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TMI Blog2019 (11) TMI 260X X X X Extracts X X X X X X X X Extracts X X X X ..... in a lottery. 4. For these reasons and other grounds to be advanced at the time of hearing it is prayed that the impugned order may be set aside." 3. Brief facts of the case are as follows: The assessee had made purchases of cloth from a shop at Kanhangad. The purchases made by the assessee was above the specified monetary limit, hence, he was given certain number of price coupons. The assessee did not pay any consideration for the price coupons. The price coupon given to the assessee was under a scheme of the Kasargod Vyapari Vyavasaya Ekopana Trust (KVVES Trust) (a unit of Kasargod District Merchant Association). The assessee won first price on lot being one kg. of gold. On production of coupon, the assessee was issued 600 gms. of gold coins and balance was deducted being 40% of the price money by KVVES Trust u/s 194 B of the I.T.Act. The one kg. of gold coins was valued at Rs. 4,290,200 and total tax deducted at source including surcharge was Rs. 1,88,848. 4. The assessee had filed return of income for assessment year 2000-2001 on 02.05.2000 declaring total income at Rs.'Nil', claiming refund of Rs. 1,88,748 being tax deducted at source by KVVES Trust from the gift value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding the issue has specifically observed that the scheme in that case is not one for the promotion for sale of any goods. Therefore, all these decisions are not applicable to the appellant. 4.1. Coming to the first element whether there was a element of chance or not in the case of appellant, the guidelines of scheme prescribe that the free price coupon was given to every purchaser purchasing goods over a stipulated amount and prices were to decided by draw of lot from those coupon. Therefore, it is seen that the element of chance is present in howsoever limited way amongst the purchasers who purchased over a stipulated amount and were awarded the coupons. As regards the other essential element of whether any consideration was paid or not, it is relevant to draw observations from an old decision of Madras High Court in the case of Sesha Awar Vs. Krishan Awar (AIR 1936 Madras 225) in which the majority had held that the chit scheme under which Rs. 3 per ticket was to be paid for 50 months by 625 persons and to the holder of one lucky ticket to be drawn each month Rs. 150/- was to be paid, amounted to scheme of lottery. The Hon'ble Court observed that scheme may fairly be regarded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 1972 introduced a new sub-clause (ix) in the definition of "income" in section 2(24) of the Act, which reads as follows : "2(24) ...... . (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. " 7.1 Winnings from lotteries on and after April 1, 1972 came within the scope of the definition of "income". Prior to April 1, 2002, the Act did not contain a definition of "lottery". In the Finance Act, 2001, an explanation was added below section 2(24) (ix), which Explanation reads thus: "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 sort' includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game. " 7.2 The term `lottery' is required to be construed without the aid of Explanation. The explanation was added w.e.f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l case where free price coupons were given to the participants. In the case considered by the Hon'ble Madras High Court, free Prize coupons were distributed in the 'District Level Gift Linked Savings Mobilization Scheme' when the investor in the scheme invested in excess of Rs. 1000. Investor did not pay any price for the coupon. Coupons were distributed free of cost. A free chance was given to the investor Prizes were awarded to the holder of the Lucky- Coupon. The Hon'ble Court was of the view that before a scheme can be regarded as a lottery, there must be the element of distribution of prizes which should be by chance or lot and such distribution should be among those who had paid a price for participating in the scheme. Mere gratuitous distribution without any price having been paid by the participants for acquiring the chance and receiving a prize that is ultimately distributed would not amount to a lottery. The Hon'ble High Court of Madras held as follows: "The chance given to the investor to win a prize is a free chance, and is not a chance given in return for a price or contribution paid. The Scheme is not a lottery" 7.5 The Hon'ble Kerala High Court in the case of Canaa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckets taken or purchased and then allotting such proceeds or a part of them or their equivalent by chance to one or more such takers or purchasers are indicia of a lottery. " 7. From the above, it is clear that if lottery is a scheme for the distribution of prizes by lot or chance, it is necessary that the winner must be not only a contributor to the prize amount I but must also be a participant in the lottery. All the ingredients which are set out in the definition in Corpus Juris Secundum must be present to identify the winner and the winnings of the lottery. (emphasis supplied) The Hon'ble H.C held that the income of Rs. 1,00,000/- from 'bonus commission' is not income from lottery in the hands of the assessee as the assessee had not made any contribution nor is he the winner of the prize money. There the essential element of a lottery namely participators, contribution and winning of prize was absent." 7.7 The Hon'ble Guwahati High Court in the case of Director of State Lotteries Assam v. ACIT [(1999) 238 ITR 1 (Gau)] had held that the assessee in the said case was not liable for nondeduction of tax u/s 194B of the I.T.Act in respect of unclaimed / undisbursed prize mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to have some skill or knowledge to make the correct prediction." 7.9 We are of the view that the essential ingredients of 'Lottery' as it stood prior to insertion of the Explanation to Section 2(24)(xi) of the I.T.Act mandates the following: (1) Distribution of prize by chance or lot among the participants. (2) The participants have either paid or agreed to pay a valuable consideration / contribution for the participation. (3) Risk of loss. (4) Intention to participate 7.10 It is customary in Kerala to buy new clothes during onam festival. The intention of the assessee was to purchase new clothes for himself and his family. The assessee approached the cloth merchant with this predominant intention. This particular scheme of distributing free coupons at the time of festival seasons like Onam is offered by almost all the merchants in the town, be it Textiles, Footwear, Groccery, Jewellry etc. In the case of this assessee, the choice of a particular cloth merchant was the availability of the desired dress material at his affordable price and not the offer of a free coupon. Hence it cannot, by any stretch of imagination, be presumed that the assessee visited a parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 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. Varadachariar J. who formed part of that majority, observed that the scheme may fairly be regarded as a lottery if it is clear that whatever other benefits the subscriber or competitor may get in return for his money, the chance of his getting the prize was also part of the bargain and must have entered into his calculation. The decision of this court with regard to kuris in Sesha Ayyar v. Krishna Ayyar, AIR 1936 Mad 225 was rendered after considering earlier English decisions, and by following the same. Subsequent decisions of the English courts by the Queen's Bench in the case of Reader's Digest Association Ltd. v. Williams [1976] 3 All ER 737 and the one by the House of Lords in the case of Imperial Tobacco Ltd. v. Attorney General [1980] 1 All ER 866 set out the current state of the law with regard to lotteries in England. In the case of the Reader's Digest [1976] 3 All ER 737, it was held that to establish that a prize constitutes a "lottery" withi ..... 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