IN SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOS. 435-450 OF 2008 COMMISSIONER OF INCOME TAX-III, SURAT, GUJARAT ... Appellant VERSUS PATEL GRUH NIRMAN FLAT YOJNA 5 ... Respondent ORDER respondent herein is in business of land development and sale of developed plots. plots are normally sold on installment basis with purchaser paying consideration in monthly installments. To provide incentives to purchasers to pay installments on time, respondent herein promoted scheme wherein those who pay installments on time become entitled to participate in lucky draw. Department herein contended that respondent herein did not deduct any tax on prizes awarded in such draws. Spot verification was made on 20.12.1999 to verify whether respondent/assessee is making any deduction of tax at source under Section 194B of Income Tax Act, 1961(hereinafter referred to as 'Act') on prizes distributed Signature Not Verified to lucky winners decided out of monthly basis lucky draw. Digitally signed by ASHWANI KUMAR Date: 2015.12.11 15:08:29 IST Reason: Show Cause Notice was issued to assessee as to why C.A. Nos. 435-450/2008 1 order under Section 201(1) for non deduction of tax should not be passed and as to why interest under section 201(A) should not be charged on due TDS amount from date of tax deductible. Assessee herein replied to Show Cause Notice contending that they are not engaged in business of lottery. Their main business is sale of plot and this lucky draw is made to promote business thereof; that it is sale promotion expenses and that there is no consideration paid to get right of participation in lottery. Learned Assessing Officer concluded that entire scheme was so devised that it had all ingredients of lottery and assessee had distributed prizes to lucky winners, as result of monthly lucky draws and taxes were liable to be deducted at source under provisions of Section 194B of Act and since respondent had failed to deduct tax at source under Section 194B of Act, Assessing Officer had treated assessee in default and raised demand under Section 202(1) of Act and charged interest under Section 201(1A) thereon, accordingly, for Assessment Years involved. Demand was, accordingly, confirmed vide order dated 29.03.2000. On appeal, Commissioner of Income Tax (Appeals) (hereinafter referred to CIT (Appeals)) allowed appeal C.A. Nos. 435-450/2008 2 vide order dated 12.10.2000 on grounds that scheme of assessee for lucky draw is different from typical lottery business; scheme cannot be properly called lottery and thereby provisions of section 194B are not attracted. Against said decision, Revenue went before Income Tax Appellate Tribunal (ITAT) wherein ITAT, vide its order dated 20.04.2005, dismissed appeal holding that assessee's scheme was promotion of sale of plots of land and it was only to attract customers and intention was not to do business of lottery. Aggrieved, Revenue filed appeal and High Court vide its impugned judgment and final order dated 18.07.2006 dismissed appeal filed by Revenue. High Court by short order upheld order of ITAT and dismissed appeal of Revenue-appellant herein. order of High Court would reveal that it has followed view taken by it in its earlier judgment rendered in case of 'Commissioner of Income Tax v. Jhaveri Industries [2008 (300) ITR 300]. Section 194B of Act reads as under: - 194B person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in amount exceeding ten thousand rupees shall, at time of payment thereof, deduct income-tax thereon at rates in force: Provided that in case where winnings are wholly in kind or partly in cash and partly in kind but C.A. Nos. 435-450/2008 3 part in cash is not sufficient to meet liability of deduction of tax in respect of whole of winnings, person responsible for paying shall, before releasing winnings, ensure that tax has been paid in respect of winnings. perusal of aforesaid provision would disclose that tax at source is to be deducted by person who is responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort if amount of said winning exceeds Rs.10,000/-. Section 2(24) defines income and there are many components thereof which are included in definition. Clause (ix) was inserted vide Finance Act, 1972 with effect from 01.04.1972, which added certain earnings making them taxable. It reads as under: - (ix) any winnings from 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. Explanation. For purposes of this sub-clause, (i) "lottery" includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called; (ii) "card game and other game of any sort" includes any game show, entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game ; Thus, winning from lotteries, crossword puzzles, races, etc. is treated as income which is liable for tax. It is in C.A. Nos. 435-450/2008 4 this backdrop one has to consider as to whether prizes given under aforesaid scheme floated by assessee would be treated as winning from lotteries. Though there are three Assessment Orders pertaining to aforesaid three Assessment Years, rational given by Assessing Officer in all these orders remained same. Assessing Officer was of opinion that members who received prizes got same by way of lucky draw and therefore, winning was by chance. He also mentioned that in order to participate in said lucky draw, members had to pay full amount of purchase price of plot as agreed with assessee herein and thus, there was consideration for participating in lucky draw. It was also held by him that these prizes distributed are not chit fund or kitty where liability is discharged in advance. prizes were decided by way of lucky draw by way of chance. On that basis, he concluded that all ingredients/ constituents of word 'lottery' were satisfied in instant case. CIT (Appeals), however, deferred with aforesaid opinion as, according to him, ingredients to establish thing as lottery were not satisfied in instant case. It is not in dispute that in order to satisfy that particular scheme amounts to lottery, following three ingredients should be established: - C.A. Nos. 435-450/2008 5 (a) members pay in order to try his luck of chance. This is primary requirement. whole intention is to try his luck and not to buy any particular item. (b) entire scheme is normally matter of luck or chance. (c) members loses his monies if prize is not declared to him. (d) organizer also intends to make profits out of such draw/scheme. However, in instant case, it was found that there was no consideration paid by any of members and that following essential features of typical lottery was missing in instant case: - (i) participants are not required to purchase ticket and they don't stand to lose anything and (ii) scheme is not business at all in sense lottery business typically is and scheme is only business promotion activity. ITAT discussed position and clarified same in following manner: - On bare look of aforesaid terms and conditions, it is evident that it is promotional scheme to sell plots of land, business which is being carried on by assessee. It is only to attract customers and intention is not to do any business in lottery like draw. As per terms and conditions. person is to pay price of plot either in full or in monthly installments. moment person becomes party to plot allotment scheme, he is entitled to be taken in to lucky draw. There is no separate contribution or amount is paid by assessee to be entitled to draw. If he is not purchasing plot or does not become member for allotment to plot he is not entitled to any draw. Similarly, if he fails to make payment of installments for purchase of plot he becomes disentitled to draw. In these circumstances, in our opinion, matter stands covered in favour of assessee by decision of Kerala High Court in case of Sampanna Kuries (P) C.A. Nos. 435-450/2008 6 Ltd. v. ITO 141 Taxman 815 (Ker) wherein also assessee was conducting kuries or conducting business in consumer goods and were giving prizes by taking lots either for prompt payment of kuri installments or for increasing sale of consumers products. There also, Assessing Officer held that assessee was liable to deduct tax u/s. 194 B. In appeal, Tribunal held that assessee was conducting kuries in order to ensdure prompt payment of kuri installments by subscribers framed scheme as per which every month lots were taken among subscribers who were promptly remitting kuri installments and prize was given to person in whose favour lot was taken; that in matter of awarding such gift, there was no independent consideration other than prompt payment of kuri installments and that assessee being dealers in consumer goods, in order to have more sales of their consumer goods had framed scheme under which certain discounts/incentives were given to persons who won in draw conducted pursuant to scheme. In these circumstances, Kerala High Court held that while considering question of applicability of provisions of section 194B with reference to prize schemes introduced by assessee; same was required to be considered with reference to three elements which constitute lottery as laid down namely (1)a prize or some advantage in nature of prize, (2) distribution thereof by chance and (3) consideration paid or promised for purchasing chance. In present case, there was no independent consideration for purchasing chance and customer becomes member to lucky draw by opting for purchase of plot. said scheme would not properly be called lottery and it would be only promotional scheme and assessees would not be required to deduct tax thereon. As mentioned above, High Court has followed its earlier judgment in Jhaveri Industries case. On going through said judgment, one finds that High Court took into consideration explanation which was inserted under Section 2(24)(ix) of Act to include prize by lots in term lottery. This meaning was, however, included by Finance Act, 2001, and specifically made C.A. Nos. 435-450/2008 7 effective from 01.04.2002. On that basis, High Court stated that since such explanation is added only w.e.f.01.04.2002, including such prizes by lots under expression lottery, it would not apply to cases pertaining to earlier Assessment Years. In present case, we are concerned with Assessment Years 1997-1998 to 1999-2000. For all aforesaid reasons, we find that there is no error in judgment rendered by Authorities below. We, thus, dismiss appeals as bereft of any merit. It is not even necessary to take into consideration effect of amendment as from reading of aforesaid provision and interpreting same in manner discussed above, we find that in instant case, prizes which were given under Scheme in question were not by way of lotteries. ......................., J. [ A.K. SIKRI ] ......................., J. [ ROHINTON FALI NARIMAN ] New Delhi; November 20, 2015. C.A. Nos. 435-450/2008 8 ITEM NO.103 COURT NO.13 SECTION IIIA S U P R E M E C O U R T O F I N D I RECORD OF PROCEEDINGS Civil Appeal Nos. 435-450/2008 COMMR.OF INCOME TAX-III,GUJARAT Appellant(s) VERSUS PATEL GRUH NIRMAN FLAT YOJANA 5 Respondent(s) Date : 20/11/2015 These appeals were called on for hearing today. CORAM : HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MR. JUSTICE ROHINTON FALI NARIMAN For Appellant(s) Mr. Guru Krishna Kumar, Sr. Adv. Ms. Shweta Garg, Adv. Mr. Rupesh Kumar, Adv. Mr. K. L. Janjani, Adv. Mr. Pankaj Pandey, Adv. Mr. Jitin Singhal, Adv. Mr. Pratik Raoka, Adv. Mr. B. V. Balaram Das, Adv. For Respondent(s) Mr. Amar Dave, Adv. Ms. Nandini Gore, Adv. UPON hearing counsel Court made following O R D E R appeals are dismissed in terms of signed order. (Nidhi Ahuja) (Rajinder Kaur) COURT MASTER COURT MASTER [Signed order is placed on file.] C.A. Nos. 435-450/2008 9 Commissioner of Income-tax-III, Surat, Gujarat v. Patel Gruh Nirman Flat Yojna 5