TaxTMI 
TaxTMI 
2010 (9) TMI 754
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....ies organized by the State of Kerala and under the distribution agreement the respondent is entitled to certain discount on the purchase of lottery tickets. If the tickets purchased are not fully sold out by the respondent before the draw date then loss will be to the account of the respondent. For the previous years relevant to the assessment years 2000-01 and 2001-02 certain unsold tickets held by the respondent-assessee were the prize winning tickets and on production of those tickets the Lottery Directorate paid the prize money to the respondent after recovery of tax at source treating the payments as "winnings from lottery". Even though the respondent-assessee accounted the receipt of income in the profit and loss account as prize won ....
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.... 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 forty 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)." There is no dispute as to whether winnings from lottery are income or not because under section 2(24)(ix) of the Act, among other items, winnings from lottery are specifically brought w....
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....nding counsel on the other hand relied on the decision of the Madras High Court reported in CIT v. G.Krishnan [1997] 228 ITR 557 (Mad) wherein that court had taken the view that even bonus received by the lottery distributor which is 10 per cent. of the prize money received for the ticket sold by him is also winnings from lottery which is subjected to tax at the special rate and the deduction under section 80TT of the Act is admissible. 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 d....
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....ore, 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. The first question to be considered is whether the winnings from lottery received by the respondent are income from business. The standing counsel submitted that receipt of winnings from lottery for the respondent is not on account of any physical or intellectual effort made by him and it is not "income earned" by him in business. After the draw of the lottery, the respondent cannot sell any ticket and the entire tickets held by him b....
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.... gets the prize and if such tickets is produced. This is because after having paid the value for the entire tickets held by him he is entitled to participate in the draw for such of the tickets held by him and when he gets the prize he is entitled to receive the same as a winner of the draw. 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 any business activity and so much so the prize won by him is only in his capacity as the holder of prize winning tickets. Further, it is to be noted that "business" as defined under section 2(13) of the Act includes any trade, commerce or manufacture or any adventure or concern in the nature of trade or manufactu....
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....view of the specific provision contained in section 115BB, the special rate of tax is applicable for all winnings from lotteries. What is provided in the said section is that where the total income includes any income by way of winnings from lottery or crossword puzzle, etc, the income-tax payable shall be calculated at the rate of 30 per cent. Total income under section 2(45) read with section 5 of the Act includes income from all sources and necessarily all such incomes are computed under the five heads referred to in items A to F of section 14 of the Act. In other words, even after computation of income under various heads of income referred to in section 14 in terms of specific provisions of the Act providing for computation of income u....