TaxTMI 
TaxTMI 
2026 (4) TMI 743
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 2,19,58,083/- along with interest of Rs. 6,68,785/- for the assessment year 1999-2000, under Sections 201(1) and 201(1A) of the Income Tax Act, by the proceedings dated 25.03.1999, on the grounds that since the difference between the sale price and the face value of the lottery tickets would amount to payment of commission to the Agents/ Dealers, the Assessee is liable to deduct tax at source, under Section 194G of the Income Tax Act, which it had failed to do so. As against the same, the Assessee had preferred an appeal before the Commissioner of Income Tax (Appeals), Coimbatore, in ITA.No.1726-C/98-99, which was dismissed as not maintainable, by the order dated, 24.06.1999, on the ground that the order of demand of the Assessing Officer is not an appealable order. Thereafter, after amendment of Section 240A by the Finance Act, 2000, the Assessee had preferred an appeal before the Commissioner of Income Tax (Appeals)-X, Chennai in ITA.No.323/2000-2001, which was allowed by the order dated, 18.12.2000, holding that the Assessee was not liable under Section 194G of the said Act to deduct tax at source and the Assessee cannot be proceeded under Sections 201(1) and 201(1A) of the Inc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction between the Assessee and the Dealer is that of Principal to Principal and that there is no relationship of employer and the employee between the Assessee and the Dealer and that since the transactions are out right sales and there is no payment of any commission, the expression "Commission" cannot be used in respect of transaction involving sale and purchase and that the rebate allowed by the Assessee on the face value of the lottery tickets would not amount to "Commission", within the meaning of Section 194G of the Income Tax Act, 1961 and hence, the opinion of the Assessing Officer that the difference between the face value and the invoice value can be treated as "Commission", so as to attract the provisions of Section 194G of the Income Tax Act, 1961, is erroneous. 8. We have given our anxious consideration to the rival submissions of the learned counsel on either side and also perused the entire materials placed on record, including the relevant authorities of various Courts. 9. It is not in dispute that the Respondent/Assessee had purchased the lottery tickets in bulk from the State Governments at a reduced price and sold the same in bulk to its next level of Deale....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any other mode. Only on fulfilment of these ingredients, the Assessee can be made liable to deduct tax at source under Section 194G of the Income Tax Act. 13.In the Judgement and order, dated 10.11.2000, of the High Court of Kerala, reported in 2001 (249) Income Tax Return 186 (Ker) (M.S.Hameed and another Vs. Director of State Lotteries), the High Court of Kerala was pleased to observe as under:- 21. According to me, the transaction which the petitioners have entered into do not appear to be one in the contemplation of Section 194G. The sub-headings of the section is commission, etc., on sale of lottery tickets. The liability is for deduction at source, under Chapter XVII. The general provision by Section 190 prescribes for deduction, collection at source or advance payment. It is not disputed that if at all the first alone is applicable here. Section 192 concerns salary. Deduction at the time of payment is compulsory. Section 193 refers to the deductions made at the time of payment of interest, and Section 194 concerns with dividends payable by a company. Likewise Section 194A concerns payments of certain types of interests, Section 194B deals with winnings from lotte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the present case. 26. Reference had been made to the Finance Act, 1992, as seen published in [1992] 195 ITR (St.) 214 at page 255. Sub-sections (2) and (3) were added to Section 194G but in view of my finding that exhibit P-4 cannot be issued on the authority of Section 194G, nothing more turns on that. 27.From a consideration of the relevant aspects, the view possible, according to me, is that exhibit P-4 has proceeded on an erroneous assumption, and the petitioners were not liable to be covered under Section 194G of the Income-tax Act. Exhibit P-4 is therefore, set aside and the original petition stands allowed." 14. In the case of Principal CIT v. Usha Murugan, 2021 (18) ITR-OL 502 : 2021 SCC OnLine Ker 16435:2022 (326) CTR 614, the Division Bench of the Kerala High Court was pleased to observe as under:- "10.2 The Assessee acts as a post-office by receiving counterfoils of prize winning tickets sold by different retailers in the organisation of lottery business presented to the State Government and the prize/incentive/bonus received from the Government is transferred to retailers. In the circumstances of the case our attention has been drawn to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eme Court was pleased to observe as under:- "27.The definition of goods has also been noted in clause (50) of Section 65 of the Finance Act, 1994 which refers to clause (7) of Section 2 of the Sale of Goods Act, 1930. The expression "goods" under the Sale of Goods Act expressly excludes actionable claims as well as money. This Court in Sunrise Associates has held that lottery tickets are actionable claims. Therefore, as lottery tickets would not come within the meaning of the expression goods under clause (7) of Section 2 of the Sale of Goods Act, 1930, they would also not come within the scope and ambit of clause (50) of Section 65 of the Finance Act, 1994. If that is so, they would also not come within the scope and ambit of clause (19)(i) of Section 65 of the Finance Act, 1994. Lottery tickets being actionable claims and not being goods within the meaning of sub-clause (i) of clause (19) of Section 65 of the Finance Act, 1994, would expressly get excluded from the scope of the said provision. In the circumstances, service tax on the promotion or marketing or sale of lottery tickets which are actionable claims could not have been levied under the said subclause. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ought to be covered under sub-clause (i) thereof but could not be by virtue of the definition of goods under the very same Act read with Section 2(7) of the Sale of Goods Act, 1930. The mere insertion of an explanation cannot make an activity a taxable service when it is not covered under the main provision (which has to be read into the said sub- clause by virtue of the legislative device of express incorporation). This is because sale of lottery tickets is not a service in relation to promotion or marketing of service provided by a client, i.e., the State in the instant case. Conducting a lottery which is a game of chance is ex facie a privilege and an activity conducted by the State and not a service being rendered by the State. The said activity would have a profit motive and is for the purpose of earning additional revenue to the State exchequer. The activity is carried out by sale of lottery tickets to persons, such as the assessee's herein, on an outright basis and once the lottery tickets are sold and the amount collected, there is no further relationship between the assessee's herein and the State in respect of the lottery tickets sold. The burden is on the assessee's here....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y of commission, remuneration, on such tickets in all amounts exceeding Rs. 1000, to deduct income tax thereon at the rate of 10%, had no application. Hence, the demand of tax was without jurisdiction. 74. The Kerala High Court in M.S.Hameed considered the question whether the amount received as commission or discount or any incentive or as a margin is income or earning which was taxable at the hand of the assessee concerned, coming under the purview of Section 194G of the Income Tax Act. It was observed that if the face value of the lottery ticket was Re. 1, the petitioner therein would receive it at Rs. 0.72 paise and could sell at any price and it was not the State's business to enquire into the matter at all. It was observed that the deduction under Section 194G was on any person responsible for paying to any person any income by way of commission, etc. who purchased or sold or stocked lottery tickets, in this case, the State Government. The deduction was to be made at the time of credit of such income to the account of the payee or at the time of payment of such income. The Kerala High Court observed that when the deduction is contemplated at the time of the payment t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r "brokerage" under Section 194H of the Income Tax Act, 1961." 17.In 2024 (2) SCR 1001:2024 INSC 148 (Bharti Cellular Limited Vs. Assistant Commissioner of Income Tax), the Honourable Supreme Court was pleased to observe as under:- "41. Thus, the term 'agent' denotes a relationship that is very different from that existing between a master and his servant, or between a principal and principal, or between an employer and his independent contractor. Although servants and independent contractors are parties to relationships in which one person acts for another, and thereby possesses the capacity to involve them in liability, yet the nature of the relationship and the kind of acts in question are sufficiently different to justify the exclusion of servants and independent contractors from the law relating to agency. In other words, the term 'agent' should be restricted to one who has the power of affecting the legal position of his principal by the making of contracts, or the disposition of the principal's property; viz. an independent contractor who may, incidentally, also affect the legal position of his principal in other ways. This can be ascertained by referring to and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ept of commission or rebate discussed in Harihar Cotton Pressing Factory v. CIT [1960] 39ITR 594 (Bom). The result is that the question referred to this court in each of the years is answered in the negative and against the revenue. The assessee will be entitled to its costs. 19.In 1960 (62) BOMLR 675:1960 (39) ITR 594 (Harihar Cotton Pressing Factory Vs CIT), the Bombay High Court was pleased to observe as under:- "8. It all comes to this. Can a rebate granted by a firm of cotton pressers to a customer-partner by way of reduction in pressing charges amount to "commission" within the meaning of Section 10(4)(b) ? The expression "commission" has no technical meaning but both in legal and commercial acceptation of the term it has definite signification and is understood as an allowance for service or labour in discharging certain duties such for instance of an agent, factor, broker or any other person who manages the affairs or undertakes to do some work or renders some service to another. Mostly it is a percentage on price or value or upon the amount of money involved in any transaction of sale or service or the quantum of work involved in a transaction. It can. be for a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng is that in addition to the payment of 10% of commission to the firm of M/s. Lalchand Shyamsunder, the assessee sold the bidis at a rate less than the market rate to enable that firm to earn additional profit. The finding that there was a sale of bidis by the assessee to the firm of M/s. Lalchand Shyamsunder is a finding of fact. It is only by accepting this finding that we have to answer the question referred. On the finding so reached, it is clear that the amount of profit earned by M/s. Lalchand Shyamsunder on the sale of bidis cannot be taken to be an expenditure incurred by the assessee within the meaning of Section 40A(2). The expenditure incurred by the assessee was the commission. Even if the assessee sold bidis to the sole selling agents at a price less than the market rate, the difference between the market rate and the price at which the bidis were sold cannot, in our opinion, be termed as expenditure incurred by the assessee. On the finding reached by the Tribunal, it has to be held that the ITO was not right in adding Rs. 6,81,987 under Section 40A(2). 6. As regards the purchase of tobacco from M/s. Mohanlal & Company, the finding of the Tribunal is that the....