Skip to content


First Income-tax Officer Vs. Visweswaraiah Lucky Centre - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1983)5ITD132(Bang.)
AppellantFirst Income-tax Officer
RespondentVisweswaraiah Lucky Centre
Excerpt:
1. the assessee carries on business in the sale of lottery tickets issued by the karnataka government. mysore sales international ltd., is the sole selling agent of the lottery tickets issued by the department of lottery, government of karnataka. the assessee is a sub-agent of mysore sales international ltd. the assessee was entitled to 15 per cent commission on sale of tickets. it was also entitled for bonus on all prize winning tickets, except the last prize of rs. 5, sold. during the year of account, one of the tickets sold by the assessee won a bumper prize of rs. 10 lakhs. the assessee being a lucky seller became entitled to a bonus of rs. 1 lakh. in the profit and loss account it was shown as bonus on the credit side. the assessee offered it as business income. the ito assessed the.....
Judgment:
1. The assessee carries on business in the sale of lottery tickets issued by the Karnataka Government. Mysore Sales International Ltd., is the sole selling agent of the lottery tickets issued by the Department of Lottery, Government of Karnataka. The assessee is a Sub-agent of Mysore Sales International Ltd. The assessee was entitled to 15 per cent commission on sale of tickets. It was also entitled for bonus on all prize winning tickets, except the last prize of Rs. 5, sold. During the year of account, one of the tickets sold by the assessee won a bumper prize of Rs. 10 lakhs. The assessee being a lucky seller became entitled to a bonus of Rs. 1 lakh. In the profit and loss account it was shown as bonus on the credit side. The assessee offered it as business income. The ITO assessed the same as business income.

2. The assessee appealed to the AAC. It was urged that it should have been assessed as income from lottery and, statutory deduction under Section 80 TT of the Income-tax Act, 1961 ('the Act'), should have been allowed. It was a chance receipt arising out of a prize winning ticket sold by it. Therefore, the bous receipt should be held to be income from lottery and deduction under Section 80 TT should be allowed. The AAC held that the receipt which accrued to the assessee by virtue of having sold the winning ticket, is a chance receipt and the resulting gain to it certainly partakes the character of chance receipt and, therefore, this receipt is nothing but income from lottery. It is, therefore, entitled to the benefit of provisions contained in Section 80 TT. He directed the ITO to treat the receipt of Rs. 1 lakh as income from lottery and bring it to charge according to the provisions of law with reference to Section 80 TT. Against the same, the revenue has preferred this appeal.

3. The learned departmental representative strongly urged that the business of the assessee is to sell the lottery tickets. Apart from usual commission of 15 per cent on sale of tickets, the assessee was also entitled for bonus on prize winning tickets. One of the tickets sold by the assessee won a prize and it became entitled to a bonus of Rs. 1 lakh. He urged that it was only in the course of the assessee's business that it became entitled to a bonus of Rs. 1 lakh on one of the tickets sold by the assessee which won the prize. Thus the sum of Rs. 1 lakh received by the assessee is business income. Deduction under Section 80 TT could be allowed only if the income is assessed from other sources. When the income is assessed under the head 'business', deduction under Section 80 TT is not allowable. He further submitted that for lottery there should be contribution by the assessee, but there is no contribution by the assessee. He has only sold the ticket.

The purchaser of the ticket won the lottery. Under the scheme, on the winning ticket the assessee was entitled for a bonus, but so far as the assessee is concerned, it is not income from lottery. He raised an additional ground contending that the AAC erred in entertaining the appeal without appreciating that the assessee has not claimed deduction under Section 80 TT in the return filed before the ITO. In this connection, he placed reliance on the decision in the case of Addl. CIT v. Gurjargravures (P.) Ltd. [1978] 111 ITR 1 (SC). The learned counsel for the assessee submitted that the entire facts so far as the bonus of Rs. 1 lakh received from the prize winning ticket [were concerned,] were disclosed before the ITO. In the profit and loss account, on the credit side, the bonus receipt has been shown. These facts were there before him and no new facts have been brought before the AAC. Hence he was justified in entertaining the appeal on this point. He urged that the decision in the case of Gurjargravures (P.) Ltd. (supra) is not applicable to the assessee's case. He then urged that one of the tickets sold by the assessee won the bumper prize of Rs. 10 lakhs on account of which the assessee became entitled to the bonus of Rs. 1 lakh. It is only by chance that one of the tickets sold won the prize.

It is a lottery ticket and the amount received by the assessee as bonus is lottery income. Hence, deduction under Section 80 TT is allowable.

The AAC was right in allowing the same. Even if the ITO has assessed it as income from business, since it is income from lottery Section 80 TT relief is allowable irrespective of the fact whether it is assessed as business income or income from other sources, 4. We have considered the rival submissions. In our view, the AAC was justified in entertaining the appeal on the claim of deduction under Section 80 TT. In the profit and loss account, on the credit side, the assessee has shown the bonus received on account of one of the tickets sold by it which won the prize of Rs. 10 lakhs. So, the facts were on record. It is true that the claim under Section 80 TT was not made before the ITO, but since the facts were already on record and no new facts has been placed before the AAC, he was justified in entertaining the claim under Section 80 TT. The decision of the Supreme Court in the case of Gurjargravures (P.) Ltd. (supra) is distinguishable. That was a case where neither there was material on record to sustain the claim nor any claim was there. Hence, that decision has no application.

5. The business of the assessee was to sell the lottery tickets as Sub-agent of Mysore Sales International Ltd. Under the scheme, apart from the commission on the sale of tickets, the assessee was entitled for a bonus on all the prize winning tickets, except the last prize of Rs. 5, sold. In this year, one of the tickets sold by the assessee won a bumper prize of Rs. 10 lakhs on which the assessee was entitled to a bonus of Rs. 1 lakh. These facts clearly show that it was only in the course of the business of the assessee in selling lottery tickets that the assessee became entitled for the bonus on the prize winning ticket.

This is not a case where the assessee purchased a lottery ticket and won the prize. Actually the assessee sold the tickets and one of the tickets sold won the prize on which the assessee became entitled for the bonus. Thus the receipt of Rs. 1 lakh as bonus by the assessee from the prize winning ticket was actually in the course of the assessee's business in selling lottery tickets and is assessable as business income.

6. In Mysore Sales International Ltd. v. CIT [1979] 117 ITR 64 (Kar.), the Mysore Sales International Ltd. was the sole selling agent of lottery tickets issued by the Department of Lottery, State of Karnataka. Under the agreement, the assessee was to sell not less than 75 per cent of the total tickets released and in case 75 per cent of the tickets released were not sold, the assessee was to pay for the unsold tickets equal to the value of 75 per cent of the total number of tickets released. The unsold tickets of the value of Rs. 12,53,186 were purchased by the assessee. One of those unsold tickets won the prize and the assessee received Rs. 6,69,152. On those facts, it was held by the Karnataka High Court that the assessee bought the tickets in question as part of the bargain entered into by it with the Department of Lottery, with the sole purpose of earning the commission thereon and it has so happened that in addition to the commission, the assessee was able to realise the sum of Rs. 6,69,152 also by way of prizes. The investment made on the tickets was declared as business expenditure.

Thus, it was held that the receipt of Rs. 6,69,152 is income which has arisen out of business carried on by the assessee. The above ratio equally applies to the assessee's case. In fact, in that case the assessee purchased the unsold tickets. Even then it was held that the receipt has arisen out of the business carried on by the assessee. In the instant case, the assessee did not purchase the lottery tickets, but on the other hand, sold the lottery ticket which won the prize of Rs. 10 lakhs on which the assessee became entitled to a bonus of Rs. 1 lakh. Thus, the receipt of Rs. 1 lakh is income which has arisen out of the business carried on by the assessee in selling the lottery tickets.

Thus it is assessable as business income.

7. The next question is when it is assessed as business income whether the assessee is entitled for deduction under Section 80 TT. Prior to 1-4-1972, any winnings from lottery were not taxable except where it could be considered as business income. By Section 3 of the Finance Act, 1972, Sub-clause (ix) was inserted in Section 2(24) of the Act, which came into effect from 1-4-1972 under which income as defined in Section 2(24) includes any winnings from lotteries. By Section 10 of the Finance Act, 1972, Section 56 of the Act was amended by inserting Clause (1b) in Sub-section (2) under which any winnings from lottery referred to in Sub-clause (ix) of Clause (24) of Section 2 shall be chargeable to income-tax under the head 'Income from other sources'. By Section 22 of the Finance Act, 1972 a new Section 80 TT was inserted with effect from 1-4-1972 under which a deduction in respect of winnings from lottery is allowed as specified therein.

8. The amendment which has come into effect from 1-4-1972 brings under the ambit of taxation what was originally exempt from tax as casual receipts. It is this exempted category which is now taxed as income from other sources. Obviously the Legislature has not intended that what was already taxed as business income should now be taxed as income from other sources. Persons like the respondent before us will continue to be assessed under business as it has arisen out of business carried on by the assessee in selling lottery tickets. Once it is income from business, it cannot be income from lottery. Others who do not carry on business in selling lottery tickets but win a prize on a lottery ticket purchased by them now pay tax under the head 'Income from other sources' with the benefit of Section 80 TT deduction. Thus, on a careful reading of the provisions of the Act it is clear that deduction under Section 80 TT is allowable only to those persons who are taxed under other sources in respect of their winning from lottery. Thus the assessee-respondent before us who is assessed under the head business in respect of bonus received on prize-winning ticket is not entitled to deduction under Section 80 TT.9. The order dated 20-2-1976 in B.G. Basappa v. ITO [IT Appeal No. 25 (Bang.) of 1975-76] relied on by the assessee is clearly distinguishable. It is a case where the assessee enrolled himself as a member of the chit scheme formulated by Jai Finance Corporation and was paying Rs. 200 per month under the scheme for 30 months and he had paid Rs. 6,000 up to October 1972. In that case, every month a prize draw will be drawn and the lucky winner will get the prize award. The assessee was lucky to get the prize award of Rs. 10,000 in the draw in October 1972. The assessee claimed Rs. 4,000 as deduction under Section 80 TT. On those facts, it was held by this Bench of the Tribunal that the sum of Rs. 4,000 was the assessee's income from lottery and should be allowed as deduction under Section 80 TT. That case is clearly distinguishable as the assessee was a contributor of Rs. 200 every month and won the draw. In fact, in that case, it was pointed out that to hold that a particular receipt is income from business it must be established that it arose from activities which are in the nature of business. Thus, it is very clear there from that if it had arisen out of the activities which are in the nature of business, it cannot be treated as income from lottery. Thus, that case instead of helping the assessee would support the revenue's case.

10. Thus, in our view, the AAC was completely wrong in holding that the assessee is entitled to the deduction under Section 80 TT and directing the ITO to treat the receipt of Rs. 1 lakh as income from lottery and allow deduction under Section 80 TT. We set aside the order of the AAC and restore the order of the ITO.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //