Karnataka High Court
Nirmal Agency vs Commercial Tax Officer, Xiv Circle, ... on 13 March, 1992
Equivalent citations: ILR1992KAR1215
Bench: Chief Justice, Shivaraj V. Patil
JUDGMENT S.P. Bharucha, C.J.
1. The appeal is filed to challenge the order dismissing the writ petition filed by the appellant. The appellant, which is a partnership firm, carried on at the relevant time, i.e., for the year ending 30th June 1986, business as an agent for the Bhutan Government State Lottery. Subsequent to the judgment of the Supreme Court in H. Anraj v. Government of Tamil Nadu , it sought from the Commissioner of Commercial Taxes, Bangalore, a clarification as to whether or not lottery tickets could be said to fall within the definition of a word "goods" for the purposes of commercial tax. The clarification was issued on 17th September, 1986. It only informed the appellant that tax is leviable on the sale price of lottery tickets, i.e., on the total amount received towards the sale of lottery tickets. The assessment of the appellant for the concerned assessment year was made accordingly and it was held that the decision in Anraj's case , was inapplicable. The writ petition was filed to challenge the assessment order as also the said clarification. The learned Judge also took the view that the decision in Anraj's case , was not relevant from the point of view of the seller. What was relevant from the point of view of the seller was the total amount received towards the sale of lottery tickets and that became his gross turnover.
2. Central to the decision of this appeal is the judgment in Anraj's case . What was there in question was whether sales tax could be levied by a State Legislature on the sale of lottery tickets within the concerned State. For this purpose the court had to consider the expression "goods" and whether the expression was wide enough to cover lottery tickets. The court noted that "goods" were defined as meaning every kind of movable property other than actionable claims and money; and included stock and shares, growing crops, grass and things attached to or forming part of the land which were agreed to he severed before sale or under the contract of sale. [Section 2(7) of the Sale of Goods Act]. The expression "movable property" meant property of every description, except immovable property. The question then arose whether lottery tickets constituted "goods" properly so called or were slips of paper or memoranda merely evidencing the right to claim the prize by chance or whether these were actionable claims and hence excluded from the concept of goods. Paragraph 26 of the judgment (page 178 of STC) reads thus :
"It cannot be disputed that in every raffle scheme based on the sale of lottery tickets, similar to the schemes sponsored by each of the two States in this case, every participant is required to purchase a lottery ticket by paying a price therefor (the face value of the ticket) and such purchase entitles him not merely to receive or claim a prize in the draw, if successful but before that also to participate in such draw. In other words, a sale of a lottery ticket confers on the purchaser thereof two rights (a) a right to participate in the draw and (b) a right to claim a prize contingent upon his being successful in the draw. Both would be beneficial interests in movable property, the former in praesenti the latter in futuro depending on accordingly. Lottery tickets, not as physical articles, but as slips of paper or memoranda evidence not one but both these beneficial interests in movable property which are obviously capable of being transferred, assigned or sold and on their transfer, assignment or sale both these beneficial interests are made over to the purchaser for a price. Counsel for the dealers sought to contend that the concept of a lottery cannot be sub-divided into two parts, namely, a right to participate and a right to receive the prize but the two together constitute one single right. It is not possible to accept this contention for the simple reason that the two entitlements which arise on the purchase of a lottery ticket are of different character, inasmuch as the right to participate arises in praesenti, that is to say, it is a choate or perfected right in the purchaser on the strength of which he can enforce the holding of the draw while the other is inchoate right which is to materialise in future as and when the draw takes place depending upon his being successful in such draw. Moreover, on the date of the purchase of the ticket, the entitlement to participate in the draw can be said to have been delivered unto the possession of the purchaser who would be enjoying it from the time he has purchased the ticket and as such it would be a chose in possession while the other would be an actionable claim or a chose in action as has been held in Jones v. Carter 8 QB 134; 115 ER 825 and King v. Connare 61 CLR 596 on which counsel for the dealers relied. It is thus clear that a transfer of the right to participate in the draw which takes place on the sale of a lottery ticket would be a transfer of beneficial interest in movable property to the purchaser and, therefore, amounts to transfer of goods and to that extent it is no transfer of an actionable claim; to the extent that it involves a transfer of the right to claim a prize depending on a chance it will be an assignment of an actionable claim."
3. Based upon certain passages annotated in "Words and Phrases", Permanent Edition, Volume 25A, it was held that not one but two distinct rights were transferred to the purchaser of a lottery ticket and it was not possible to accept the contention that the two together constituted a single right. Upon this aspect it was concluded that lottery tickets, to the extent that they comprised the entitlement to participate in the draw were "goods" properly so called, squarely falling within the definition of that expression .......... that to that extent they are not actionable claims and that in every sale thereof a transfer of property in the goods was involved.
4. It does appear from the judgment in Anraj's case that the transfer of the right to participate in the draw which takes place on the sale of the lottery ticket amounts to a transfer of goods whereas, to the extent that it involves the transfer of the right to claim a prize, depending on a chance, it is an assignment of an actionable claim. It would appear, therefore, that the sale of a lottery ticket is only in part a sale of goods, and the sale price would have to be split accordingly. To the extent that it is a price for transfer of goods it is liable to tax. To the extent that it is not for the transfer of goods, it is not liable to tax. It would be for the assessing authority to determine in every case the extent of the sale price that is so taxable. It would be possible to come to such conclusion if reference is made to the statistics governing a particular lottery. It is needless to say that it would be obligatory for the dealer to place before the assessing authority such statistics as it may require.
5. In this view of the matter, the assessment order is set aside in so far as it does not consider the splitting of the sale price of the lottery tickets in the manner aforestated. The clarification of the Commissioner of Commercial Taxes in this behalf must also be set aside. The matter shall stand remanded to the assessing authority for the purposes of making a fresh assessment order having regard to what has been stated in this judgment. The appeal is allowed to the extent aforesaid. No order as to costs.
6. Appeal partly allowed