1. The two questions of law referred to us under s. 256(1) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), by the Income-tax Appellate Tribunal, Bangalore Bench, are:
'1. Whether the Tribunal was right in law in holding that receipt of Rs. 6,69,152 being prizes received in Mysore State Lotteries was not casual and non-recurring
2. Whether the Tribunal was right in holding that the receipt of Rs. 6,69,152 arose from the business of the assessee ?'
In substance, the two questions referred to us constitute only one question, namely, 'whether the sum of Rs. 6,69,152 received by the assessee as prizes of the Mysore State Lottery is taxable under the provisions of the Act or not ?'
Briefly stated, the facts of the case are as follows:
During the accounting year relevant to the assessment year 1971-72, the assessee, the Mysore Sales International Ltd., had entered into an agreement with the Department of Lottery of the State of Karnataka to act as the sole selling agent of the lottery tickets issued by the Department of Lottery. The terms of the agreement are found in two documents which are produced as annexures 'B' and 'C'. We are concerned in this case with cls. 3 an d 4 in each of the above documents. The said clauses are identical in both the documents. They read as follows:
'3. That the sole selling agents arrange for the sale of tickets through a network of sub-agents including scheduled banks AND shall be responsible for the sale of not less than 75% of the total number of tickets released for each draw and in case the 75% of the tickets released are not sold, it shall be deemed to have been purchased by the sole selling agents and the sole selling agents shall be liable to pay to the Government an amount equal to the value of 75% of the total number of tickets released for each draw less the commission due.
4. That the sole selling agents shall be entitled to a commission of 25% of the face value of the tickets sold for each draw. The sole selling agents shall get an incentive payment of 2 1/2% of the total number of tickets released for sale for each draw if all those tickets are sold. Such incentive shall be payable only if at least 50 lakhs tickets are released in the draw. When, however, the total number of tickets released for the draw is less than 50 lakhs, Government will have the discretion to make the incentive payment or not. If however, additional series of tickets are released, the sole selling agents shall also be entitled to get 2 1/2% of the value of each such series of tickets sold.'
2. Under the above terms, the assessee undertook to sell not less than 75% of the total number of tickets released during each draw and in case 75% of the tickets released were not sold, whatever remained unsold out of the 75% of tickets should be deemed to have been purchased by the assessee itself. The assessee was bound to pay in any case the value of 75% of the total number of tickets. In return, the assessee was entitled to commission of 25% of the face value of the tickets sold or deemed to have been sold as required by clause 3. The assessee was, however, entitled to an incentive payment of 2 1/2% of the face value of the tickets in addition to the commission payable as stated above when the entire number of tickets released for sale for each draw were sold and such incentive was payable only when at least 50 lakhs of tickets were released in respect of any draw. When the total number of tickets released for any draw was less than 50 lakhs it was within the discretion of the Government to allow the incentive payment or not. Having regard to the terms contained in clause 4 which provided for payment of commission as mentioned above during the relevant accounting year, the assessee itself purchased the unsold tickets of the face value of Rs. 12,53,186 and claimed the said sum of Rs. 12,53,186 as business expenditure. It would appear that during the relevant period, when prizes were declared, the assessee also became entitled to certain prizes in respect of some of the unsold tickets bought by it. The total receipts on that account was Rs. 6,69,152. This was in addition to the commission paid in accordance with the terms of the agreement. In its return, during the assessment year, the assessee claimed that the said sum of Rs. 6,69,152 constituted casual and non-recurring receipt and was exempt from payment of income-tax under s. 10(3) of the Act as it stood then. The ITO accepted the plea of the assessee and did not levy and tax on the said amount. Thereupon, the CIT initiated proceedings under s. 263 on the ground that the order of the ITO was erroneous and prejudicial to the interests of the revenue. After hearing the assessee, he set aside that part of the order of the ITO which had allowed exemption in respect of the said amount and directed him to bring the said sum to tax. The assessee filed an appeal against the order of the Commissioner. At the instance of the assessee, the above reference has been made to this court.
3. The Tribunal found in the course of its order that the assessee had shown the sum of Rs. 12,53,186 paid by it in lieu of the tickets as business expenditure and that the assessee was able to realise in addition to the commission a sum of Rs. 6,69,152 on account of the said investment made by it. It, therefore, concluded that the sum of Rs. 6,69,152 was income earned in the normal course of business by the assessee. It is contended by G.Sarangan, learned counsel for the assessee, that what is relevant for deciding the question whether a receipt in question was of a casual or non-recurring nature, is the fact that it is an amount released by way of prizes on lottery tickets and it should, therefore, he held that the realisation was purely of a fortuitous nature. We find it difficult to agree with the above submission on the facts and in the peculiar circumstances of this case. It is not the case of the assessee, which is a limited company, that it was open to it to invest its money on buying lottery tickets as any ordinary person would buy lottery tickets and earn, if possible, prizes declared in respect of such tickets. The assessee bought the tickets in question as a part of the bargain entered into by it with the Department of Lottery with the sole purpose of earning the commission payable thereon. In the instant case, it has so happened that in addition to the agreed commission the assessee was able to realise the sum of Rs. 6,69,152 also by way of prizes. Secondly, it has treated the entire investment made on the tickets in respect of which prizes have been declared as business expenditure. We have, therefore, to hold that the receipt of Rs. 6,69,152 is an income which has arisen out of the business carried on by the assessee and it is difficult to separate it therefrom. We, therefore, hold that the Tribunal was right in treating the above sum as part of the gross income from the business of the assessee and affirming the order of the Commissioner. We, therefore, answer the two questions referred to us in the affirmative and against the assessee. No costs.