Itta/22/1999 Of M/S Sri Lakshmi Ganeswara Khammam v. Income Tax Officer Khammam

HON’BLE SRI JUSTICE B. PRAKASH RAOAND HON’BLE SRI JUSTICE R. KANTHA RAO I.T.T.A.Nos. 22 and 23 of 1999Date: 11-03-2011 Between:M/s. Sri lakshmi Ganeswara Enterprises & Financiers ….. Appellant and The Income Tax officer, Ward I, Khammam ………. REspondent HON’BLE SRI JUSTICE B. PRAKASH RAOAND HON’BLE SRI JUSTICE R. KANTHA RAO I.T.T.A.Nos. 22 and 23 of 1999 COMMON ORDER:(Per BPR, J) Since these two appeals arise out of the common order and theassessee being the same, hence, they are taken up together fordisposal. The appellant, who is an assessee for the relevant assessmentyear of 1988-89, files these appeals purportedly under Section 260A ofthe Income Tax Act, 1961 (for short ‘the Act’), interalia, seeking toassail the orders dismissing the appeals by the Income Tax AppellateTribunal as per the common order, dated 22-02-1999 inI.T.A.Nos.253/Hyd/97 and 254/Hyd/97 at his instance. Briefly the facts, which gave rise to the present proceedings, arethat a prize scheme was launched by the assessee consisting of 250members with a subscription of Rs.300/- every month for a period of 52months with a lucky draw. The winner of the lucky draw will either geta scooter or an equivalent value of Rs.15,100/- and he need not paythe balance thereafter. Others, who were not successful, are entitled toget back the entire amount though without interest. Therefore, with this nature of things in the process of transaction, the question arose as towhether it amounts to lottery. Since the assessee failed to deduct thetax at source as provided under Section 194(B) of the Act, an orderwas passed under Section 201(1) of the Act to pay the amount whichcould have been deducted at source. Consequently, in parallel,proceedings are also initiated purportedly under Section 201(1A) ofthe Act imposing interest on the said amount. Though initially it wasfixed at Rs.34,378/-, later on it was varied to Rs.44,440/-. The matterhas undergone various proceedings. In the meanwhile the aforesaidoriginal orders were set aside in the Appeals at the instance ofappellant and the matter was remanded by the appellate authority asper the orders, dated 30-08-1989 and 26-12-1989 for re-examination,especially as to the applicability of Section 194(B) of the Act to thescheme. Again the Assessing Officer passed orders under Sections201 and 201(1A) of the Act on 29-12-1995 holding that the provisionsof Section 194(B) of the Act are applicable and demanding the tax andthe interest thereon. The asessee filed appeals before the CIT(A) andthe same were dismissed as per the orders, dated 19-11-1996. Further the assessee carried the matter to the Income Tax AppellateTribunal, where also the appeals were dismissed negativing variouscontentions raised by the appellant-assessee. Hence, these Appeals. On consideration of the entire submissions made across the Barfrom both sides and on perusal of the material on record, the maincontroversy narrows down to a question as to whether, on the factsand circumstances, the scheme as aforesaid would amount to a lotteryand consequently any liability arises on the assessee. It was the contention on the part of the appellant-assesseebefore the authorities that the ultimate orders which have been passedare barred by limitation and since none of the subscribers wereassessed or assessable to income tax, no liability can be fastened atsuch stage. Coming to the main aspect, the Tribunal has considered thewell laid principles and interpretation as given to the expression‘lottery’ with ingredients which are; 1)Winning of the prize must be a chance; 2)Subscriber should contribute to the scheme; and 3)The intention of the subscriber should be the winning of theprize, decided by the chance.prize, decided by the chance. While so, it was also found that the following matters are not decisive in examining whether a scheme is lottery or not— 1)Subscribers need not lose even the contribution; Coming to the main aspect, the Tribunal has considered thewell laid principles and interpretation as given to the expression‘lottery’ with ingredients which are; 1)Winning of the prize must be a chance; 2)Subscriber should contribute to the scheme; and 3)The intention of the subscriber should be the winning of theprize, decided by the chance.prize, decided by the chance. While so, it was also found that the following matters are not decisive in examining whether a scheme is lottery or not— 1)Subscribers need not lose even the contribution; 2)Even if the amount of subscription is disturbed orreturned, that does not impair the character of the lottery,as losing something is not the essential characteristic;andreturned, that does not impair the character of the lottery,as losing something is not the essential characteristic;and 3)The prize may be paid directly out of the proceedsreceived by way of subscription from the participants orfrom the interest earned thereon.received by way of subscription from the participants orfrom the interest earned thereon. Hence, having regard to those tests as laid down, it was heldthat it is a lottery and further, on the facts and circumstances, in view ofthe proceedings at different stages passing through, the same are nottime barred. That apart, it was also held that under the provisions ofsub-section (1) of Section 201 of the Act, if the person liable to deductthe tax at source does not deduct tax, or after deducting such tax, failsto pay the tax as required by or under the Act, he shall be deemed tobe an assessee in default in respect of the tax. Therefore, once theassessee is declared as an ‘assessee in default’ under the statute inrespect of that tax, the Assessing Officer is perfectly justified indemanding the payment of tax from the assessee. Ultimately it washeld that the provisions of Section 194(B) of the Act are squarelyapplicable. Even though several other decisions have been cited acrossthe Bar, however, in SESHA AYYAR v. KRISHNA AYYAR[[1]], the Full Bench of Madras High Court, while considering the definition of‘lottery’, held that a scheme is a lottery even though no one may lose. Subscribers purchasing chance to win makes scheme lottery. Not only on the aforesaid principles but also even on the facts,the decision of the Madras High Court is squarely applicable to thefacts of this case and is a binding precedent and it deter us to delveinto any aspect much less the other decisions cited across the Bar. Having regard to the findings, which have been arrived at exclusivelyon facts, it cannot be said that the same are either perverse orotherwise, nor can be interfered with. No question of law much lessany substantial one arises in these matters to come to a differentconclusion. Hence, we hold that the scheme as enunciated by theappellate-assessee is a lottery and consequently, the provisions ofSection 194(B) of the Act are applicable and the failure to dischargethe obligation necessarily impels the liability towards tax. We are inentire agreement with the findings arrived at by the Tribunal and do notfind any valid reason to come to any varied conclusion nor the reasonsgiven in support thereon. There are no merits in either of theseappeals. Both the Appeals are, accordingly, dismissed. No order as tocosts. ________________ B. PRAKASH RAO, J Date:11-03-2011YCR _______________ R. KANTHA RAO, J