Hon'ble Shashi Kant,J.
(Delivered by Hon'ble Rajes Kumar, J.) This is an appeal under Section 260A of the Income Tax Act filed by the assessee against the order of the Income Tax Tribunal, Lucknow Bench, Lucknow dated 20.11.2001 relating to assessment year 1989-90 raising following questions of law:
I) Whether, the money retained by the assessee being prize money on unsold tickets is "business income" of the assessee and not "any winnings from lotteries" within the meaning of Section 2(24)(ix) and Section 115BB of the Income Tax Act, 1961?
ii) Whether, the agreement entered into between the Directorate and the assessee is in substance an agreement appointing the assessee as an agent of the Directorate and the Tribunal has erred in law and in fact in misconstruing and wrongly interpreting the same to be otherwise?
Iii) Whether, the entires in the Prize-winning Tickets Creditors Account could be disallowed to the extent of Rs.7,21,840/- and the finding to this effect is against the material and evidence on record?
iv) Whether, loss of Rs.1,91,680/- (approximated by the assessing authority to Rs.2,00 lacs) could be disallowed and the finding to this effect is against the material and evidence on record?
The brief facts of the case are that the appellant is a partnership firm and has been appointed as a stockist by the State of U.P. through the Governor of U.P. vide agreement dated 1.4.1988. Under the agreement the appellant was appointed as a stockist at Kanpur for the financial year 1988-89 on payment of such commission on the sale of lottery tickets under the terms and conditions provided in the agreement.
The appellant filed income tax return declaring the total income at Rs.18,250/-. The assessing authority passed the assessment order on a total income of Rs.14,09,490/-. During the year under consideration, the appellant had disclosed income of Rs.14,43,685/-, gained by winning the prize on the unsold lottery tickets as a business income. The assessing authority has treated the said receipt as income by way of winning prize money on lottery tickets and subjected to the assessment under Section 115BB of the Income Tax Act (hereinafter referred to as the "Act") at the rate of 40%. The appellant had also claimed a sum of Rs.21,13,848/- towards loss on account of unsold tickets. The assessing authority asked the appellant to furnish the details of unsold tickets. On furnishing of details to the extent of Rs.19,22,168/-, the assessing authority disallowed a loss of Rs.2 lacs. Under clause 10 of the agreement, the appellant was to collect the prize of winning tickets, out of the tickets sold by him and shall make the payment of prizes of winning prize upto Rs.1,000/- on the basis of the left hand counter foils kept with him. During the year under consideration, a sum of Rs.1,30,08,093/- had been determined as value of the prize winning tickets payable by the appellant to the prize winners as per the agreement. However, during the year under consideration, a sum of Rs.1,22,86,253/- had been paid to the winners and the balance amount of Rs.7,21,840/- which remained unclaimed and unpaid to the winners were shown as a liability. The assessing authority sought the details of such tickets against which the amount had been paid and details of those winning tickets against which the amount could not be paid to the winners. On non-furnishing of such details, the assessing authority has invoked the provisions of Section 145(2) of the Act and made an addition under Section 68 of the Act.
Being aggrieved by the aforesaid additions, the appellant filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide order dated 17.11.1992 allowed the appeal in part. The appellate authority has held that the amount gained by the appellant by way of winning the prize on the unsold tickets was the business income and could not be assessed under Section 115BB of the Act. The appellant authority further held that the loss on account of unsold tickets was quite normal in the line of business and merely because the details of unsold tickets could not be furnished, the loss could not be disallowed. With regard to addition of Rs.7,21,840/-, the CIT (Appeals) has held that the assessee had maintained various registers in the regular course of business and authenticity of credit worthiness had not been doubted by the assessing authority. On that basis the final accounts had been prepared and, therefore, to say that liability is a bogus one appears to be incorrect. It has been further observed that the provision for the last dates in the month of March could not be made because in fact it makes time to submit statement to U.P. State Lottery and, therefore, unless the statement is submitted, it is not possible to create the provision and the provision has not been created as stated by the appellant in subsequent year. Moreover, the source of credit is explained and, therefore, Section 68 of the Act does not have any applicability. It has been held that genuineness of PWT creditors cannot be doubted.
Being aggrieved by the order of the appellate authority deciding three issues in favour of the appellant, the revenue filed an appeal before the Tribunal. The Tribunal by the impugned order dated 20.11.2001 allowed the appeal and restored the order of the assessing authority. The Tribunal has recorded the following findings:
Question Nos. 1 & 2.
We have considered the rival submissions. From the details and specific reference to agreement, it is apparent that the assessee was not appointed as Agent by U.P. State Lotteries and in the capacity of stockist of lottery tickets, the assessee was selling lotteries tickets on agreed terms and conditions in specified area i.e. Kanpur. The fact remains that for sale of lottery tickets, the assessee was entitled to a specified commission, where as the unsold tickets were to be notified/surrendered and the consequences for not intimating timely or for not surrendering any in a specified period entails certain consequences such as the tickets were to be treated as sold, which were not surrendered within the specified time and such tickets were eligible for participation for draw of prizes. Therefore, even by conduct the assessee became purchaser of tickets and as a consequence he participated in draw for prizes and also received prize money and not commission, therefore, the amount in his hands in respect of such tickets was very much an amount winning from lotteries. If the source of winnings is fro m lottery, the application of section 115BB comes into force and this aspect of the matter is very clear in term of para 7 of the Agreement that the tickets not returned to U.P. State Lotteries and to be treated as tickets having been sold to the assessee and as a consequence, the assessee was burdened to pay the price of such tickets and also became eligible to participate in the draw. All these facts clearly establish that the assessee opted to by the tickets and to pay for its price and also participated in the draw for prizes and having won the prize, the assessee cannot escape the application of section 115BB of the Income Tax Act. Therefore, in view of the facts and circumstances, we are of the opinion that the amount received by the assessee on winnings from lotteries is subject to provisions of section 115BB of the Income Tax Act, therefore, the findings of the Ld. CIT (A) are reversed and that of the A.O., are restored, therefore, the revenue's ground is allowed.
Question No. 3.
We have considered the rival submissions. The fact remains that the amount retained was out of sale proceeds and the amount which remained in disbursement is a portion of trading receipt only and in view of no provision for surrendering such amount to U.P. State Lotteries, the amount not so disbursed being a trading receipt is to be accounts for profit and loss of the appellant assessee. Since the assessee was provided opportunity to prove liability which the appellant assessee failed to prove, the A.O. was justified in treating the amount as taxable. Merely because the A.O. added the amount by resorting to proviso to section 145(2) & section 68 for making the impugned disallowance the CIT (A) is not justified in deleting the same since the nature of the amount in view of the facts and circumstances is such which is liable to be taxed, therefore, we are of the opinion that the Ld. CIT (A) is not justified in deleting the addition, therefore, the addition is directed to be restored, thus, we restore the addition made by the A.O. and ground of the revenue is treated as allowed.
Question No. 4.
We have considered the rival submissions. From the details it is apparent that the loss on account of unsold tickets is rising year after year and it is a fact in the year under consideration the assessee could furnish the details to the extent of Rs.19,22,168/- out of the total claim of loss of Rs.21,13,848/-. It was for the assessee to substantiate its claim and if the assessee failed to so, the ld. CIT (A) is not justified in deleting the addition. However, we find that the difference comes to Rs.1,91,680/- therefore, the loss could be disallowed to that extent only. Therefore, the A.O. is directed to restrict the disallowance to Rs.1,91,680/- and accordingly, the revenue's appeal is treated as partly allowed.
We have heard Sri S.D. Singh, learned counsel for the appellant and Sri Shambhoo Chopra, learned counsel for the respondent.
Learned counsel for the appellant submitted that the order of the Tribunal on the aforesaid three issues are erroneous. He submitted that income of Rs.14,43,685/- has accrued in the course of business of selling of lottery tickets as a stockist of the State of U.P. by winning prize on unsold tickets, which remained unsold and could not be returned within the time to the Directorate and the prize was won on such tickets. In respect of such tickets, the appellant had not participated in the draw. He submitted that the provision of Section 115BB of the Act will apply in a case where the income is by way of winning from lottery. Section 2 (24) defines income which includes profits and gains and further includes any winnings from lotteries. The lottery is defined by the explanation which provides that lottery includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called. Therefore, under Section 2(24) of the Act, the income from profits and gains and the income by winning lotteries have been treated as two separate incomes. Section 194B of the Act provides that the person responsible for paying to any person any income by way of winnings from any lottery in an amount exceeding five thousand rupees shall, at the time of payment thereof, deduct income tax thereon at the rates in force. The instruction of the Board dated 25th November, 1993 provides that where prizes are declared on unsold tickets lying with the Organiser, or, prizes remain unclaimed, the amount of money representing such prizes is to be treated as the normal trading/business income of the organiser, and, subjected to tax, accordingly. Such income would not fall within the purview of Section 194B of the Income Tax Act, and, therefore, it cannot be subjected to tax-deduction at source, under Section 194B. The said instruction circulated by the Commissioner of Income Tax, U.P., Lucknow vide circular letter dated 17.5.1996, which is being produced before us. In this view of the matter, he submitted that the amount of prize received on unsold tickets do not fall within the purview of income by way of winning from lottery. The provision of Section 194 does not apply. Reliance has been placed on the decisions of the Gauhati High Court in the case of Director of State Lotteries v. Assistant Commissioner of Income Tax and others, reported in 238 ITR 1 and in the case of Assistant Commissioner of Income Tax and others vs. Director of State Lotteries, Assam and another, reported in 255 ITR 236. He submitted that amount received does not fall within the purview of "Income by way of winning the lottery ticket". Thus, the provision of Section 115BB does not apply.
In respect of addition of Rs. Rs.7,21,840/-, it is submitted that under clause 10 of the agreement, the appellant has to pay the amount prize to the winners below Rs.1,000/- and the same was to be reimbursed from the State Government. During the year under consideration, such amount payable to the winners was determined at Rs.1,30,08,093/- and the same had been shown as the creditors' account. During the year under consideration, a sum of Rs.1,22,86,253/- paid to the winners and the balance amount had been shown as the liability payable to the winners. According to learned counsel for the appellant, the same has been paid in the subsequent year. In the books of account, a sum of Rs.1,30,08,093/- had been debited in the account of the Directorate and had been credited in the creditors' accounts. The account of the Directorate has not been doubted. Each and every penny was accounted for and it was not open to the appellant to retain any amount. The necessary accounts have to be furnished to the Directorate with regard to the payment. The source of the said amount was duly explained and, therefore, the addition of balance amount of Rs.7,21,840/- was not justified.
So far as the question no. 4, about disallowance of Rs.1,91,680/- is concerned, he submitted that the detail of loss has been furnished. The loss was in normal course and merely because the evidence for Rs.1,91,680/- could not be furnished, the loss could not be disallowed.
Learned counsel for the respondent submitted that in terms of the agreement, the unsold lottery tickets had to be returned within the stipulated period to the Directorate. The period has been fixed because on the return being made, such lottery tickets would not be subject to draw. Those tickets could not be returned within the stipulated period, the same had been treated as sold tickets, therefore, unsold tickets were treated as the tickets sold by the Directorate to the appellant. He submitted that number of tickets which had been put to draw and the purchasers of the tickets could not get opportunity to participate in the draw physically. The tickets which remained unsold and deemed to be sold to the appellant have been subjected to participation in the draw. Therefore, it cannot be said that through the tickets the appellant could not participate in the draw. In fact, he had participated in the draw through the tickets, which are deemed to be sold to him. He submitted that by virtue of right over the tickets, being in his possession, he received the amount of prize against such tickets, therefore, it was the income by way of winning from lottery and, therefore, such income is liable to be taxed under Section 115BB of the Act. He submitted that Section 115BB is a special provision to tax the income earned by way of winning lottery. Its nature may be business income, but it is liable to tax under Section 115BB of the Act. Reliance has been placed on the decision of Kerala High Court in the case of Commissioner of Income-Tax v. Manjoo and Co., reported in [2011] 335 ITR 527. He submitted that the amount credited in the account of the creditors after debiting the amount in the account of State of U.P. was in the nature of revenue receipt and, therefore, any amount which remained unpaid during the year under consideration, being in nature of revenue receipt, is liable to be taxed. He submitted that the appellant could not furnish the complete details of those lottery tickets and the name of the winners to whom the said amount were payable and, therefore, it has been rightly treated as income. So far as disallowance of Rs.1,91,680/- is concerned, he submitted that the burden lies upon the assessee to prove the loss. The assessee could not furnish the details of total of Rs.1,91,680/- and, therefore, it has been rightly disallowed.
We have considered rival submissions and perused the records.
To adjudicate the question involved in the present appeal, it would be appropriate to refer the agreement dated 1.4.1988 which is as under:
WHEREAS with a view to promote the sale of tickets of the DHAN LAXMI which is presently being run by the Government of Uttar Pradesh (hereinafter called 'The State Government') the State Government wants to appoint stockists at Kanpur for the period 1988-89 on payment of such commission on the sale of the lottery tickets as may be determined by the Director, State Lotteries U.P. (hereinafter called 'The Director') from time to time and subject to the terms and conditions appearing hereinafter.
AND WHARE the second party has agreed to work as stockist subject to the terms and conditions appearing hereinafter and has requested the State Government for his appointment as the Stockist.
AND WHERE the State Government has agreed to appoint the second party as the Stockist at Kanpur.
NOW IT IS HEREBY AGREED BETWEEN the parties hereto as follows:
1-The Second party shall within a period of seven days from the date of execution of this agreement furnish to the State Government by way of security a Bank guarantee from the State Bank of India or any Nationalized bank and in a form to be approved by the Director. In the sum of Rs.1,00,000/- (Rupees one lakh only) which may be increased by the State Government at its discretion if the Second party fails to timely submit to the Director accounts of the said lottery tickets or submits incomplete accounts with respect thereto. The Bank Guarantee shall be valid for the period of 18 months commencing 1st April, 1988.
2-The First Party shall arrange to deliver to the second party tickets of each draw by the date of commencement of tale of a draw at Kanpur (Airport, Railway Station) and the second party will collect and carry the tickets therefrom to his place of business at his own cost.
Provided that if the second party fails to take delivery of the tickets at Kanpur the first party shall deliver the tickets to the second party at its place of business at the cost of the Second party, and the Second party shall pay to the first party all expenses incurred in connection therewith as may be specified by the first party and the amount so specified shall be final, conclusive and binding on the Second party.
Provided further that non-supply or short supply or late supply of tickets of any draw for any reasons whatsoever shall not entitle the Second party to claim from First party and any damages or compensation in respect thereof.
Provided also that the Second party shall not be entitled to demand the First party to increase the supply of tickets to him on the basis of the amount of the Bank guarantee.
3-The Second party shall arrange to put its own rubber stamp at its own cost, on the back of the tickets in such a partner as to appear partly on the ticket and partly on the left side counter foils before the tickets are issued for sale to the agents.
4-The Second party shall make his best endeavour to sell the tickets supplied to him as hereinabove stated.
5-The First party shall pay commission to the Second party on the tickets sold by him at such rates as may be decided by the First party from time to time.
6-The Second party shall pay to the first party immediately after the date of close of sale of the lottery tickets of the draw and latest within three days thereof the price of lottery tickets supplied to him by the First party after deducting the commission admissible to him as aforesaid.
7-The Second party shall immediately after the closing date of a draw and latest within 24 hours thereof send telegraphic information and a copy by post confirming details of the sold and unsold lottery tickets included in a daily/mini or main draw failing which the entire tickets supplied to him will be treated as sold and included in the draw and the second party will be liable to pay the price of all such tickets.
8-The second party shall send information regarding sold and unsold tickets in the complete order of one thousand tickets unsold tickets in broken numbers will not be accepted by the first party.
9-That the second party shall return all unsold tickets to the first party within four days from the date of the draw to which they relate.
10-The Second party shall collect the prize winning tickets out of the tickets sold by him and shall make payment of prizes of tickets winning prize upto Rs.1000/- (Rupees one thousand only) on the basis of their left hand counterfoils kept with him.
11-The Second party shall submit the account of the lottery tickets winning prizes upto Rs.10/- to the Director for adjustment and shall remain these tickets alongwith their counter foils for destruction at his end within ninety days from the date of draw. However, if the Director makes payment for any tickets winning prizes upto Rs. 10/- and any agency bonus for such tickets, the Director shall debit such amount against the account of the second party.
12-The second party shall make payment of Agency Bonus to the Agents against the prizes of Rs.1000/- for the ticket paid by him and retail the U.P.L.-3, voucher and submit a consolidated claim for it to the Director on the proforma-prescribed by him. The second party shall however send Agency Bonus claim with vouchers in respect of first and second prizes to the Director. The Second party shall also submit to the Director, U.P.L.-3 vouchers on which the tickets were issued to him for sale.
13-The first party shall send tickets upto four draws at a time to the second party. In case the second party fails to send to the Director the accounts of tickets sold by him as provided in clause 6 above the First party may stop further supply of tickets.
14-That the Second party shall be bound to clear all the dues relating to the sale proceeds or differences in account of tempered and not prize winning tickets in respect of the draw held prior to this agreement.
15-That in case of breach of any of the conditions aforesaid the first party shall be entitled to revoke this agreement and to realize any amount outstanding against the Second party be invoking the Bank Guarantee as provided in clause 1 above and the balance, if any shall be returned to the Second party. If the security amount fails short the amount outstanding against the Second party it shall on demand pay to the first party the difference thereof.
16-That without prejudice to other remedies, the State Government may on the certificate of the Director of Lotteries, U.P. which shall be final, conclusive and binding on the Second party recover all dues hereunder from the Second party as arrears of land revenue.
17-In case the Second party fails to sell the prescribed minimum number of tickets in a draw, his stockistship will automatically cease, unless the First party on the request of the Second party condones the lapse in the interest of lottery scheme.
18-This agreement shall continue to be in force for a period of one year with effect from 1st April, 1988 and may be renewed further for two years with the consent of both the parties.
19-This agreement can be evoked by either party without assigning any reason therefor by serving a written notice of at least 30 (thirty) days before the draw.
20-Every dispute, difference or question which may at any time arise between the parties hereto or any person claiming under them, touching or arising out or in respect of this deed or the subject matter thereof (except as to matters the decision whereof has been specifically provided hereinabove) shall be referred to the arbitration of Director or any person nominated by him. In the event of the arbitrator to him the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Director shall either enter upon the reference himself or appoint another person to act as arbitrator. Such person shall be entitled to proceed with the reference from the stage it was left by his predecessor. It is also a term of this contract that no person other than a person appointed as aforesaid should act as arbitrator and if for any reason that is not possible the matter is not to be referred to arbitration at all. In all cases where the amount of the claim in dispute is Rs.50,000/- (rupees fifty thousand only) and above the arbitrator shall give reasons for the award.
It is the term of the contract that the party invoking the arbitration shall specify the dispute or disputes to be referred to arbitration together with the amount or amounts claimed in respect of each such disputes.
Subject as aforesaid the provisions of the Arbitration Act, 1940, or any statutory modification or permanent thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceedings.
The arbitrator may from time to time with the consent of the parties enlarge the time for making and publishing the award.
21-For purposes of all disputes relating to matters contained in this deed only the courts at Lucknow will have jurisdiction.
22-The stamp duty on this deed shall be borne by the second party.
IN WITNESS THEREOF the Director, U.P. State Lottery for and on behalf of the First party and M/s. J.N. Sharma the second party signed this deed on the day and year first above written.
Section 115BB. Where the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income-tax payable shall be the aggregate of--
(i) the amount of income-tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of thirty per cent; and
(ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i).
Explanation.--For the purposes of this section, "horse race" shall have the same meaning as in section 74A.
Section 2(24) (i) and (ix)."income" includes-
(i) profits and gains;
(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.
Explanation.--For the purposes of this sub-clause,--
(i) "lottery" includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;
(ii) "card game and other game of any sort" includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game.
Section 194B. The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort 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 in a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, ensure that tax has been paid in respect of the winnings.
From a bare perusal of the agreement dated 1.4.1998, it is apparent that the assessee was appointed as a Stockist by the State Government on payment of commission on the sale of lottery tickets. Clause 2 provides that the State Government shall arrange to deliver the tickets to the Second Party. Clause 6 provides that assessee shall pay to the State Government immediately after the date of close of sale of the lottery tickets of the draw and latest within three days thereof the price of lottery tickets supplied to him by the First Party deducting the commission admissible to him as aforesaid. Clause 7 provides that assessee shall immediately after the closing date of a draw and latest within 24 hours thereof send telegraphic information and a copy by post confirming the details of the sold and unsold lottery tickets included in a daily/mini or main draw failing which the entire tickets supplied to him will be treated as sold and included in the draw and the second party will be liable to pay the price of all such tickets. Clause 8 provides that the party shall send information regarding sold and unsold tickets in the complete order of one thousand tickets unsold tickets in broken numbers will not be accepted by the first party. Clause 9 provides that party shall return all unsold tickets to the first party within four days from the date of the draw to which they relate. Clause 10 provides that party shall collect the prize winning tickets out of the tickets sold by him and shall make payment of prizes of tickets winning prize upto Rs.1000/-. Clause 12 provides that party shall make payment of Agency bonus to the Agents against the prizes of Rs.1,000/- for the ticket paid by him. Clause 17 provides that in case if the party fails to sell the prescribed minimum number of tickets in a draw, his stockistship will automatically ceased.
The above clauses show that the assessee was appointed as a stockist on principle to principle basis and not an agent to sell tickets on behalf of the State Government. In case of non-intimation within 24 hours from the closing date of the draw about the unsold tickets through the telegraphic message, the said unsold lottery tickets would be treated as sold and included in the draw and the assessee was made liable to pay the price of the tickets to the State Government. Therefore, unsold tickets are deemed to be sold by the State of U.P. to the assessee and are included in the draw. The draw is being organized by the State Government and not by the assessee. The assessee has not been held to be organizer of the sale and to conduct draw of the lottery. The unsold tickets which remained with the assessee and deemed to have been sold by the State Government, the assessee got the right to participate in the draw through the tickets like any other purchaser of the lottery tickets gets right. The participation in the draw is always through the ticket number and not by physical participation. Thus, we are of the view that the amount of prize received on unsold lottery tickets is an income by way of winning prize from lottery. Section Section 2(24) of the Act defines "income", which includes any winnings from lotteries. Explanation (1) defines "lottery" which includes winning from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called. Therefore, the prizes awarded to the assessee by draw of lots fall within the ambit of lottery and the amount gained falls within the ambit of income by way of winnings from lotteries.
The submission of learned counsel for the respondent that the amount received on account of winning of the prizes from unsold tickets does not fall within the purview of income by winnings from lotteries, cannot be accepted. The Division Bench of the Kerala High Court in the case of Commissioner of Income-Tax v. Manjoo and Co (supra) has held that the entire lottery tickets ceased to be stock-in-trade on the date of the draw because after the draw those tickets were unsaleable and have no value except waste paper. In other words, at the time of draw the respondent is only a participant in the draw for all the tickets held by him and this does not involve in any business activity and so much so that the prize won by him is only in his capacity as the holder of prize winning tickets. It has been held that participation in a draw which alone can win lottery prize does not involve any business. Therefore, income by way of winnings from lottery is always "income from other sources" under Section 56(2(ib) of the Act. It has been further held that even assuming that winnings from lotteries are received by him in the course of his business and are incidental to the business and as such they are his business income is right, still, such income is liable to be taxed under Section 115BB of the Act, which is a special provision to tax the income by way of winnings from lotteries.
We are of the view that it is not necessary to go into the question whether the amount received by winnings from lotteries is a business income or from other sources. It is the income by way of winnings from lotteries. Section 115BB is a special provision under the Act to tax the income by way of winnings from lotteries. Thus, such income is liable to be taxed under the special provision and its nature of income whether it is a business income or income from other source is wholly irrelevant. We fully agree with the view taken by the Division Bench of the Kerala High Court in the case of Commissioner of Income-Tax v. Manjoo and Co (supra) wherein the amount received by winning prize from unsold lottery tickets has been treated within the purview of income by way of winnings from lotteries and held to be liable to tax under the special provision, under Section 115BB of the Act. The the Division Bench of the Kerala High Court has also considered the decision of the Gauhati High Court in the case of Director of State Lotteries v. Assistant Commissioner of Income Tax and others (supra) and two decisions of the Karnataka High Court in the case of Visveswaraiah Lucky Centre v. CIT, reported in [1991] 189 ITR 698 and Mysore Sales International Ltd. v. CIT [1979] 117 ITR 64 and distinguished both the decisions on the following reasonings :
"..........Even though the issue is apparently considered both by the Karnataka High Court and by the Gauhati High Court, the scope of section 115BB is not the question considered in any of the decisions. The question raised and decided by the Gauhati High Court pertains to the liability of the Lottery Directorate to deduct tax at source on the prize money payable for the unsold tickets retained by the agents. However, on going through the judgment we find that there the State was not running a lottery by itself but the lottery business was given on contract to the agent called organiser. The specific contention there was that:
"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."
Under the scheme of that lottery, prize money had to be deposited by the organiser (agent) with the Lottery Department in advance. If nobody claims the prize money the deposit amount will be refundable to the agent. In other words, it is not a case of the agent or the organiser claiming any prize money by producing the prize winning tickets. What entitles him for refund in the form of prize money is that there is no other claimant for the prize money. In other words, the benefit accrues to the organiser of the lottery, viz, the agent only by virtue of agreement which entitles him for refund of the prize money deposited by him with the Lottery Department irrespective of whether he has any ticket which won the prize or not. On the other hand, in the case before us, admittedly, the respondent has claimed the prize money by producing the prize winning ticket like any other purchaser of lottery ticket who participated in the draw. Therefore, we do not think there is anything wrong in the Gauhati High Court holding that the amount received by the organiser of the lottery in that State which is nothing but refund of the amount deposited by him is in the nature of a business income and not prize money paid for the prize winning ticket."
We have also perused the judgment of the Gauhati High Court in the case of Director of State Lotteries v. Assistant Commissioner of Income Tax and others (supra). We find that the question involved in the said writ petition relates to the deduction of tax at source under Section 194B of the Act. The agreement which was under consideration was the agreement of agency. The Government has appointed organizing agent to sell and conduct the draws. The High Court has gone saying that in the context of various clauses of the agreement, there are no "winnings from the lotteries" as the organizing agent has not participated in the draw intending for a prize. The learned Single Judge of the Gauhati High Court has held that the income accrued to an agent/trader/stockists in respect of prize on unsold/unclaimed tickets in the possession of an organizing agent is income from business and does not constitute winnings from lotteries, and, therefore, it cannot be brought within the meaning of section 2(24)(ix) of the Act. The Division Bench of the Bombay High Court in the case of Commercial Corporation of India Ltd. v. ITO, reported in [1993] 201 ITR 348 on consideration of various clauses of the agreement wherein the assessee has been appointed as an agent to organize the lotteries on behalf of the State Government has held that the party has to print lottery tickets at his own cost and deposit the prize monies and cost of the draw with the State Government. On the basis of the various clauses of the agreement, it has been observed that the agreement dated 21.12.1989 is an agreement of agency and the State of Goa is the principal and the petitioner- company is its agent. No transaction of sale can be read into the agreement. The company does not participate in the draw. The amount credited if any constitute winning from lotteries from unsold tickets and sale would not attract the provision of Section 194B of the Act. It is further observed that the company does not purchase any lottery tickets, therefore, they do not take any chance at the draw. The main issue for consideration before the Bombay Hihg Court was whether the money credited by the State Government to the account of the petitioner-company is income from winnings from lotteries which were unsold and lying with the company and the second agreement dated 21.12.1989 according to which the company is an agent in relation to its principal, namely, the State of Goa, and can the company be said to have purchased the unsold tickets. On the facts and circumstances and in view of the clause of the agreement, the aforesaid question has been decided.
The Bombay High Court has observed that according to agreement in reality, the agent was appointed for organizing and conducting lotteries for and on behalf of the State Government as the agent of the State Government and there is no manner of looking at it differently. Further, it has been observed that on a reading of the agreement, it is clear that the lottery tickets in fact are sold by the Goa Government, but through the agency of the company. There is no inkling whatsoever that the company as agent is buying them. All that the company does is for and on behalf of the Government. A ticket has been placed in the records to show that in so far as the ultimate purchaser of a ticket is concerned, he has to solely look to the Government for the fulfillment of the promise held out in that lottery ticket.
We are of the view that the decisions of the Gauhati High Court and Bombay High Court were based on their facts and are clearly distinguishable.
In the present case, as stated above, as per the agreement, the agreement was for the appointment of stockist on the payment of commission on the tickets sold by the assessee. The unsold tickets for which the information has not been given within the stipulated period was deemed to be sold by the State Government to the assessee. Therefore, being the purchaser, the assessee gets right to participate in the draw through such tickets. Thus, prize won on such tickets amounts to income by way of winnings from lottery. The provision of Section 115BB of the Act is fully applicable. We, accordingly, hold the view taken by the Tribunal is unjustified. The order of the Tribunal to this extent is liable to be set aside.
So far as question no. 3, which relates to disallowance of Rs.7,21,840/- is concerned, we are of the view that the issue has not been properly examined by any of the authorities. It is not clear from the order that from which source the money has been brought and credited in the accounts of the creditors to the extent of Rs.1,30,08,093/-, out of which a sum of Rs.1,22,86,253/- was paid. Whether the amount of Rs.1,30,08,093/- has been brought from the account of the State Government by debiting their accounts or from some other accounts, it is not clear. If the amount has been credited in the creditors' accounts by debiting the account of the State Government, the source is fully proved and the addition of the balance amount of Rs.7,21,840/- cannot be added under Section 68 of the Act. If the amount has been brought from some other accounts, then only the question of proving the source may arise and that too for the entire amount of Rs.1,30,08,093/- and not only for balance amount of Rs.7,21,840/-. From the assessment order, it appears that the assessee maintains mercantile system of the accounts. It is not clear whether the assessee has claimed deduction and same has been disallowed or since the amount was found deposited in credit side therefore added under Section 68 of the Act or added treating it as revenue receipt. Therefore, we are of the view that let the matter be relegated to the assessing authority to examine the issue relating to disallowance of Rs.7,21,840/- afresh after giving opportunity of hearing, examining the records, in accordance to law.
So far as question no. 4, which relates to disallowance of Rs.1,91,680/- is concerned, we are of the view that there is no error in the order of the Tribunal. The burden lies upon the assessee to prove loss claimed by it. The assessee has claimed loss at Rs.21,13,848/-, out of which furnished details to the extent of Rs.19,22,168/-, therefore, disallowance of loss to the extent of Rs.1,91,680/- for want of evidence cannot be said to be unjustified. The order of the Tribunal in this regard is affirmed.
Question nos. 1 and 2 are answered in favour of the Revenue and against the assessee. Question no. 3 is being decided by remanding the matter to the assessing officer to consider afresh. Question no. 4 is decided in favour of the Revenue and against the assessee.
In the result, the appeal is allowed in part. The order of the Tribunal is accordingly set aside to the extent stated above.
Dated: 2nd May, 2014 OP