Karnataka High Court
Visveswaraiah Lucky Centre vs Commissioner Of Income-Tax on 12 November, 1990
Equivalent citations: [1991]189ITR698(KAR), [1991]189ITR698(KARN), 1990(3)KARLJ466
JUDGMENT M.P. Chandrakantaraj Urs, J.
1. This is a reference under section 256(1) of the Income-tax Act, 1961. The case stated by the Income-tax Appellate Tribunal, Bangalore Bench, Bangalore, and the question referred are not wholly satisfactory in the facts and circumstances of the case. Before we further enlarge upon what we have stated above, it is useful to briefly state the facts leading to this reference.
2. The petitioner-assessee is an agent selling lottery tickets of lotteries conducted by the State of Karnataka (and perhaps others) for a commission. The rate of commission is 15 per cent. of the face value of each ticket sold. In the return filed for the assessment year 1978-79, the assessee disclosed a total income of Rs. 88,240 comprising the commission received from sale of lottery tickets as well as a sum of Rs. 1,00,000 received as bonus commission on account of the fact that one of the tickets sold by him in a particular draw of the lottery had won the first prize of Rs. 10,00,000. Before the Income-tax Officer, the assessee claimed the benefit of section 80TT of the Income-tax Act (hereinafter referred to as "the Act"). The assessment was concluded and the petitioner was assessed to tax on a total income of Rs. 81,252. The assessee being a partnership firm, apportionment was made in the assessment order at 1/8th of the total income as the income of each partner. On an appeal preferred against the assessment, the assessee-firm for the first time claimed the benefit arising out of the provisions made in section 80TT of the Act claiming that the sum of Rs. 1,00,000 earned as bonus commission was in fact a lottery winning within the meaning of the expression occurring in section 80TT of the Act. The Appellate Assistant Commissioner granted that benefit and allowed the appeal. The Revenue, being aggrieved by the order of the Appellate Assistant Commissioner, took up the matter in appeal before the Income-tax Appellate Tribunal, Bangalore Bench, Bangalore, in Income-tax Appeal No. 145/Bang. of 1981. By order dated March 18, 1983, the Appellate Tribunal allowed the appeal of the Revenue and set aside the order of the Appellate Assistant Commissioner and denied the benefit of section 80TT of the Act to the assessee-firm. However, on the request of the assessee under section 256(1) of the Act, a statement of case was drawn up and the following question has been referred to us for answer :
"Whether the Appellate Tribunal is justified in holding that the bonus commission of Rs. 1 lakh received by the assessee is assessable under the head 'Income from business' and not under the head 'Income from other sources' and the assessee is not entitled to deduction under section 80TT ?"
"Income" is defined under clause (24) of section 2 of the Act. There is no dispute between the Revenue and the assessee-firm that the income disclosed from the sale of lottery tickets and the commission derived therefrom and the bonus commission given in that particular year both constitute taxable income irrespective of the source. The real question in dispute in the controversy lies is a narrow one and that is whether the income derived as bonus commission in the sum of Rs. 1,00,000 in the relevant assessment year constituted income falling fairly and squarely under sub-clause (ix) of clause (24) of section 2 of the Act as it then was. Sub-clause (ix) reads as follows :
"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."
3. Therefore, the question formulated is really not a pure question of law, but what is often termed as a mixed question of fact and law.
4. For the assessee, it has been contended before the Tribunal as well as before us that the chance factor was that one of the tickets sold by the assessee-firm in the course of its business might result in the winning of the lottery and coupled with that chance factor, the bonus commission should be construed as a lottery winning defined as such under section 80TT of the Act.
5. In order to appreciate this argument, it is useful to set out section 80TT of the Act as it stood then :
"80TT. Where the gross total income of an assessee, not being a company, includes any income by way of winnings from any lottery (such income being hereafter in this section referred to as winnings), there shall be allowed, in computing the total income of the assessee, a deduction from the winnings of an amount equal to, -
(a) in a case where the gross total income does not exceed ten thousand rupees or where the winnings do not exceed five thousand rupees, the whole of such winnings;
(b) in any other case, five thousand rupees as increased by a sum equal to fifty per cent. of the amount by which the winnings exceed five thousand rupees."
6. Learned counsel placed reliance on the decision of the Division Bench of the Punjab and Haryana High Court, in the case of CIT v. Sanjiv Kumar . In the said case, the assessee, Sanjiv Kumar, was a participant in the activities of a chit fund company and was a regular contributor to the chits. The profits earned by the chit fund company by its transactions came to be awarded to the assessee by drawing lots, the mode, agreed upon by the members of the company to receive and distribute profits. Sanjiv Kumar, the assessee therein, therefore, claimed that as a receipt received by chance falling under the definition of lottery winning under section 80TT of the Income-tax Act. In dealing with the facts of that case, the learned judges went into the question of definition of "lottery", which was not a term defined under the Act or any other enactment where it was required to be defined. In that circumstance, they referred to the meaning of the word "lottery" in Webster's New International Dictionary and Legal and Commercial Dictionary by S. D. Mitra as well as the judicial definition of lottery as found in Corpus Juris Secundum. We are of the view that the definition found in Corpus Juris Secundum is the most appropriate and we extract it :
"Pooling the proceeds derived from chances or tickets taken or purchased and then allotting such proceeds or a part of them or their equivalent by chance to one or more such takers or purchasers are indicia of a lottery."
7. From the above, it is clear that if lottery is a scheme for the distribution of prizes by lot or chance, it is necessary that the winner must be not only a contributor to the prize amount, but must also be a participant in the lottery. All the ingredients which are set out in the definition in Corpus Juris Secundum must be present to identify the winner and the winnings of the lottery :
8. On the undisputed facts of this case, the petitioner is no more than a firm which sells lottery tickets of lotteries organised by the State of Karnataka as a sub-agent of Mysore Sales International Limited and was entitled to 15% of the face value of the lottery tickets as reward for his services as such agent by way of commission.
9. The argument of Sri Shylendra Kumar that the firm is a contributor because the firm purchased the tickets really has no substance because the firm purchased them as a sub-agent. In other words, the firm recouped what it has invested with his principal, Mysore Sales International Limited. Therefore, the prize amount has been wholly contributed by the purchasers of the tickets and not by the seller. Nor can it be said to be the winner because the ticket which won the prize amount of Rs. 10 lakhs was not purchased by the petitioner-assessee. It was the purchaser who took the chance and contributed to the prize amount with the hope and intention of winning the prize offered. The firm got a reward as an incentive bonus because it had sold a ticket which won the prize money. Such incentive bonus should be deemed to have been paid by the organiser of the lottery or their principal agent in order to encourage others to take up the business of selling lottery tickets and also encourage those who were already in the business to increase their sales activities. Therefore, the incentive bonus offered even if it came from the price paid by the takers of chance or the purchasers or outside of it is not lottery winning as such referred to in section 80TT of the Act. If that is the correct position in law and on facts, then the assessee-petitioner cannot claim the benefit of section 80TT of the Act. AT best, it can only be a casual earning under section 10(3) of the Act subject to the limitations of that section.
10. Therefore, the view taken by the Tribunal is correct. There is no merit in the contention of the assessee. Question is answered in the affirmative against the assesse.