TaxTMI 
TaxTMI 
2024 (10) TMI 649
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....ideration is to determine the head of income under which prize winning from unsold lottery tickets would be assessable to tax. The revenue's grounds of appeal read as under: - 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law. 2. The Ld.CIT(A) erred in holding that the prize winning from the unsold lottery tickets amounting to Rs. 46,83,67,965/- is part of business income and directing the Assessing officer to allow the assessee to debit the expenditure of Rs. 51,18,57,848/- towards purchase of unsold lottery tickets and credit the prize winnings from the unsold lottery tickets in P&L account considering this as business activity. 2.1 The CIT(A) erred in holding that the prize winnings from unsold lottery tickets is a part of business income, though it falls under the head "Income from other sources". An item of income coming under an exclusive head cannot in any circumstances be charged under another head. Reliance is placed on the Hon'ble Supreme Court's decision in the case of Bihar State Cooperative Bank Ltd Vs CIT(l 960) 39 ITR l 14(SC) and United Commercial Bank Ltd Vs CIT, 32 ITR 6....
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....tter has not attained finality. 3.1 The ld. CIT(A) erred in relying on the ITAT's decision in which it was held that even if the winnings from the unsold lottery tickets is treated as "Income from other sources" then the set off of losses under the head "Business income" against the Income under the head "Income from other source" under section 71 of the Act would be allowed and tax effect thereof will be revenue neutral. The CIT(A) erred in failing to appreciate that both the business income (after excluding the cost of tickets debited and Prize winnings credited) as well as "Income from other source" (i.e) Prize winning from unsold lottery tickets would be positive for A Y 2015-16 and there would be no question of set off of loss after applying the provisions of Sec.58( 4) in the computation of income under the head "Income from other Sources. Hence there would be no revenue neutral for asst. year 2015-16. 3.2 The Ld.CIT(A) erred in failing to appreciate that 'the Assessing officer relied on the decision of the Hon'ble Kerala High Court in the case of CIT Vs Manjoo & Co, in which it was held that the income from winning of lotteries from unsold ticke....
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....e which are subject to TDS shall be paid by the Director of respective State Lotteries of the respective State Government to the prize winners on production of original prizewinning tickets" From the above it is clear that there is no difference between winning from lotteries sold and tickets remaining unsold with the assessee. Hence, the winning from Lotteries from unsold tickets would not partake the character of business receipts. 4. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of learned CIT(Appeals) may be set aside and that of the Assessing Officer be restored. 2. The Ld. CIT-DR as well as Ld. Sr. DR advanced arguments qua the head under which income from winning from lotteries would be assessable to tax. The revenue assailed the impugned order and filed various written submissions from time to time to support the assessment order. Per Contra, Ld. Sr. Counsel, Shri V. Sridharan, assailed the arguments of revenue and relied on various judicial pronouncements and in particular, the favorable decision of Mumbai Tribunal in assessee's own case in ITA No.2596/Mum....
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....ib) and thus for all purposes of taxation, winning from lotteries would be considered under this head only. The relevant provisions of Sec.56(2) read as under: - (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely - (i) dividends; (ia) income referred to in sub-clause (viii) of clause (24) of section 2; (ib) income referred to in sub-clause (ix) of clause (24) of section 2 Thus for the purpose of taxation, the legislature included winning from lotteries u/s 56(2)(ib) of the Act and the same, therefore, would fall under residuary head of income as contemplated u/s 56. 3.3 The Ld. AO further noted that the provisions of Sec.57 provide that expenditure could be allowed in earning the income as referred to in Sec.56. Howev....
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....ed with the assessee and hence the said prize money in respect of the said unsold tickets lying with the assessee-firm would be the refund of the cost incurred by the assessee-firm or a part of the sale proceeds on sale of tickets. By no stretch of imagination, such prize money from unsold tickets lying with the assessee-firm could be said to be winning from lotteries because the assessee-firm had not purchased the said lotteries for winning prize and the assessee firm had not taken part in the lottery draws. The prize money from unsold tickets lying with the assessee firm has reduced the cost of the lottery tickets which were distributed by the assessee. Reliance was placed on various judicial decisions to support the submissions. 3.7 However, not convinced, Ld. AO rejected the submissions of the assessee on the ground that the assessee had entered into Agreement with M/s Future Gaming Solutions India Pvt. Ltd. ('future' in short) in respect of lottery tickets of State of Sikkim lottery. Similar agreement was entered with M/s Teesta Distributors for sale of lottery tickets of State of Mizoram. Both the agreements were almost similar / identical. As per the agreement with 'futur....
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....rmed as business activity. The word 'lottery' itself points chance for prize. There must be some consideration to be paid for taking the chance. Thus, as the assessee had purchased the tickets by paying certain amount as discussed at length in the preceding paras, the prize from such lottery by chance would not take colour of retrieval of the cost of tickets as explained by the assessee. Accordingly, by holding the tickets, the assessee had participated in the draw. The Ld. AO distinguished the case laws being relied upon by the assessee. 3.10 It was finally held by Ld. AO that winning from lotteries from unsold lottery tickets would be chargeable to tax as 'income from other sources' as per Sec.56(2)(ib) r.w.s. 2(24)(ix) which would be subject to tax at rates specified u/s 115BB. The assessee is not permissible to claim any expenditure against the same. The value of unsold tickets constitutes expenditure incurred by the assessee for such winnings. Accordingly, the purchases were reduced to that extent and the assessment was framed. Appellate Proceedings 4. The Ld. CIT(A), upon perusal of case records and assessee's submissions, concurred that the impugned issue stood cove....
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....ible to set-off its losses against this income. The Ld. AO was accordingly directed to allow the assessee to debit the expenditure towards purchase of unsold lottery tickers and credit the prize winning in Profit & Loss Account by considering the same as business activity only. Aggrieved, the revenue is in further appeal before us. Our findings and Adjudication 6. The Ld. CIT-DR, in its written submissions has stated that the assessee has not treated the tickets as stock-in-trade since the assessee has not reflected any opening or closing stock in its financial statements. The same would mean that the assessee's intention was not to treat the winning as business receipts but as prize money from tickets which have remained unsold in the relevant lottery scheme. Therefore, such winning would be classified u/s 2(24)(ix) r.w.s. 56(2)(ib). It has also been submitted that Ld. CIT(A) as well as Mumbai Tribunal has not looked into all these aspects / facts. Accordingly, Ld. CIT(A) has prayed for restoring this issue back to the file of Ld. CIT(A). 7. The Ld. Sr. DR, in its written submissions, has stated that the assessee has returned back certain percent of unsold tickets and hel....
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.... 70 / 71 / 74A or u/s 115BB of the Act. Prior to Finance Act, 1986, sub-section (1) and (2) to Sec.74A provided that the loss from lotteries etc. shall be set-off against income from lotteries only. By the Finance Act, 1986, these two sub-sections were omitted and thus, the bar on setoff of losses was removed. Second distinction is the fact that, in that case, the assessee did not contend that betting income would be income from owning and maintaining of the horse races. However, in the present case, the winnings realized on unsold tickets are realization of closing stock of unsold lottery tickets. This prize money so earned by the assessee was business income which was realized during the course of business of distribution of lottery tickets. Regarding revenue's written submissions on stock-in-hand, it has been submitted that this contention has already been dealt with by Mumbai Tribunal in its order. The factual position, in this regard, has already been noted in para 4.1.1 and para 4.1.2 in the order of Mumbai Tribunal. It has been noted that in respect of draws to be held in the next year, there would be no opening and closing stock since the purchase and sale invoices would....