Jagannatha Shetty, J.
1. This revision petition is directed against the order the Appellate Tribunal, Bangalore, dated June 7, 1979 made in S.T.A. No. 333 of 1979.
2. The petitioner is a dealer registered under the Karnataka Sales Tax Act, 1957. He is the proprietor of an establishment engaged in the manufacture of wooden and steel furniture. For the year 1973-74 he declared the total and taxable turnover at Rs. 48,628 and Rs. 37,150. In the course of the assessment proceedings the Assistant Commercial Tax Officer, Chickmagalur, inspected the business premises of the petitioner and seized certain documents. He discovered that the petitioner has suppressed the sales turnover of Rs. 69,904 in respect of the furniture distributed under a gift scheme. He also found that the sale transaction to the extent of Rs. 34,983 was suppressed by the petitioner. Relying upon this material, the assessing authority completed the assessment under section 12(3) of the Act by determining the total and taxable turnover at Rs. 1,58,102 and 1,66,632 respectively with the levy of tax of Rs. 14,398 and imposition of penalty of Rs. 13,000 under section 12(4) of the Act.
Being aggrieved by the assessment and penalty, the petitioner appealed to the Deputy Commissioner of Commercial Taxes (Appeals), Mysore Division. The Deputy Commissioner allowed the appeal, set aside the assessment order and remanded the case with a direction to the assessing authority to re-do the assessment after giving an opportunity to the petitioner to substantiate his contention regarding the non-liability to tax the turnover under the gift scheme.
Pursuant to the order of remand, the assessing authority started reassessment proceedings and in doing so he allowed deduction in respect of the sales of steel furniture as second dealer and fixed the taxable turnover at Rs. 1,07,063 levying the tax of Rs. 13,023 with penalty of Rs. 9,333.
The petitioner again took up the matter in appeal before the Deputy Commissioner. He raised a specific contention that the distribution of the steel furniture under the benefit scheme could not be considered as sales and the amounts realised thereunder could not therefore be regarded as turnover eligible to tax. He contended that the goods were delivered as per the conditions of the benefit scheme against payments of instalments depending on luck or chance and there was no agreement for sale between the petitioner and the members of the benefit scheme. The Deputy Commissioner found some substance in that contention and he allowed the appeal in part.
Being aggrieved by the order of the Deputy Commissioner, the petitioner preferred an appeal to the Appellate Tribunal. The Tribunal while dismissing the appeals, has however reduced the penalty to Rs. 6,000.
3. In this revision petition three contentions were urged by Sri S. P. Bhat, learned counsel appearing for the petitioners, first, regarding the tax levied on the transactions under the gift scheme; second, on the turnover determined on the basis of the entries in the seized book and third, legality of the penalty imposed.
4. We will take up the first contention first for consideration. It will be necessary to refer to the terms and conditions of the benefit scheme promoted by the petitioner. The scheme is called 'Group purchase benefit scheme for steel furniture'. As many as 100 persons are to become the members in each group. Each member has to pay an amount of Rs. 20 on every 5th of the month. It shall be so paid for twenty months which is the period of the scheme. On 5th of every month a lot would be drawn and the lucky member will be given a steel almirah worth Rs. 400. The member who gets that almirah would be relieved of his liability to pay future payments. Likewise the lots will be drawn for 19 months and 19 out of the 100 would get, as their luck would have it, one steel almirah worth Rs. 400. The scheme also provides that at the end of 20 months each one of the remaining members of the group, i.e., 81 members would be entitled to one steel almirah each without any further payment.
5. In accordance with these conditions, the petitioner promoted the scheme an distributed and delivered the steel almirahs. The contention of Sri Bhat is that there was no agreement between the parties for the purpose of transferring title to steel almirahs and also there was no consideration agreed upon nor paid for the sale of such almirahs. The amount realised from the members of the group by way of monthly contributions could not, therefore, be considered as taxable turnover.
6. In this context it may be useful to recall with what the Deputy Commissioner said while giving some relief to the petitioner. He allowed deduction of the turnover relating to 19 steel almirahs distributed to the members of the scheme by drawing lots. He held that the payments by instalments made by those lucky members cannot be the sale price of the almirahs given to them. He, however, included the value of the steel almirahs given to the remaining members of the benefit scheme at the rate of Rs. 400 per almirah. The Tribunal also agreed with this conclusion.
7. Sri Bhat, however, urged that the scheme cannot be bifurcated as between the lucky winners chosen by lots and the unlucky members, who have to pay instalments for 20 full months. According to him the scheme should be considered as one and indivisible and if so construed the scheme would be in the nature of a lottery which does not involve any element of sale.
8. It is true that in a lottery there is no sale or agreement to sell. It merely results in the distribution of articles to every member participating in the lottery scheme on the fulfilment of the terms and conditions. The amount realised thereunder certainly cannot be brought to tax under the Sales Tax Act.
9. But upon a close perusal of the terms and conditions of the benefit scheme which has been promoted by the petitioner, we find that it contains expressly two agreements with the members of the scheme, one to participate in the lots to be drawn upon payment of Rs. 20 per month and another to get a steel almirah at the end of 20 months for the instalments paid for 20 months at the rate of Rs. 20. So far as the first agreement is concerned, counsel appears to be justified in contending that the distribution of the steel furniture by lot every month to the lucky winner cannot be considered as a sale. The Deputy Commissioner, in our opinion, was justified in excluding the amount collected by the petitioner from those 19 lucky winners. But the legal position is not the same with regard to the remaining 81 members of the scheme. Each one of them has secured one almirah as of right at the end of 20 months for the total payment made by him for twenty months. In other words, the petitioner had agreed to sell one almirah to each of those persons. That is an independent agreement for sale, which could be legitimately enforced by those members at the end of the 20 months. The turnover relating to such sales cannot, therefore, escape the assessment.
10. This takes us to the second contention urged for the petitioner. It relates to the sale transactions entered in the seized book exhibit P.5. The total turnover on that basis was estimated as Rs. 34,983. The only contention urged by Sri Bhat in this context is that the assessing authority has taken into consideration even the cancelled orders and there is no evidence that those cancelled orders were executed by the petitioner. We have perused exhibit P.5. We find that the petitioner has endorsed on some of the orders expressly stating as 'cancelled'. This claim was rejected by the Deputy Commissioner and the Tribunal on the ground that the petitioner has not produced proof of cancellation. We fail to understand why there should be further proof when the order book itself specifically mentions the cancellation of some of the orders.
11. We have the assistance of counsel on both sides in calculating the amounts pertaining to such cancelled orders. That come to Rs. 3,170. It is, therefore, unnecessary to remit this question to the assessing authority. The amount of Rs. 3,170 must be excluded from the suppressed turnover.
12. The third and the last contention urged by Sri Bhat relates to the legality of the penalty. There is no doubt that the petitioner has suppressed some of the sales turnover. That was found out from his diary exhibit P.5. That book was seized in the course of inspection by the Assistant Commercial Tax Officer. However, since we have reduced the suppressed turnover and also given some relief under the benefit scheme, the penalty also must be reduced. We are inclined to reduce the same by fifty per cent.
13. In the result, this revision petition is allowed in part; the orders of the authorities are modified to the extent indicated above and the assessing authority shall issue a revised demand notice. Excess penalty, if already recovered, shall be refunded.