TaxTMI 
TaxTMI 
TaxTMI 
2021 (5) TMI 793
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....is entitled for set off of business loss with the income determined u/s 115BB of the Act in the facts and circumstances of the case. c) Whether the ld PCIT was justified in directing the ld AO to examine the allowability of expenses within the meaning of section 58(4) of the Act in the facts and circumstances of the case. 3. We have heard the rival submissions and perused the materials available on record. At the outset, we would like to place on record, the elaborate arguments advanced by the counsels of both the sides with regard to the impugned issues in dispute. This Bench deems it fit to appreciate the enormous efforts taken by the counsels for better representation of the issues in dispute before us by appraising the business model and placing all the facts before us. It would be relevant to discuss the business model in which the assessee is operating which sets out the primary facts of the appeal also. We find that the assessee is carrying on the business as a "Sole State Level Distributor" for distributing lottery tickets in the State of Maharashtra since 20.11.2012. The assessee is considered as a "promoter" in the State of Maharashtra, in respect of the lottery ticket....
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....butor for sale / distribution, in their designated area. 3.5. Generally, the unsold lottery tickets purchased by the Area Distributor like the assessee, are not taken back by the Main Distributor. In other words, in the event of lottery tickets remaining unsold with the Area Distributor, these unsold lottery tickets are not taken back by the Main Distributor. In such circumstances, the purchase price paid by the Area Distributor to the extent of unsold lottery tickets, is a loss. However, the losses of Area distributor are mitigated by prize monies attributed to prize winning tickets out of unsold lottery tickets lying with it. 3.6. The Area Distributor then appoints "Stockists" who further sell lottery tickets to the "Retailers". Lastly, the Retailers sell lottery tickets to the public who participate in the draws of lottery. At all levels, the portion of price towards CPF would remain the same and only the CPD portion changes. 3.7. The above business model can be further understood through the following example:- - In this example, it is assumed that the scheme of lottery involves 10,000 lottery tickets. The maximum retail price of each lottery ticket is Rs. 100/-. Thus, the....
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....utor (Rs. 10 x 10000 Tickets) 1,00,000/- Area Distributor (Rs. 5 x 10000 Tickets) 50,000/- Stockist (Rs. 5 x 10000 Tickets) 50,000/- Retailers (Rs. 10 x 10000 Tickets) 1,00,000/- Prize money distributed to the winners 6,50,000/- Total Value of the Lottery Tickets 10,00,000/- Viewed from another angle, the loss borne by the public would be Rs. 3,50,000/-. 3.9. In second scenario, out of above said 10,000 lottery tickets purchased by the Area Distributor, only 8,000 lottery tickets are sold and remaining 2,000 lottery tickets are remaining unsold with it. In such case, due to the general business practice, these 2,000 unsold lottery tickets would not be taken back either by the Organising State or by the Main distributors. Thus, the Organising State and Main distributors would not incur any loss whereas the Area distributor would suffer loss on account of unsold lottery tickets lying with it. In such a case, the profit/ (Loss) of Area Distributor would be as follows: Profit and Loss Account Expenses Amount Income Amount Purchase Price paid to Main Distributor (10,000 lottery tickets purchased at Rs. 80/- per lottery ticket) 8,00,000 Sale price realised on ....
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....e year under consideration, the assessee had purchased 9,22,22,350 lottery tickets amounting to Rs. 87,11,79,869/-. However, during this year, one new scheme of lottery, announced by the Government of Sikkim, was very big. The lottery tickets in respect of this scheme purchased by the assessee during the year could not be sold to the extent of 73,85,150 lottery tickets amounting to Rs. 8,41,74,385/-. Having regard to large quantum of the lottery scheme and to avoid complete wiping off the business of the assessee, M/s Future Gaming Solutions Pvt Ltd, on one of basis, had agreed to take back the unsold tickets. Accordingly, the net purchases for Rs. 8,48,37,200 lottery tickets were recorded at Rs. 78,70,05,484/- i.e net of purchase returns. The details of the same were enclosed in page 58 of Paper Book I filed before us. Out of total lottery tickets purchased, the assessee could only sell lottery tickets to the extent of 3,77,28,095, amounting to Rs. 44,98,41,302/-. Accordingly, 4,71,09,105 number of lottery tickets had remained unsold and as per the usual practice, these lottery tickets were not taken back by the Main distributor. The cost of these unsold tickets was Rs. 41,88,3....
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....012-13, but the purchases of these lottery tickets were recorded in the Financial Year 2013-14. Therefore, it was pleaded that there would be no head of account titled as 'opening stock' or 'closing stock' in value terms in the financial statements of the assessee. 4.1.2. Similarly, the invoices relating to sales made by the assessee firm on its stockists, are raised as and when sales are made. This is evident from the sample copy of invoice enclosed at Page No. 273 of the Paper Book III filed before us. This is an invoice dated 3.6.2013 pertaining to weekly draw of lottery to be organised on 17.6.2013, 19.6.2013 , 20.6.2013 and 21.6.2013. In respect of draws of lottery to be held in subsequent financial year, invoices relating to sales for lottery tickets are raised by the assessee on stockists, at the beginning of that financial year. This is evident from the sample copy of invoice enclosed at Page Nos. 271,272,274,275 of the Paper Book III filed before us. This is an invoice dated 1.4.2013 pertaining to weekly draw of lottery to be organised for 1.4.2013 to 7.4.2013. 4.1.3. We find that the assessee had also affirmed that it is using a software programme called "LE" for mainte....
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....by the Government who is organising the lottery scheme or the National Distributor and assessee firm, in order to mitigate the loss on account of unsold lottery tickets, engage itself in receipt of winning of prize monies on such unsold tickets and books the differential amount as loss. 4.2. We find that in respect of sales made by the assessee, the stockists were unable to sell certain number of lottery tickets. In such cases, the bundle of lottery tickets remaining unsold with the stockists except the loose tickets, are taken back by the assessee. This is evident from an extract of the ledger account of the stockist named 'Ambika Agency- Dadar' for the period 1.4.2013 to 31.3.2014 filed by the ld AR. 4.3. For the sake of convenience, the comparative chart containing details of net purchases, gross sales, sales returns, net sales and percentage of sales returns to total sales for the Asst Years 2014-15 to 2016-17 are as under:- Assessment Years Sr. No. Particular 2014-15 2015-16 2016-17 1 Net Purchase Amount 78,70,05,484 1,17,89,20,691 55,32,73,096 2 Gross Sale Amount 58,66,41,200 96,43,82,890 47,19,10,190 3 Sale Return Amount 13,68,01,129 16,6....
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....s reflected in 26AS. The TDS is deducted only on the prize above Rs. 10,000/-. (11) The assessee is trader in Lottery tickets and TDS deducted as a winner of Lottery instead of trader of Lottery, hence instead of deducting 10% the TDS is deducted @ 30% therefore is high demand of refund. 4.5.1. We find that the ld AO after considering the submissions filed by the assessee, passed an assessment order u/s. 143(3) of the Act on 27.12.2016, accepting the income declared in the return of income. We find that the ld AO had duly accepted to the nature of business activities carried on by the assessee firm by categorically stating that the assessee is engaged in the business of reselling of Government lottery tickets and during the year, the assessee has declared income from its business activities. 4.5.2. In the assessment proceedings for the Asst Year 2015-16, the issue had arisen as to whether the income by winnings from lotteries from unsold lottery tickets, is assessable as business income or income from other sources. Further, the Ld. AO had also questioned the allowability of expenses claimed against the winnings from lottery tickets and as to why such winnings should not be ass....
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....ions of the assessee. The ld. PCIT directed the Ld. AO to compute the winnings from lottery u/s. 115BB of the Act and the allowability of expense or deduction of any sort from this income u/s. 58(4) of the IT Act. 5.2. The relevant findings of ld PCIT could be summarised as under:- a) The income by way of winnings from lotteries has to be computed u/s 56(2) of the Act. Further, no deduction of any expenditure is allowed from the winnings from lotteries. Also , the liability to pay 30% tax u/s 115BB of the Act is on the winnings from lottery. b) The assessee's activity was two fold. Firstly, earning of profit on account of sale of tickets at a higher price than the cost borne out by it which would constitute business income. Secondly, the winning from the unsold lottery tickets, which cannot be termed as business activity. c) The assessee had purchased lottery tickets from M/s Future and M/s Teesta . Therefore, prize winning retrieved from unsold lottery tickets cannot be considered as retrieval of the cost of tickets. By holding such tickets, the assessee had participated in the draw. d) The assessee had returned tickets in substantial number to M/s Future and M/s Teesta. e) ....
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.... Thus, where an assessee has loss under the head 'Profits and gains of business or profession' and income under the head 'Income from Other Sources', then the business loss can be set off against the other source income. (v) Once the provisions of set-off of losses have been given effect to, the Gross Total Income so remaining, is subject to deduction under Chapter - VIA of the Act. (vi) Upon determination of Total Income, the computation of tax payable on such total income, is done. As per Section 4 of the Act, the income-tax is charged on total income, at the rates specified in the Finance Act. However, if an income is chargeable at specified rate as provided for in Chapter XII of the Act, then such income shall be chargeable to tax at such special rate. (vii) In this background, the ld AR submitted submitted that computation of tax payable on an income whether taxable at special rate or rates specified in the Finance Act, takes place only after giving effect to the provisions of computation mechanism laid down under Chapter IV - Heads of Income, followed by Chapter - VI - Set off or carry forward of losses and lastly, Chapter - VIA - Deductions from gross total income. The ex....
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.... another business carried on by the assessee. If, however, there are no profits chargeable under the head "Business or profession" or if the profits chargeable under that head are insufficient to cover the depreciation allowance the amount of the allowance to the extent to which it is not absorbed can be set off against profits chargeable under any other head for that assessment year. (emphasis supplied by us) (xi) The ld AR argued that the set-off of loss is not a choice given to an assessee. It is a statutory provision which is required to be given effect to , in computation of total income. He argued that Section 71 of the Act does not contain any restriction or exclusion for the assessment year under consideration that income chargeable at special rate shall not be set-off against loss under any head of income. Prior to the amendment by the Finance Act, 1986 w.e.f. 01-04-1987, Section 74A(1) dealt with set-off and carry forward of losses from the lotteries. Section 74A(1) of the Act interalia provided that losses from lotteries can be set-off only against winnings from lotteries. Such losses were not allowed to be set-off against income from any other source or under any o....
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....19, the CBDT further provided a clarification that an assessee is entitled to claim set-off of loss against income determined u/s. 115BBE of the Act till the Asst Year 2016-17. (xiv) The ld AR further submitted that Section 112 of the Act which was inserted by the Finance Act, 1992 w.e.f. 1.4.1993 provides that where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head "Capital gains", such long-term capital gains shall be chargeable to tax at appropriate rates. This income was chargeable at special rates. In this regard, doubts had arisen as to whether set-off of loss u/s. 71 of the Act is allowable against the long-term capital gain chargeable at special rates u/s. 112 of the Act. The CBDT vide its Circular No. 721 dated 13.9.1995 clarified the position to say that: "3. ...The total income is to be computed in the manner prescribed in the Income-tax Act. Set-off of loss as per the provisions of sections 70 to 80 is a stage which is part of this procedure. When this procedure is adopted for computing gross total income or total income, only the amount of income after setoff remains under ....
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....me by way of winnings from lotteries on unsold lottery tickets , as income chargeable under the head "Profits and gains of business or profession". However, the ld PCIT had sought to treat the income by way of winnings from lotteries as separately assessable under the head 'Income from Other Sources". We find that the net profit for the year is Rs. 94,38,441/- was arrived at by the assessee after considering the prizes from unsold lottery tickets amounting to Rs. 41,86,55,718/-. If these winnings are to be assessed as "Income from Other Sources" u/s 56(2)(ib) of the Act, then the net result of the business of distributing lottery tickets would be a net loss of Rs. 40,86,75,277/- as worked out elsewhere in this order. 7. We find lot of force in the argument advanced by the ld AR on the point that there is no bar on set-off of loss provided in section 115BB of the Act as stated supra. Section 115BB of the Act talks only about taxability of such winnings at a special rate of 30%. Hence only the net winnings is taxable at 30%. The net winnings is to be determined after setting off the business loss of Rs. 40.86 crores as worked out above with the income from other sources. We find tha....
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....ed the issue in favour of the revenue. These decisions are considered by us in detail in the later part of this order. Once an issue becomes debatable, the view taken by the ld AO in his scrutiny assessment order could be construed as one of the possible view and hence the order passed by him cannot be termed as erroneous. In such a scenario, the view canvassed by the ld PCIT would only result in substitution of his view in the place of one of the possible view already taken by the ld AO. The law is very well settled on this point that in these circumstances, the revision jurisdiction u/s 263 of the Act cannot be invoked by the ld PCIT. Reliance in this regard is placed on the decision of the Hon'ble Jurisdictional High Court in the case of Gabriel India Ltd reported in 203 ITR 108 (Bom) and in the case of Nirav Modi reported in 71 taxmann.com 272 (Bom). It is pertinent to note that the Special Leave Petition preferred by the Revenue against the judgement of Hon'ble Bombay High Court in the case of Nirav Modi supra had been dismissed by the Hon'ble Supreme Court reported in 77 taxmann.com 15 (SC). 7.2. Moreover, we also find that all the requisite details were indeed filed by the ....
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....gned to him under Section 143(3) of the Act if he is required to deal with all issues which arose during the Assessment Proceedings. Thus, the Assessment Order primarily deal with only those issues in respect of which the Assessee has not been able to satisfy him and give reasons for his conclusion. This would enable the Assessee to challenge the same, if aggrieved. In fact the Gujarat High Court in CIT v. Nirma Chemical Works Ltd. [2009] 309 ITR 67/182 Taxman 183 has observed that if an assessment order were to incorporate the reasons for upholding the claim made by an assessee, the result would be an epitome and not an assessment order. In this case, during the assessment proceedings for both the Assessment Years, the Assessing Officer issued a query memos to the assessee, calling upon him to justify the genuineness of the gifts. The Respondent-Assessee responded to the same by giving evidence of the communications received from his father and his sister i.e. the donors of the gifts along with the statement of their Bank accounts. On perusal, the Assessing Officer was satisfied about the identities of the donors, the source from where these funds have come and also the creditwort....
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....der Section 263 of the Act has recorded the fact that there has been no adequate inquiry. Thus, this is not a case of no inquiry, warranting order under Section 263 of the Act. Thus, this objection on the part of the Revenue, is also not sustainable. 10. The Revenue placed reliance upon the decision of the Delhi High Court in D.G. Housing Projects Ltd., (supra) that as the Assessing Officer had not enquired into the source of the source of the gifts received by the Assessee, the Assessment Order is erroneous. The aforesaid decision holds that the power of Revision under Section 263 of the Act would normally be exercised in case of no enquiry and not in cases of inadequate enquiry. However, even in case of inadequate enquiry by the Assessing Officer, the order of the Assessing Officer could be erroneous in two classes of situation. The first class would be where orders passed by the Assessing Officer are ex facie erroneous i.e. a decision rendered ignoring a binding decision in favour of the Revenue or where enquiry is per se mandated on the basis of the record available before the Assessing Officer and that is not done. In the second class of cases, where the order is not ex faci....
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....ther by the Organising State or the Main distributor. After the draw was held for the respective lottery tickets, the value of unsold tickets lying with the assessee, at the year end, had become zero. Thus, the purchase price paid for these unsold tickets amounting to Rs. 41,88,36,709/- became irrecoverable and a net loss of Rs. 40,86,75,277/- under the head "Profits and gains of business or profession" was suffered by the assessee. This business loss of Rs. 40,86,75,277/- is allowable to be set-off u/s. 71 of the Act, against the income chargeable under any other head including Income from other sources. It is irrelevant whether the income is chargeable to tax at special rates as provided under Chapter XII of the Act or at normal rates under the Finance Act, 2013 which is relevant to the year under consideration. 8.2. We find that if the stand taken by the ld PCIT is to be accepted as correct, then it would result in a situation that the income by way of winnings from lotteries would be assessed as "Income from Other Sources" u/s 56(2)(ib) of the Act whereas the business loss arising on account of unsold tickets would be continued to be carried forward without any set-off. Result....
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.... 'sales returns'. We find that the assessee is engaged only in one activity of distribution of lottery tickets. It is not engaged in participation in the draw of lottery tickets. The participation in the draw of lottery tickets in respect of unsold stock lying with it (pursuant to sales returns from stockists) is an automatic fall out of business and becomes indivisible business activity with that of distribution of lottery tickets. Hence prize winnings from unsold lottery tickets would also constitute part of income arising from distribution of lottery tickets and to be construed as part realization of cost of unsold lottery tickets. Therefore, it would be incorrect to construe the unsold lottery tickets as a separate activity . Obviously, the assessee firm had indeed paid monies for purchasing the tickets and it had indeed made sales to its stockists. If the stockists are not able to ultimately sell the tickets to retailers / consumers, as the case may be, and return those unsold tickets to assessee firm and in the event of Government or National Distributor refusing to get back the unsold tickets from the assessee firm, then any prudent assessee would try to mitigate its loss ....
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....ssessee would have to pay tax on the entire sale value and not only on the difference between the sale value and the purchase value. Indeed, in the contingency of these skins finding a sale, it is revenue that would stand to gain. The observation of the Tribunal that this method of permitting him to value the goods "would open the door for showing these very goods as obsolescent and then sell them off later without bringing the profits into the books" is wholly uncalled for. It seems to suggest that the Tribunal found the assessee's intention to be to make a concealed profit by the sale of the goods in subsequent years. It is unfortunate that the Tribunal should have indulged in such uncalled for aspersions on the assessee's integrity. .................... There seems to the be no quarrelling with the question of fact that there was no market for these skins either locally or abroad. Locally it is certain there was at no time any market, and the observation of the Tribunal that the assessee should have tried to sell them locally is certainly un-under-standable in the context of the evidence. It is for the trader to ascertain what avenues for the sale of the goods are op....
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....h a profit motive and not for sport or pleasure. It predicates a profit making motive pervading a whole series of transactions. In common parlance, it connotes activities in which a person is engaged with a set purpose and frequency or the repetition of the activity. From the financials of the assessee firm for the Asst Years 2014-15 to 2016-17, it could be seen that the assessee had time and again carried out the same set of activity by trying to realize the prize winnings from unsold lottery tickets to mitigate its loss incurred on purchase cost of lottery tickets. This is a purely a prudent business decision taken by the assessee firm with a set purpose to make profit as an ultimate motive under any eventuality. We find that the term 'business' u/s 2(13) of the Act is having widest amplitude and import to cover all incidental activities is also endorsed by the decision of Hon'ble Supreme Court in the case of Mazagaon Dock Ltd vs CIT reported in 34 ITR 358 (SC). Hence even as per the inclusive definition of the word 'business' u/s 2(13) of the Act, the prize winnings from unsold lottery tickets could only have to be treated as income from business of the assessee firm. 8.5. We ....
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....rd must be shown to the requirement that the single plunge must be in the waters of trade. In other words, at least some of the essential features of trade must be present in the isolated or single transaction. On the other hand, it is sometimes said that the appearance of one swallow does not make a summer. This may be true if, in the metaphor, summer represents trade; but it may not be true if summer represents an adventure in the nature of trade because, when the section refers to an adventure in the nature of trade it is obviously referring to transactions which individually cannot themselves be described as trade or business but are essentially of such a similar character that they are treated as in the nature of trade. ..................................Cases may, however, arise where the purchase has been made solely and exclusively with the intention to resell at a profit and the purchaser has not intention of holding the property for himself or otherwise enjoying or using it. The presence of such an intention is no doubt a relevant factor and unless it is offset by the presence of other factors it would raise a strong presumption that the transaction is an adventure in th....
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....t be questioned to suit the convenience of the revenue. We find that the assessee had also affirmed in its affidavit that the assessee, in one exceptional case, in respect of one scheme of lottery which was very big, was unable to sell the lottery tickets to the extent of Rs. 8,41,74,385/- and M/s Future Gaming Solutions India Pvt Ltd agreed to take back the unsold tickets, as an exceptional case, having regard to large quantum of lottery and to avoid complete wiping off of the business of the assessee. In any case, we find that even if the assessee had refunded the unsold tickets ( on one off case) to M/s Future in one scheme of Government of Sikkim, the assessee had only tried to recover its cost of lottery tickets and that is effectively purchase returns made by the assessee firm. That would partake the character of business receipt even according to ld PCIT. Whereas in respect of other schemes floated by the Governments, the assessee could not return the unsold tickets to the Government or to the National Distributor and accordingly had to forcibly retain the same. Obviously, the value of such retained lottery tickets had got NIL value, but for the participation in the draw. He....
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....uld take its colour from the words with which it is associated with. The nature of income covered within its ambit cannot be read in isolation or dissected from each other. A holistic reading of clause (ix) in section 2(24) of the Act would suggest that it is not intended to apply to a person who is engaged in the business of distribution of lotteries or owning and maintaining race horses or a bookmaker with whom a punter places his bets. 8.9.2. We hold that the rule of construction "noscitur a,sociis" means that the meaning of a word is to be judged by the company, it keeps. It is a legitimate rule of construction to construe words in an Act of Parliament with reference to words found in immediate connection with them. (extracted from the Principles of Statutory Interpretation - Justice G P Singh - 14th Edition - Page 555). 8.9.3. Thus, when winnings from lottery is read with the other kinds of winnings included within the ambit of section 2(24)(ix) of the Act, it becomes apparent that it is only attracted to those people who have such winnings by reason of their participation in draw of lottery as part of their hobby or enjoyment or pastime. If these winnings have arisen as par....
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....sole selling agent. During the assessment year 1971-72, the unsold tickets out of the 75% of tickets, were deemed to have been purchased by the assessee. On these unsold tickets, the assessee became entitled to certain prizes. In the return of income, the prizes won on unsold tickets were claimed as casual and non-recurring receipts and consequently, exempt u/s. 10(3) of the Act which was accepted by the Income-tax Officer. However, the CIT in 263 proceedings took a view that such receipts are not casual and non-recurring and are chargeable to tax. On appeal, the Hon'ble High Court held that the receipts have arisen out of the business carried on by the assessee and therefore, the sums would be chargeable to tax. The relevant operative portion of the judgement is reproduced hereunder:- "The Tribunal found in the course of its order that the assessee had shown the sum of Rs. 12,53,186 paid by it in lieu of the tickets as business expenditure and that the assessee was able to realize in addition to the commission a sum of Rs. 6,69,152 on account of the said investment made by it. It, therefore, concluded that the sum of Rs. 6,69,152 was income earned in the normal course of bus....
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.... section 10(3) of the Act and taxable as "Profits and Gains of Business or Profession". 8.12. The ld AR further argued that the Finance Act, 1972 brought in an amendment to the taxation of casual and non-recurring receipts w.e.f. 1.4.1973 relevant to Asst Year 1973-74. Thereafter the position changed as follows:- a) Clause (ix) was inserted in Section 2(24) of the Act to provide that any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort of from gambling or betting of any form or nature whatsoever, would be treated as "income". b) Winnings from lotteries were excluded from S. 10(3) of the Act. c) Clause (ib) was introduced to section 56(2) of the Act to bring within the ambit the income referred to in section 2(24)(ix) of the Act. d) Section 74A of the Act was introduced in the Act to provide that losses from certain sources being 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, can be set off against income from these sources. e) Deduction u/s 80TT of the Act was provided for certain portion of income by ....
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....ing an Act :- a) What was the law before the making of the Act ; b) What was the mischief or defect for which the law did not provide ; c) What is the remedy that the Act has provided ; and d) What is the reason of the remedy. 8.15.1. The rule further provided that the courts must adopt that construction which "shall suppress the mischief and advance the remedy, and to supress subtle inventions and evasions for continuance of the mischief, and pro private commondo, and to add force and life to the cure and remedy, according to the true intent of the makers of the Act, pro bono publico. Applying the mischief rule vis a vis the above four matters for consideration to the income by way of winnings from lotteries, the same could be explained in a tabular form for better understanding:- Mischief Rule Individuals other than Distributor Distributor of a Lottery What was the law before the making of the Act? Income by way of winnings from lotteries was treated as casual and non-recurring and hence, exempt u/s.10(3) Income from sale of lottery tickets as well as winnings as well as winnings on unsold lottery tickets, was taxable as business income What was the mischief or de....
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....ss income. From the careful reading of the judgement of Hon'ble Kerala High Court supra, we find that the issue in dispute before the Hon'ble Kerala High Court was on account of rate of tax on the income by way of winnings from lotteries and not the manner of computation of income by way of winnings from lotteries. It did not concern with how to compute the income by way of winnings from lotteries. It was also not concerned with set-off of loss u/s. 71 of the Act. In the case of Manjoo & Co, even after excluding the prize winning from unsold lottery tickets, the assessee had a profit. Hence the issue was only concerned with regard to the rate of tax thereon. Whereas in the instant case, if we exclude the prize winning on unsold lottery tickets from the net profit, then there is a loss. This is the crucial difference, which makes the decision of Hon'ble Kerala High Court totally distinguishable on facts. (emphasis supplied by us) 8.17.1. We find that the ld AR placed on record, the assessment order, ld CITA order and Co-ordinate Bench of Cochin Tribunal's order passed in the case of Manjoo & Co. for the Asst Years 2000-01 and 2001-02, both years having identical facts. In the sa....
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....n the Asst Years 2000-01 and 2001-02, the rate of taxation for firms was 35% whereas the income by way of winnings from lotteries was chargeable at 40%. Therefore, the computation of tax on such income u/s. 115BB of the Act, assumed more significance. However, the ld CITA reversed the action of the ld AO in that case. Before the Tribunal, the issue was whether the prize winnings out of the unsold lottery tickets held by the wholesale dealer is to be treated as business income of the assessee or to be treated as winnings from lottery and the provisions of section 115BB of the Act, is to be applied or not. We find that the Cochin Tribunal relying on the decision of Hon'ble Karnataka High Court in the case of Mysore Sales International Ltd. vs CIT reported in 117 ITR 64 (Kar), held that the income is assessable as business income. The revenue preferred an appeal before the Hon'ble Kerala High Court. We find that the Hon'ble Kerala High Court in para 5 of its decision held that the winnings from lotteries is not assessable as "Income from Business". However, in Para 6 of the same judgement, the Hon'ble Court while referring to the decision of Hon'ble Karnataka High Court in the case of....
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....on 115BB is applicable for the winnings from lottery received by the respondent assessee irrespective of whether it is an income incidental to business or not. 8.17.4. From the conjoint reading of para 5 and para 6 of the decision of Hon'ble Kerala High Court supra, we find that the Hon'ble Court categorically held that even if the winnings from lotteries are assessable as business income, yet such income would be chargeable to tax at special rate provided in section 115BB of the Act. It is to be noted that the winnings from lotteries were chargeable at 40% in Asst Years 2000-01 and 2001-02, whereas the maximum marginal rate of taxation was 30% for Individuals and 35% for Firms. Thus, the question before the Hon'ble Court on the rate of tax assumed more significance in those years. In the present case before us and in the subject assessment year, the income by way of winnings from lotteries is taxable at 30% u/s. 115BB of the Act whereas the maximum marginal rate of taxation was also 30% for both Individuals and firms. In view thereof, the ld AR submitted that the decision in the case of Manjoo & Co. becomes factually distinguishable. At the cost of repetition, the Hon'ble Kerala....
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....nd disposal. The commodity may itself be converted into another saleable commodity, or disposal. The commodity may itself be converted into another saleable commodity, or it may be used as an ingredient or in aid of a manufacturing process leading to the production of such saleable commodity." 8.17.6. We find as per the aforesaid decision of Hon'ble Apex Court, the unsold lottery ticket lying with the assessee, being a dealer in lottery tickets, had fetched some prize monies and those winnings from prize monies need to be construed only as business income and the value of other tickets which did not qualify for prize money becomes NIL. All the unsold lottery tickets were consumed by the assessee dealer itself and one such lottery ticket held by it had fetched prize money, which would only be realization of cost of lottery tickets and thereby to mitigate the loss arising on account of non-saleability of the tickets. The ld AR stated that this decision was not quoted before the Hon'ble Kerala High Court and accordingly the decision of Hon'ble Kerala High Court becomes per incuriam and loses its binding precedence. 8.17.7. We hold that it is settled law that a judgement is an author....
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....m lotteries. Thus, such income is liable to be taxed under the special provision and its nature of income whether it is a business income or income from other sources is wholly irrelevant." 8.18.1. From the aforesaid decision of Hon'ble Allahabad High Court, it could be safely concluded that the Hon'ble Court had not categorically decided the winnings from lotteries as business income or income from other sources only. What they had held is irrespective of the head of income, the same shall be taxed at a special rate u/s 115BB of the Act. In the instant case before us, there is absolutely no quarrel regarding the applicability of tax rate u/s 115BB of the Act. The real quarrel is only whether the business loss incurred by the assessee after exclusion of prize money from net profit is eligible for set off against winnings from lotteries u/s 71 of the Act. 8.18.2. As regards the second question before the Hon'ble Allahabad High Court, the Court held that the assessee could not prove the claim to the extent of Rs. 1,91,680/- and therefore disallowance is confirmed. It is pertinent to note here that the assessing authority had actually allowed the loss on account of unsold tickets ....