Per Shri V. Rajagopalan, Judicial Member - This department appeal is against the order of the AAC, whereby he cancelled the assessment made on the assessee in the status of an AOP for the assessment year 1977-78.
2. The facts of the case are briefly these :
Shri A. U. Chandrasekaran, and nine others are the employees of the India Cement Ltd., Sankari, Salem District. They entered into an agreement on 17-2-1977 as per which they agreed to jointly purchase lottery tickets of the Tamil Nadu Government for which the prize was declared on 28-2-1977. They were fortunate enough to secure a prize of Rs. 1 lakh for one of the tickets, thus, purchased, ivz., ticket No. S-647180. The above 10 persons had authorised Shri Chandrasekaran to collect the above prize amount through the Punjab National Bank. The said bank, after having realized the prize amount, credited the net amount thus drawn, i.e., Rs. 67,000 (Rs. 1,00,000 minus Rs. 33,000 deducted by the Director of Raffles) to the respective bank accounts of the 10 persons. Each one of the above 10 persons, thus, got a sum of Rs. 6,700. The ITO, however, was of the view that the 10 persons should be assessed in the status of an AOP. Notice under section 139(2) of the Income-tax Act, 1961 (the Act) was, therefore, issued on 24-10-1977. Anil return was filed. However, in part III of the return it was mentioned that a sum of Rs. 1 lakh was obtained as the first prize jointly by the ten persons and that the same was exempt. Later it was pointed out that the sum of Rs. 1 lakh was divided among them and individual returns were filed admitting their shares of the prize money. The ITO held that all the elements of an AOP were present in this case. He, therefore, brought to tax the above receipt from lottery after giving the statutory deductions.
3. The assessee went up in appeal before the AAC. The AAC held that the joint purchase of the lottery tickets was not an investment for definite expected gains, that the same does not amount doing any business, that there was no management involved in getting the prize money and that, therefore, the prize money cannot be assessed to tax in the hands of the assessee as an AOP but should be assessee individually in the hands of the ten persons. In this view of the matter, he cancelled the assessments. It is against this order of the AAC that the department has come on appeal before us.
4. We heard the learned departmental representative and the learned counsel for the assessee.
5. The learned departmental representative vehemently contended that all the elements of an AOP are present in this case, that the ten persons had entered into an agreement to buy raffle tickets regularly in order to earn income, that winnings from lotteries have been included in the definition of income under section 2(24) (ix) of the Act with effect from 1-4-1972 and that, therefore, the assessment made by the ITO should be restored.
6. The learned representative for the assessee, on the other hand, relied upon the ruling of the Supreme Court in G. Murugesan & Bros v. CIT : 88ITR432(SC) .
7. We have considered the rival submissions. It is common ground that the ten persons listed in the order of assessment entered into an agreement dated 17-2-1977. This joint agreement is extracted in the order of assessment in paragraph 5. It is seen therefrom that the ten person have jointly purchased 30 lottery tickets issued by the Tamil Nadu Government for which the prize was declared on 28-2-1977. From the above agreement it is clear that all the ten persons who are parties to the above agreement are the join owners of all the 30 tickets purchased in pursuance of the said agreement. Of the 30 tickets, thus purchased, one ticket, viz., ticket No. S-647180 proved to be lucky. This ticket bagged the first prize of Rs. 1 lakh. It goes without saying that the owner or owners of the ticket are entitled to collect the prize amount of Rs. 1 lakh. In this case, as per the above agreement, the owners of the tickets are 10 persons, who are parties to the agreement. Therefore, all the ten of them are entitled to collect the prize amount. In the same agreement, it has been stipulated if the prize amount is declared they will share the prize amount equally. As a matter of fact, it has been stated on behalf of the assessee before us that the ten persons had authorised in writing that one of them, viz., Shri A. U. Chandrasekaran, to collect the above prize amount through the Punjab National Bank and that the said bank, accordingly, collected the sum and credited the proceeds equally to the bank accounts of the ten persons as required by them. The correctness of the statement is not controverted by the revenue. On the above facts, the proper assessment to be made is to assess the ten persons individually in respect of the share of the prize amount which each one obtained on the basis of the above agreement. In fact, the ten persons are stated to have filed individual returns. The ITO, on the other hand, had proceeded to make the assessment as one unit in the status of an AOP. The term AOP was considered by the Supreme Court in CIT v. Indira Balkrishna : 39ITR546(SC) . The Court observed that an AOP must be one in which two or more persons joined in a common purpose or common action and that the association must be one the object of which is to be produce income. The Court also cautioned that the question whether there is an AOP or not must depend on the particular facts and circumstances of each case. The point for consideration is whether on the facts and in the circumstances of this case there is an AOP.
8. The Andhra Pradesh High Court in the case of Deccan Wine & General Stores v. CIT : 106ITR111(AP) referred the above ruling of the Supreme Court in Indira Balkrishnas case (supra) and his Lordship Mr. Justice Chinnappa Reddy, as he then was, observed at page 117 of the said report that an AOP does not mean any and every combination of person that only when they associated themselves in an income-producing activity, they became an AOP, that they must combine to engage in such an activity and that the engagement must be pursuant to the combined will of the persons of the association. The Supreme Court again in the case of G. Murugesan & Bros. (supra) considered the scope of the expression of an AOP at page 437. His Lordship Mr. Justice Hegde speaking for the Court observed that for forming an AOP, the persons of the association must join together for purpose of producing an income. However, it was pointed out that in the case of receiving dividends from shares, where there is no question of any management, it is difficult to draw an inference that two or more shareholders functioned as an AOP from the mere fact that they jointly owned one or more shares and jointly received the dividends declared and that these circumstances did not by themselves to go to show that they acted as an AOP. In that case, the Court found that they were dealing with a case of realisation of dividends and that the assessee had asserted that they had realised their dividends in their individual capacity. The Court observed that if the individual members of the AOP close to realise their dividends as individuals, there was an end of the association. The Calcutta High Court in the case of Rama Devi Agarwalla v. CIT : 117ITR256(Cal) also referred to the above two rulings of the Supreme court in Indira Balkrishnas case (supra) and G. Murugesan & Bros. case (supra) and observed that for forming an AOP, the members must join together for the purpose of producing an income, that for receiving dividends from shares there was no question of any management, that an association could not be inferred from the mere fact that more than one person jointly owned shares and drawn out their separate funds to purchase a property, that they had a distinct share in the ownership of the property, that there was no evidence of any common management and that except for the deed of purchase and the deed of sale where the five ladies joined respectively as purchasers and sellers, there was no other material and that in these circumstances, the assessment made in the status of an AOP was not in order. Applying the principles laid down in the above decision to the facts of the instant case, we are unable to hold that there was any AOP in this case. Even taking note of the fact that winnings from lotteries are deemed as income with effect from 1-4-1972, as per the amendment made to the Act, it is difficult to hold that the ten persons joined together to produce income in the share of winnings from lotteries. Winning a prize in the lottery is a windfall. After the prize is won, it no doubt becomes income as per the provisions of the Act. The joint activity contemplated as per the agreement entered among the ten persons stopped only with the purchase of the tickets which may or may not win the prize. Mere purchase of lottery tickets would not lead to the conclusion that the ten 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. The tickets were admittedly purchased jointly by all the ten persons. The mere fact that by a stroke of fortune that one of the tickets secured the prize would not means that the members associated together by carrying on a commercial activity to produce income. As observed earlier, the other ingredients necessary to constitute an AOP, like common management, common activity to produce income, etc., are utterly lacking in this case. As stated above, for the mere reason that one of the tickets which was jointly owned by all the ten persons secured the prize, all the ten persons became the owners of the prize money in equal shares. The authorisation given to the bank to collect the prize only and to credit the same equally to the ten persons also confirms the position that there was only joint ownership of the winning ticket and there was no AOP, carrying on any activity to produce income as alleged by the revenue. For the foregoing reasons, we uphold the order of the AAC.
9. In the result, the appeal is dismissed.