphasised the same three essential elements that go to constitute a lottery, viz., (a) a prize or some advantage in the nature of a prize, (b) distribution thereof by chance, and (c) consideration paid or promised for purchasing the chance. Counsel submits that in view of these two decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's case, AIR 1936 Mad 225. Senior counsel took me to page 227 of the Full Bench decision and the illustration discussed in the right hand column which reads: "Then clause 7 provides that at the end of the 51st month the 575 subscribers who have not drawn prizes will be repaid without interest, the total amount of their subscription, viz., Rs. 150, clause 6 shows the benefit which the temple was to derive from the arrangement; it permitted the subscription money to be deposited for interest with banks and merchants or to be lent to subscribers, and the temple was to get the profit from these deposits and loans. So that a subscriber to the kuri had the prospect of at least getting back the amount of his total subscription of Rs. 150 at the termination of the drawings; but his purchase of a ticket for Rs. 3 gave him a chance of a prize of Rs. 150 if his ticket was drawn at the first drawing, a chance of a prize of Rs. 150 for a payment of Rs. 6 if his ticket was successful at the second drawing, and so on down to the 49th drawing, when the winner would get Rs. 150 for an expenditure of Rs. 147 on his ticket. In my opinion this kuri was clearly within the abovementioned definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to the dictionary meaning of the term "lottery" and the decisions of the courts in England and in India have observed that from a study of decisions of both English and Indian courts the following four elements appear to be essential to constitute a lottery: (1) A prize or some advantage in the nature of a prize; (2) distribution by chance; (3) consideration paid or promised; (4) risk or loss. The Supreme Court, as already noted, in H. Anraj's case [1986] 61 STC 165 has referred to the above decision of the Full Bench of the Madras High Court and approved the first three elements as essential to constitute a lottery. In view of this authoritative position with regard to the elements which constitute a lottery the question involved in these cases has to be considered by applying the same. In this context it must be noted that though the aforesaid three elements were stated with reference to the kuri conducted by the appellants in the said case the same principle will apply in the matter of considering prize scheme of dealers in consumer goods also with which some of the cases on hand are concerned. Thus while considering the question of applicability of the provisions of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or. This proposition of the learned judge cannot be sustained in view of the decision of the Supreme Court in H.M.M. Ltd.'s case [1998] 94 Comp Cas 132. In that case the appellants therein manufacture and market consumer products, including Horlicks. The appellants advertised a scheme they called the "Hidden Wealth Prize Offer", coupons were inserted in some bottles of Horlicks in the various pack sizes, some of these coupons indicated that the purchasers of the bottles in which the coupons were placed would get prizes, the advertisements of this scheme made it clear that the prizes were available only to buyers in Delhi city and they were required to claim their prizes by January 15, 1986, the appellants were served with a notice dated January 28, 1986, by the Assistant Director of Inspection of the Commission stating that the scheme required investigation to find out whether it attracted the provisions of the Monopolies and Restrictive Trade Practices Act, 1969. It was contended for the Director General that there was an increase in price covered the cost of prizes under the scheme and the Commission found that the price increase that took place on July 1, 1985, could "surely be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those coupons. Prizes are awarded to the holder of the lucky coupon, which is chosen by lot. The prizes given are consumer goods, such as, fan, colour television, moped, etc. During the accounting year ended March 31, 1998 the assessment year being 1998-99, the respondent released prizes worth Rs. 72,94,480. According to the Revenue, before distributing those prizes, the assessee ought to have deducted tax at source in a sum of Rs. 29,17,792. The Division Bench after referring to the provisions of section 194B, section 2(24)(ix) as also the dictionary meaning of the word "lottery" noted that the Assessing Officer, as also the Commissioner had placed strong reliance on an old decision of that court in Sesha Ayyar v. Krishna fyyyar, AIR 1936 Mad 225 [FB] in which the majority had held that a chit scheme under which rupees three per ticket was to be paid for fifty months by 625 persons and to the holder of one lucky ticket to be drawn each month Rs. 150 was to be paid with the recipient no longer being liable to pay the monthly subscription for the remaining period, amounted to a scheme of lottery. It was also noted that Varadachariar J. who formed part of that majority, observed tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid or promised for purchasing the chance. Thus unless all the three elements are satisfied the prize scheme cannot be considered as a lottery. A price was charged for participating in the draw. The chance of a person getting the prize cannot be treated as part of the bargain unless independent consideration is there with respect to the prize awarded. Here, the general proposition which is laid down by Justice Varadachariar in Sesha Ayyar's case, AIR 1936 Mad 225 [FB] that the chance of a person getting the prize was also part of the bargain cannot be sustained in view of the decision of the Supreme Court in H.M.M. Ltd.'s case [1998] 94 Comp Cas 132 and (4) it is the duty of the assessing authority concerned to consider in each case as to whether a prize scheme introduced by the assessee satisfied the three elements of a lottery as laid down by the Full Bench of the Madras High Court and approved by the Supreme Court. For the said purpose it is necessary for the assessing authority to go into the prize scheme of the respective assessees. In the instant case, so far as the kuri companies are concerned, if as a matter of fact the prize scheme is introduced only for the limited pur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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