Gauhati H.C : Whether the refund by the Director of State Lotteries to the organising agent of the prize money from the unsold tickets of lotteries and unclaimed prizes attract the provisions of s. 194B of the IT Act, 1961 ?

High Court Of Gauhati

Assistant Commissioner Of Income Tax & Ors. vs. Director Of State Lotteries & Anr.

Sections 2(24)(ix), 194B

R.S. Mongia, C.J. & Amitava Roy, J.

Writ Appeal Nos. 232 & 242 of 1999

4th April, 2002

Counsel Appeared

K.P. Sarma & U. Bhuyan, for the Appellant : B.K. Sharma, B.P. Todi & P. Upadhya, for the Respondents

JUDGMENT

R.S. MONGIA, C.J. :

This judgment and order of ours will dispose of Writ Appeals Nos. 232 of 1999 and 242 of 1999 as the same arise out of the common judgment and order of the learned Single Judge, dt. 12th March, 1999, allowing two writ petitions Civil Rule No. 2786 of 1994 and No. 405 of 1994. A common question of law and fact arises in both these appeals. The question of law that calls for our determination is—whether the refund by the Director of State Lotteries to the organising agent of the prize money from the unsold tickets of lotteries and unclaimed prizes attract the provisions of s. 194B of the IT Act, 1961 ?

The aforesaid question of law has arisen in the following facts and circumstances : Two orders, dt. 25th Jan., 1994 and 6th June, 1994, were passed by the Asstt. CIT, Circle-TDS, Panbazar, Guwahati, under s. 201(1) of the IT Act, 1961 (hereinafter called “the Act”). By the order, dt. 25th Jan., 1994, the Asstt. CIT, Circle-TDS, had asked the Director, State Lotteries, Assam, to deposit a sum of Rs. 2,80,16,800 within three days from the date of the said notice of demand as the Director, State Lotteries, Assam, had failed to deduct tax at source in respect of the lottery draws held during the period 16th Nov., 1993, to 31st Dec.,1993. Similarly, vide order, dt. 6th June, 1994, the Asstt. CIT had raised a demand of Rs. 7,92,06,400 against the Director, State Lotteries, Assam, on alleged short deduction of tax at source under s. 194B of the Act in respect of 1,494 numbers, of lottery draws held during the period from 6th Feb., 1992, to 12th Dec., 1992. The aforesaid two orders, dt. 25th Jan.,1994, and 6th June, 1994, were made the subject-matter of challenge in Civil Rules Nos. 405 of 1994 and 2786 of 1994 respectively.

4. Pursuant to the powers conferred on the States under Art. 298 of the Constitution of India the State of Assam has been carrying on the business of State organised lotteries through its organising agents, after executing an agreement between the parties, i.e., the Director of State Lotteries and the agent. Lotteries are run under various names. The Director of Lotteries, in this case, appointed M.S. Associates as an organising agent. The Director of Lotteries was responsible for making the payment of the prize money to the prize winners in terms of the agreement made with the organising agent. As per the agreement dt. 2nd Dec., 1991, as amended vide agreement, dt. 7th Aug., 1992, the organising agent was to pay certain royalty to the Director of Lotteries, but the sale of tickets was to be done by the agent. The agent was required to keep a deposit of Rs. 10 lakhs with the Director of Lotteries as one time deposit of taxable prize money. The taxable prize money was to be distributed or disbursed

by the Director of Lotteries to the prize winner of the lottery and that sum was to be deducted from the deposit made by the agent. The prizes in each draw which were not claimed by the prize winners within 30 days from the date of publication of the result in the Official Gazette, were not to be disbursed. However, the Government could allow disbursement of such prizes within 90 days from the date of draw subject to the provisions in the Assam State Lotteries Rules, 1969, as amended from time to time. Further, the organising agent was to be solely responsible for sale of the entire lot of tickets for each draw and the Director of State Lotteries was not liable for any loss caused to the organising agent on account of lottery tickets remaining unsold. Clause (5), cl. (10) and cl. (15) of the agreement dt. 2nd Dec., 1991, as substituted by the agreement dt. 7th Aug., 1992, read as follows :

“5. The organising agent shall pay a fixed royalty, to the Government, a sum of Rs. 10,500 (rupees ten thousand five hundred only) per draw each for daily and weekly lotteries and Rs. 12,000 (rupees twelve thousand only) per draw for each bumper draw, or annual fixed royalty for 1,460 draws in a year shall be Rs. 1,53,30,000 (rupees one crore fifty-three lakhs thirty thousand) only which shall be payable as guaranteed royalty to the Government of Assam by the organising agent. However, the organising agent shall try his best to achieve maximum number of daily, weekly and bumper draws per annum as stated in cl. 4 above so that the Government of Assam may be benefitted of having more royalty than the annual fixed royalty. In case of more draws than the minimum prescribed above, the organising agent shall pay the same fixed royalty of Rs. 10,500 per draw for each excess draw (i.e., more than the minimum draw 1,460 per annum) held in a year.

The fixed royalty amount shall be paid within 15 days of the draw held provided that when the organising agent fails to pay any instalments during the stipulated limit they shall be liable to pay interest at 6 per cent per annum for each day of default subject to a maximum of 180 days and thereafter 12 per cent per annum for each day of default.

10. The organising agent shall retain with the Government a deposit of Rs. 10 lakhs (rupees ten lakhs only) as one time deposit of taxable prize money for ten daily and weekly lotteries excluding bumper lotteries to cover up to maximum number of draws to be run by the organising agent. This deposit shall remain with the Government until the same is claimed by the prize winners. In case the taxable prizes are not claimed by the public or are among the unsold tickets of the organising agent, the same deposit with the Government shall be carried over to the next draws as prize money deposit with the Government. Whenever any prize money is claimed by the public from the Government the Government shall inform the same to the organising agent for its reimbursement to the extent of such claim to the Government and the organising agent shall pay the same (prize money) within three days of intimation to the organising agent/its authorised local agent by the Director of State Lotteries. All prize from unsold tickets of the lotteries shall be the property of the organising agent. Similarly, all unclaimed prizes shall also be property of the organising agent and shall be refunded to the organising agent.

15. The organising agent shall provide to the Government with the bank guarantee of the scheduled bank for a sum of Rs. 25 lakhs (rupees twenty-five lakhs only) to cover the period of agreement towards securing the prize money and royalty and which shall be liable to be forfeited by the Government in case of breach of agreement.”

5. In these cases, as observed above, the agent was given refund by the Director of Lotteries, inasmuch as, the prize winner(s) never came forward to claim the prize or the prize winning ticket (s) had remained unsold and remained with the agent. At this stage, the provisions of s. 194B of the Act may be noticed— “194B. Winnings from lottery or crossword puzzle.—The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle in an amount exceeding five thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force : Provided that no deduction shall be made under this section from any payment made before the 1st June, 1972.”

6. The term “income” has been defined under s. 2(24) of the IT Act. Sub-cl. (ix) of s. 2(24) of the Act was inserted by the Finance Act, 1972, which brought winnings from lotteries within the purview of the Act. Sub-cl. (ix) of s. 2(24) of the Act reads as under : “(ix) any winnings from lotteries, crossword puzzles, races including. horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.”

7. Before the learned Single Judge the case of the Director of Lotteries was that there is no sale of the lottery tickets to the agent and further the refund of the prize money from unsold tickets as also the refund of the unclaimed prizes to the organising agent is not given by way of winning from any lottery and, therefore, s. 194B of the Act (supra) is not attracted. However, the case of the Revenue was that the sale is involved when the agent gets tickets from the Director of Lotteries and all tickets, whether sold or unsold by the agent, participate in the lottery and the refund of prize money towards unsold ticket(s) in the hands of the agent or refund of unclaimed prizes by any winner of the holder of lottery ticket(s), is the property of the agent and the refund to the agent amounts to income by way of winning from a lottery and, therefore, the Director of Lotteries was required to deduct income- tax therefrom at the rate in force at the relevant time under s. 194B of the Act. The learned Single Judge after detailed discussion held that the agreement between the Director of Lotteries and the agent was a mere agency for organising lottery. There was no sale of the lottery tickets involved by the Director of Lotteries to the agent and the money which was refunded to the agent in the case of prize winning tickets remaining unsold in his hand or the prize winner not coming forward to claim the prize within the stipulated period, does not attract the provision of s. 194B of the Act as the refund was not a winning from the lottery. The learned Single Judge relied on the judgment of the Bombay High Court as well as of the apex Court in coming to the aforesaid conclusion. In view of the above, the learned Single Judge allowed the writ petitions and quashed the impugned orders. The Revenue has come up in the present appeals.

8. Before proceeding further, let us first analyse s. 194B of the Act. The said section envisages that deduction of tax has to be made by the person responsible for paying to any person any income by way of winnings from any lottery (emphasis, italicized in print, supplied). For the application of s. 194B of the Act, the sine qua non is that the payment by the person has to be towards winnings from any lottery. Sec. 2(24)(ix) which lays down any winnings from lottery to be income for the purposes of income-tax, further goes to show that the income as envisaged under s. 194B which is paid by the Director of Lotteries is to be as winnings from the lotteries and not otherwise. In this backdrop let us examine the arguments of learned counsel for the parties.

9. Learned counsel for the appellant (Revenue) urged that as per cl. (10) of the agreement (which has been reproduced above) all prizes from unsold tickets of the lotteries shall be the property of the organising agent. Similarly, all unclaimed prizes shall also be the property of the organising agent and shall be refunded to the organising agent. From this, learned counsel argued that what is refunded to the agent is the prize money and, therefore, it is an income from the winning from lottery which would attract the provisions of s. 194B of the Act. Further, it was argued that the unsold tickets in the hands of the agent also participate in the lottery and if any one of those tickets wins a prize, the money that is received by the agent would be considered as income by way of winning from a lottery attracting the provisions of s. 194B of the Act.

10. On the other hand, learned counsel for the respondents (writ petitioner and the agent) argued that no sale of tickets is involved between the Director of Lotteries and the agent. The agreement between the parties only creates an agency and no sale is involved. The unsold tickets in the hands of the agent really do not win the prize and if a prize winner to whom the ticket might have been sold does not come to claim the prize within the stipulated period, the refund of that amount to the agent does not amount to payment towards winning from any lottery.

11. After hearing learned counsel for the parties we are of the view that there is no force in these appeals. Our analysis of s. 194B would clearly indicate that the person responsible for payment under s. 194B is only to make deduction if he is paying the money as an income by way of winning from any lottery and not otherwise. Supposing in a case an agent sells a ticket which wins prize, the prize winner does not come forward to claim the prize within the stipulated period. As per the agreement that money has to be refunded by the Director of Lotteries to the agent [see cl. (10) of the agreement]. Surely, when the agent gets the refund, he is not getting the refund as income by way of winning from a lottery ticket, inasmuch as, the winner was somebody else who did not come forward to claim the prize. The agent does not become a prize winner from a lottery when the real prize winner does not come forward to claim the prize. In these circumstances the question of attracting the provision of s. 194B would not arise.

12. Now, take for instance a ticket which wins the prize but remains unsold and is in the hands of the agent. In such an eventuality also, according to us, the unsold ticket in the hands of the agent cannot be said to be the winner of the lottery, inasmuch as, firstly, the agent did not purchase the ticket from the Director of Lotteries and, secondly, the unsold tickets in the hands of the agent stricto sensu do not participate in the lottery. If this was not so, then the agent might as well go to the Director of Lotteries after the stipulated period for claiming the prize lapses and tell him since nobody has come to claim the prize he should be refunded the money, though, he himself may be holding the ticket which may have won the prize. The intention behind s. 194B is that the person must receive the money as winner of lottery. The learned Single Judge in para 28 of the judgment has observed as follows : 28. In view of the above discussions, I hold that the income accrued to an agent/trader/stockist in respect of prize on unsold/unclaimed tickets in the possession of an organising agent is income from business and does not constitute winnings from lotteries, and, therefore, it cannot be brought within the meaning of s. 2(24)(ix) of the Act.” We are endorsing the view of the learned Single Judge that the refund may be an income accrued to an agent in respect of prize on unsold/unclaimed prizes, but it does not constitute income from lottery as envisaged by s. 2(24)(ix) of the Act to attract the provisions of s. 194B of the Act.

13. Clause 24 of the agreement, dt. 2nd Dec., 1991, is in the following terms : “24. The organising agent shall be solely responsible for the sale of the entire lot of tickets printed for such draw. The Director of State Lotteries shall not be liable for any loss caused to the organising agent on account of the lottery tickets remaining unsold.”

From the above, it will be apparent that the organising agent is solely responsible for the sale of tickets. In other words, the tickets are not sold by the Director of Lotteries either to organise any agent or the third party. The agent under the agency is only required to organise lotteries on behalf of the State Government and therefore the agent does not become the purchaser of the ticket and it cannot be said that the unsold tickets in the hands of the agent are participating in the lottery. As per the agreement, the State Government is entitled to a fixed amount of money as royalty from the agent. The Bombay High Court in Commercial Corporation of India Ltd. vs. ITO (1993) 201 ITR 348 (Bom), while dealing with an almost similar agreement came to the conclusion that the agreement of agency where the State or the principal and the person to whom the right to organise the lottery was given was an agent. No transaction of sale could be read into the agreement. The Bombay High Court further held as under :

“We have already seen, having regard to the definition of lottery, that it is chance for a prize. Therefore, there must be consideration paid for taking a chance. The company does not purchase any lottery tickets. Therefore, they do not take any chance at the draw. The company also does not equally participate in the draw. It is, therefore, not possible to hold that when the ex-officio Director of Lotteries credits the amount under the second part of cl. 15 of the agreement, the Government gives prizes to the petitioner-company for unsold tickets. . .”

For the foregoing reasons, we find no infirmity in the judgment of the learned Single Judge. We find no merit in these appeals which are hereby dismissed.

[Citation : 255 ITR 236]

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