Madras High Court
Commissioner Of Income-Tax vs Abdul Rasheed And Ors. on 21 April, 1998
Equivalent citations: [1999]240ITR402(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT
R. Jayasimha Babu, J.-
1. As to whether the purchase of lottery tickets jointly by a body of individuals, one of the tickets so purchased being the prize winning ticket resulting in benefit of Rs. 10,00,000 to those persons collectively would require the Income-tax Officer to assess all those persons collectively as a body of individuals, is the question that has been referred to us at the instance of the Revenue.
2. One Abdul Rasheed and 13 others had purchased 101 lottery tickets of the Pondicherry Raffle Scheme. In the draw held on July 11, 1981, one of the tickets purchased by them won the prize of Rs. 10,00,000. All these individuals separately filed returns of income claiming that there was an agreement between them on July 7, 1981, according to which the prize was to be shared in the prescribed ratio. The Income-tax Officer, however, held that they were to be assessed collectively as a body of individuals as there was unity of interest among them in purchasing the tickets collectively in the hope that one of those tickets would fetch a prize which would be shared by all. That view of the Income-tax Officer was reversed in appeal by the Commissioner of Income-tax (Appeals) who held that it was preposterous to speak of production of windfalls, that winning the prize money in a lottery scheme is merely a windfall which is not produced but just happens and, therefore, there was no activity producing any income. It had also been contended by the assessees that two of the members of the body had been separately assessed to income-tax and, therefore, all of them collectively could not be assessed as a body of individuals.
3. On further appeal by the Revenue to the Tribunal, the view of the Commissioner was upheld. The Revenue being aggrieved by the order of the Tribunal has caused this reference to be made. The reference concerns the assessment year 1982-83.
4. This court had occasion to consider the issue similar to the one arising in this case in CIT v. A U. Chandresekharan [1998] 229 ITR 406. That was also a case where a group of persons had entered into an agreement to jointly purchase a number of lottery tickets issued by the Tamil Nadu Government, one of which secured them a prize of Rs. 1,00,000. Their contention that all of them were required to be assessed separately in respect of that winning as each one had a definite share therein was rejected by this court. The court held that when a number of persons entered into an agreement creating a joint venture for purchasing the lottery tickets, the object of such purchase being the desire to win the prize, that joint venture does not come to an end when the tickets are purchased, but continues up to the time when the prize money is received if one of those tickets happens to be the prize winning ticket, and the amount so received is the result of the joint venture of all the persons who collectively purchased the lottery tickets and, therefore, it is those persons collectively as a body of individuals who are liable to be assessed under the Income-tax Act. The court pointed out that the two conditions for assessing the income under the status of an association of persons are that there must be a joint venture and that the object of joint venture must be to earn income. Both the conditions have been satisfied as the object of the venture was to earn income and the venture was not individual but joint.
5. The law laid down in that case is equally applicable here. The purchase of as many as 101 lottery tickets was by 14 individuals who pooled the amount required for the purchase of these tickets. By doing so they entered into a joint venture, the object of that venture being sharing of the prize money if one of the tickets purchased by them happened to be a prize winning ticket. That joint venture was apparently organised as the individual members wished to minimise their risk, maximise their chances of winning and also minimise the extent of their investment. All the elements of a joint venture were present in such an arrangement. The venture so initiated was not for rendering service as a charity, but was with the intention of earning an income by winning a prize and sharing the prize. No doubt, there was no guarantee that any one of the tickets purchased by them would be a prize winning ticket. When a new business is commenced there is no guarantee that such a business will always yield profits. Business certainly involves risk taking, it may succeed or fail. It may earn a profit or result in a loss. The fact that the business failed so that it had not earned a profit would not render it any the less a business. The joint venture in this case resulted in a profit to the members of that group who were lucky enough to have bought the ticket which happened to be a prize winning ticket. The assessment made on them collectively as a body of persons by the Income-tax Officer was thus an assessment made on the "right person". The view of the Tribunal that there was no joint venture and the view of the Commissioner that the prize money received in a lottery being a windfall, any organised activity in purchasing the ticket would not result in making the body of persons who organised that venture an assessable entity cannot be upheld.
6. Though the Tribunal did not record a finding that the assessment on the body of individuals was unwarranted because some of the members had been assessed individually, implicitly the Tribunal approved the view of the Commissioner who had accepted all the arguments advanced for the assessee before him, one such argument being that the individual assessment having been made the Revenue could not proceed to disregard such assessment and assess the whole group as a body of individuals.
7. The assessment under the Income-tax Act, 1961, is required to be made on the "right person". The fact that an assessment has been made on a wrong person would not disentitle the Revenue from proceeding to make an. assessment later on the right person. It was so held by the apex court in the case of ITO v. Ch. Atchaiah [19961 218 ITR 239. It was observed therein as under (headnote) :
"Under the present Act, the Income-tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By 'right person' is meant the person who is liable to be taxed, according to law, with respect to a particular income. The expression 'wrong person' is obviously used as the opposite of the expression 'right person'. Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taxing a right person with respect to that income."
8. The individual assessment made on some of the members of the group therefore did not disentitle the Income-tax Officer from making an assessment on the body of individuals comprising all persons who had taken part in the joint venture of purchasing 101 lottery tickets collectively.
9. Our answer to the question that has been referred to us is therefore in the negative, in favour of the Revenue and against the assessee. The Revenue shall be entitled to costs in the sum of Rs. 1,000.