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Fourth Income-tax Officer Vs. P. Sadasivam - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1985)11ITD700(Mad.)
AppellantFourth Income-tax Officer
RespondentP. Sadasivam
Excerpt:
.....made in the status of an aop. what was brought to tax was the net income by way of winnings from a lottery ticket, where the first prize was jointly won by shri p. sadasivam and shri k.a. easwaran of komarapalayam. the first prize was of rs. 1,25,000 and the ticket which was purchased jointly by these two persons was ticket no. he-235797 of himachal pradesh. the prize was won in the draw held on 19-1-1982 and a copy of the certificate of the canara bank had been produced before the ito to show that the two persons had deposited the ticket for recovery of the prize amount. the assessee had relied on an order of the tribunal in the case of a.u. chandrasekharan [it appeal no. 1008 (mad.) of 1978-79, dated 21-6-1979] to claim that they could not be assessed as an aop and each of the.....
Judgment:
1. This appeal is by the revenue. We have heard the learned departmental representative and though none is present on behalf of the assessee, we consider that the facts are such that the appeal can be disposed of on merits.

2. The assessment for the assessment year 1982-83 was made in the status of an AOP. What was brought to tax was the net income by way of winnings from a lottery ticket, where the first prize was jointly won by Shri P. Sadasivam and Shri K.A. Easwaran of Komarapalayam. The first prize was of Rs. 1,25,000 and the ticket which was purchased jointly by these two persons was ticket No. HE-235797 of Himachal Pradesh. The prize was won in the draw held on 19-1-1982 and a copy of the certificate of the Canara Bank had been produced before the ITO to show that the two persons had deposited the ticket for recovery of the prize amount. The assessee had relied on an order of the Tribunal in the case of A.U. Chandrasekharan [IT Appeal No. 1008 (Mad.) of 1978-79, dated 21-6-1979] to claim that they could not be assessed as an AOP and each of the individuals should be separately assessed. The ITO did not agree, holding that there was a joint venture to earn money and, therefore, the correct status would be that of an AOP.3. In appeal, the AAC set out certain observations from the order of the Tribunal referred to, which was as under : Mere purchase of lottery tickets would not lead to the conclusion that the two persons are associated in a commercial activity of producing income. Absolutely no activity of any kind is also involved in getting the prize amount, which depends wholly on the stroke of luck. There is no need for any common management with reference to securing the prize amount, which cannot be obtained by any amount of expert management except by sheer luck.

and held that from the facts, there was no AOP. Before us, the learned departmental representative submitted that there was clearly a coming together of the two persons with the idea of making profit and the status should be that of an AOP. As far as this contention is concerned, the contention is the same as was considered by the Tribunal elaborately in the order in A.U. Chandrasekharan's case (supra) already referred to and it was, eventually, negatived by the Tribunal.

Therefore, we hold that an assessment in the status of AOP would not be warranted in the present case also.

4. The alternate argument of the learned departmental representative was that following the ratio of the judgment of the Madras High Court in N.P. Saraswathi Ammal v. CIT [1982] 138 ITR 19, the status should be taken as that of a BOI. The term 'body of individuals', of course, according to the ratio of the Madras High Court, cannot be equated to that of an AOP. The Court held that the concept of 'BOI' excludes the crucial characteristics of an AOP, such as for instance, a common intention and a common activity to produce taxable income. There is also the observation that persons who do nothing but stand and wait may not be an AOP ; but, they may yet be a BOI, if they stand together, and wait for something to be shared between them. The case before the Madras High Court was one where a family group carried on business consequent to certain testamentary devolutions. The Court observed, while upholding the status of BOI in that case, as under : . . . What is more, the object which united them economically was not just an investment in property but a live business undertaking.

Business, as a species of property, differs from other subjects of ownership in that it is not static, but involves a constant flow of transactions upon transactions every day, subject to risks and vicissitudes unlike in other kinds of property, and requiring overt acts of management by those who wish to profit by it. ...

In the present case, buying a lottery ticket is not carrying on a live business undertaking. There is no further transaction to be done from day to day after the purchase of the ticket till the results are declared. The Hon'ble High Court had also clearly stated in the judgment that they were not laying down what was really meant by a BOI in an authoritative or definitive fashion, and it could be a matter for the income-tax authorities as well as the Tribunal to consider the facts in each case. That is what we are doing in the present case.

Winnings from lotteries became taxable because they fall under the category of deemed income ; otherwise, winning a prize would be only a windfall and would not have been subject to tax. The Tribunal, in the order referred to, had held that mere purchase of lottery ticket would not lead to a conclusion that persons were associated in a commercial action of producing income and the result of getting the prize money was nothing but a consequence of sheer luck. The mere fact that by a stroke of fortune one of the tickets fetched a prize, would not in our view be taken as a consequence of any action on the part of a BOI. All that has happened is that, two persons jointly purchased a lottery ticket. Each was co-owner of the lottery ticket. If a lottery ticket won no prize, each lost his share of investment, though it may be nominal, and once the draw was over and no prize was fetched, they became divested of the property of which they were the co-owners, namely, the lottery ticket. If the particular ticket drew a prize, it was only as a result of fortuitous circumstance and each of them had a right to share the prize money equally. Thus, they become the co-owners in the prize money. We, therefore, hold that the two persons by purchasing a lottery ticket jointly did not constitute a BOI. We have already held that they did not constitute an AOP. Therefore, the appeal of the revenue is dismissed.


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