TaxTMI 
TaxTMI 
2021 (5) TMI 793
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.... issue involved therein is as to whether the assessee firm 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 "pro....
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....en the Organizing State and the Main Distributors. The Area Distributor purchases lottery tickets from the Main Distributor 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 ....
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....kets. The profit margin of all the parties would be as follows: Particulars Amount (In Rs.) Organising State (Rs. 5 x 10000 Tickets) 50,000/- Main Distributor (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 an....
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.... Main Distribution of Lottery Tickets Area Distributors Stockist Retailers Customers 4. From the above business model prevailing in the lottery business, let us analyse the facts of the assessee case before us for the Asst Year 2014-15. During the 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....
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.... This invoice pertains to weekly draw period 1.4.2013 (Monday) to 7.4.2013 (Sunday) and that invoice was raised on 8.4.2013 (Monday). Accordingly, purchase was also recorded in the Financial Year 2013-14 and not in the Financial Year 2012-13. The tickets may have been physically delivered to the assessee before the close of the financial year 2012-13, 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. Th....
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....preme Court in the case of Mehta Parikh & Co vs CIT reported in 30 ITR 181 (SC). Hence it could be safely concluded that the assessee had booked purchases of lottery tickets in its financial statements only in respect of draws held within the end of the financial year ; sales are booked as and when invoices are raised ; unsold tickets are not taken back 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 s....
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....ntity wise and value wise. (2) The details of Sales quantity wise and value wise. (3) The details of prizes from unsold quantity wise and value wise. (9) In respect of your query regarding winning from Lottery as per TDS Return and corresponding income in ITR, we state that , winning from Lottery as per 26AS is Rs. 2,95,00,000/- whereas assessee firm has received prizes from unsold to the tune of Rs. 41,86,55,718/- hence it much more than what is 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 t....
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....ssment proceedings for the Asst Year 2015-16 wherein income from winnings from lotteries were taxed at 30% u/s 115BB of the Act and expenses on such winnings were disallowed u/s. 58(4) of the Act. 5.1. In response to this show-cause notice, the assessee filed its submissions on 20.2.2018 and 6.3.2019 before the ld PCIT. We find that on 30.3.2019, the ld PCIT passed the impugned order setting aside the order of the ld AO as erroneous and prejudicial to the interest of the revenue by rejecting the submissions 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 bo....
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....nism laid down in that head. (iii) Once income including losses are computed under each head of income, thereafter, the total income shall be computed after considering (i) the provisions of Set-off or carry forward of loss, as contained under Chapter - VI of the Act and (ii) deductions under Chapter VIA of the Act. (iv) Section 71 of the Act provides for set off of loss from one head against income from another, except in certain special circumstances where such set-off is permissible only against income under the same head. 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....
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.... chargeable under that section not separately on the profits of each business, but on the aggregate of the profits of all the business carried on by the assessee: It followed, therefore, that where the assessee carries on several businesses, he is entitled under section 10 of 1922 Act to set off loss in one business against profits in another. If there is any loss in a business carried on by the assessee by reason of the profits of such business not being sufficient to absorb the depreciation allowance, such loss can be set off against the profits of 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....
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....E of the Act. In Circular No. 3/2017 dated 20.1.2017 - Explanatory Notes to the Provisions of the Finance Act, 2016, the CBDT has noted that prior to the Finance Act, 2016, there was uncertainty on the issue of set-off of losses against income referred to in section 115BBE of the Act. Therefore, in order to avoid unnecessary litigation, the provisions of Section 115BBE(2) of the Act has been amended as to expressly provide that no set off of any loss shall be allowable in respect of income u/s. 68 or 69 or 69A or 69B or 69C or 69D of the Act. In a subsequent Circular No. 11/2019 dated 19.6.2019, 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 ra....
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....order passed u/s 263 of the Act. He also relied on the decision of Hon'ble Kerala High Court in the case of Manjoo & Co. reported in 335 ITR 527 (Ker) and argued that prize winnings from lotteries had to be taxed as income from other sources at special rate of tax u/s 115BB of the Act without allowing for set off of any losses u/s 71 of the Act. He also supported the order of the ld PCIT in stating that no deduction of expenditure shall be allowed against winnings from lotteries in terms of section 58(4) of the Act. 6.2. In the present case before us, the assessee had offered its entire income including income 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....
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....clearly a debatable issue. Hence the law is now well settled that a debatable issue cannot be subject matter of revision proceedings u/s 263 of the Act. The existence of the issue becoming debatable is staring on us from the fact that the Hon'ble Karnataka High Court in the case of Mysore Sales International Ltd vs CIT reported in 117 ITR 64 (Kar) had decided the issue in favour of the assessee in pre 1972 era, whereas the Hon'ble Kerala High Court in the case of CIT vs Manjoo & Co. reported in 335 ITR 527 (Ker) and Hon'ble Allahabad High Court in the case of J N Sharma vs ACIT reported in 270 CTR 594 (All) had decided 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 revisi....
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....ent from the Assessment Orders dated 31st December, 2009 and 30th December, 2010 which does not even make a mention of the gifts received much less discuss and/or deal with the same. This issue is no longer res integra as this Court in Idea Cellular Ltd. v. Dy. CIT [2008] 301 ITR 407 (Bom.) has held that if during Assessment proceedings queries were raised and the assessee responded to the same, then even if an Assessment order does not mention the same, it does not mean that the Assessing Officer has not applied his mind to the issues. It would be well-nigh impossible for an Assessing Officer to complete all assessments assigned 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 m....
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....settled that the jurisdiction under Section 263 of the Act can be exercised by the CIT only when it is a case of lack of enquiry and not one of inadequate enquiry. This view has been taken by this Court in the matter of CIT v. Shreepati Holdings & Finance (P.) Ltd. [ITA 1879 of 2013 dated 5th October, 2013], by the Delhi High Court in CIT v. Vikas Polymers [2012] 341 ITR 537/194 Taxman 57 and in D.G. Housing Projects (supra). In fact the Delhi High Court in D.G. Housing Projects (supra) while so holding placed reliance upon the decision of this Court in Gabriel (India) Ltd. (supra). It is very important to note that the CIT in his order under 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 ....
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....gh we have quashed the revision order passed by the ld PCIT u/s 263 of the Act on invalid assumption of jurisdiction, we proceed to adjudicate the issue in dispute on merits also, since very elaborate arguments were advanced by the counsels from both the sides by making reference to various case laws and its applicability / non-applicability thereon. 8.1. During the year under consideration, we find that the assessee had purchased total of 8,48,37,200 lottery tickets. Out of which, only 3,77,28,095 lottery tickets could be sold and remaining 4,71,09,105 tickets had remained unsold. Due to business practice, these lottery tickets were also not taken back either 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 ....
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....ottery tickets thereby categorizing it as a dealer in lottery tickets. This fact is absolutely not in dispute. We find that the ld PCIT had also stated that the purchase of lottery tickets and sale of lottery tickets are part of business activities of the assessee firm and any profit derived thereon would have to be taxed as business income of the assessee firm. Since purchases and sales are treated as part of business activities, the purchase returns and sales returns also would only be business activity of the assessee. We are now concerned with sales returns of lottery tickets to the assessee. The stockists return the unsold lottery tickets to the assessee firm and which are taken cognizance by the assessee firm as '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 ....
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....February about 1,70,000 skins, and, according to the correspondence which he produced, there had been no demand for these skins subsequently. It also seems to be accepted by the Tribunals below that there was no local market for snake skins of any variety. The question is, whether, in these circumstances, the assessee, in the normal course of its accounting, is not entitled to value the price of the skins at the market price which, in the present case, happens to be "nil". We are also unable to see how revenue is affected by this method of valuation. If these skins which are valued at "nil" happen to find purchasers in the next accounting year, it is obvious that the entire sale value will figure as a profit in the books and the assessee 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 w....
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....ry tickets only and not incurred in order to produce winnings from lotteries. 8.4. We find that the word "business" has been defined in Section 2(13) of the Act in an inclusive manner. As per the said section, "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture". Thus, the word "business" is a word of large and indefinite import. It is something which occupies attention and labour of a person for the purpose of profit. Some of the essential characteristics of a business are continuous and systematic exercise of activity and profit motive. To regard an activity as business, there must be a course of dealings either actually continued or contemplated to be continued with 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 ....
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....35 ITR 594 (SC) wherein it was held as under:- .................................. When section 2, sub-section (4) refers to an adventure in the nature of trade it clearly suggests that the transaction cannot properly be regarded as trade or business. It is allied to transactions that constitute trade or business but may not be trade or business itself. It is characterized by some of the essential features that make up trade or business but not by all of them; and so, even an isolated transaction can satisfy the description of an adventure in the nature of trade. Sometimes it is said that a single plunge in the waters of trade may partake of the character of an adventure in the nature of trade. This statement may be true; but in its application due regard 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....
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....s was one off case in respect of one new scheme floated by Government of Sikkim , wherein the agreement entered into by the assessee with the National Distributor provided for refund of tickets to the National Distributor. Admittedly, none of the agreements entered into by the assessee with M/s Teesta or M/s Future had been declared to be 'sham' by the ld PCIT. The law is very well settled that the intention of the parties need to be understood from the agreement , if any, entered into between them. The revenue cannot step into the shoes of the businessman and try to rewrite the agreement. As long as the agreements entered into by the assessee are not declared as 'sham' or by way of any colorable device, the obligations discharged by the parties as per the said agreements cannot 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 r....
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....under any scheme or arrangement by whatever name called; (ii) "card game and other game of any sort" includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game ;" 8.9.1. From the reading of the aforesaid definition, it could be safely concluded that the income from nature of activities covered within the ambit of section 2(24)(ix) of the Act are such which are carried out, as part of hobby or enjoyment or pastime. However, if a person is engaged in the business of say lottery or organizing horse races, then income earned by such person cannot be brought within the ambit of section 2(24)(ix) of the Act as the same would be chargeable as regular income from business. The words "winnings from lottery" cannot be read in isolation and would 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....
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.... business activity, say in distributing lottery tickets or was acting as a bookmaker in respect of horse races, in such cases, the income from such business activities were chargeable to tax as business income. The exemption u/s. 10(3) was not available to receipts arising from business or the exercise of a profession or occupation. Reliance in this regard was placed 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). In that case, the assessee was sole selling agent of the State of Karnataka for distribution of lottery tickets. Under the agreement, the assessee was responsible for sale of not less than 75% of total number of tickets released for each draw. In case, the 75% of the tickets released are not sold, then it shall be deemed to have been purchased by the 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 consequ....
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.... the assessee and affirming the order of the Commissioner. We, therefore, answer the two questions referred to us in the affirmative and against the assessee. No costs." 8.11. The ld AR by placing reliance on the aforesaid judgement argued that thus, prior to the Finance Act, 1972, taxability of income by way of winnings from lotteries, can be summarised as under:- a) If an assessee had participated in a draw of lottery as part of hobby or enjoyment, then such winnings from lotteries were treated as casual and non-recurring and exempt u/s 10(3) of the Act. b) If an assessee who is a distributor of lottery tickets, became entitled to winnings from lotteries on account of unsold lottery tickets, then such receipts were held to be arising out of the business carried on. Therefore, the same were covered within the exclusion provided in clause (ii) of 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 (i....
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.... the law with respect to income earned by person who was engaged in the business of organizing lottery or organizing horse races or a bookmaker. (emphasis supplied by us) 8.14. Hence it could be safely concluded that the amendments brought in by the Finance Act, 1972 in amending section 2(24) and 56(2) of the Act were not meant for persons who were engaged in the business of distribution of lottery tickets etc. The mischief which was present in the law prior to the amendments by the Finance Act, 1972 was only for persons who were doing these activities as part of their hobby or enjoyment or pastime and such income were windfall gains for them. 8.15. We find that the ld AR also drew our attention to the 'Mischief Rule' of construction, popularly known as "Heydon's case" appreciating the Rule of Purposive Construction. It provides for consideration of four matters in construing 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 ado....
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....ticipates in the draw. The said provisions, in our considered opinion, cannot be made applicable for a person who is a dealer in lottery tickets. 8.16. We find that the aforesaid decision of Hon'ble Karnataka High Court in Mysore Sales International case still holds the field and this High Court order had become final as no further appeal was preferred to Hon'ble Supreme Court by the assessee, as stated by the ld AR (treated as statement made from the Bar). We find that the facts before the Hon'ble Karnataka High Court supra are exactly identical with the facts of the instant case before us. 8.17. We find that the ld DR before us heavily placed reliance on the decision of Hon'ble Kerala High Court in the case of CIT vs Manjoo & Co. reported in 335 ITR 527 (Ker) to drive home the point that the prize winnings from unsold lottery tickets would be taxable under the head 'Income from Other Sources' only and not as business 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 c....
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....3 Gross Total Income 77,06,306 Total Income (rounded off) 77,06,310 Computation of Tax Particulars Amount (In Rs.) Total Income 77,06,310 Income-tax at normal rates 2,72,053 Income-tax at special rates 27,71,605 30,43,659 Add: Surcharge 3,04,365 33,48,024 Less: Demanded u/s.143(1) (29,68,855) Balance Payable 3,79,169 8.17.2. From the above, it is apparent that even after excluding the "Income by way of winnings from lotteries on unsold lottery tickets", there is a net profit. Thus, the question of set-off of losses u/s 71 of the Act was not an issue in dispute and hence not the subject matter of consideration before the Hon'ble Kerala High Court. 8.17.3. We find that normally the computation of tax payable on total income is separately computed in another form. However, the assessment of Manjoo &Co. was primarily related to taxability of income at special rate u/s. 115BB of the Act. It is also to be noted that in 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, th....
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....tery. 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 income are computed under five heads referred to in 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 under each head, such of the incomes specifically covered by Chapter XII shall be identified, separated and should be subject to tax at the special rate provided there. So much so in our view the special rate of tax i.e., 30 per cent provided under section 115BB of the Act is applicable even if winning from lottery is in the nature of business income as claimed by the respondent. We hold that the rate prescribed under section 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.....
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....e sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure. But to be a dealer a person need not follow the activity of buying, selling and supplying the same commodity. Mere buying for personal consumption i.e. without a profit motive will not make a person a dealer within the meaning of the Act, but a person consumes a commodity bought by him in the course of his trade, or use in manufacturing another commodity for sale, would be regarded as a dealer. The legislature has not made sale of the very article bought by a person a condition for treating him as a dealer, the definition merely requires that the buying of the commodity mentioned in Rule 5(2) must be in the course of business i.e. must be for sale or use with a view to make profit out of the integrated activity of buying and disposal. The commodity may itself be converted into another saleable commodity, or disposal. The commodity may itself be converted into anothe....
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....BB of the Act at the rate of 40%. The loss on account of unsold lottery tickets amounting to Rs. 21,13,848/- as claimed by the assessee, was restricted to Rs. 19,22,168/- by the assessing authority, on account of want of evidences. The matter travelled through appellate authorities and finally reached before the Hon'ble Allahabad High Court. Amongst other questions, two questions were posed for the judgement of Hon'ble Allahabad High Court. One, whether the prize monies on unsold tickets is business income of the assessee or any winnings from lotteries u/s 2(24)(ix) r.w.s. 115BB of the Act. Second, whether the loss of Rs. 1,91,680/- could be disallowed. As regards the assessability of prize winnings from unsold lottery tickets, as business income or other sources, the Hon'ble Court in Para 20 of its judgement held that "it is not necessary to go into the question whether the amount received by winnings from lotteries is a business income or from other sources. Section 115BB is a special provision under the Act to tax the income by way of winnings from lotteries. Thus, such income is liable to be taxed under the special provision and its nature of income whether it is a business inc....