Delhi High Court

Iqbal Chand Khurana vs Deputy Commissioner Of Income Tax on 8 August, 2000

Equivalent citations: (2001) 69 TTJ Del 286

ORDER

Phool Singh, J.M.

On a reference made under section 255(3) of the Income Tax Act, 1961 (hereinafter referred to as "Act"), the Hon'ble President Tribunal has been pleased to constitute this Special Bench to resolve the conflict involved on the following issue, arising on account of contradictory decisions of two Benches of Delhi Benches of the Tribunal.

'Whether in the facts and circumstances of the case, the amount of winning of Rs. 1,31,37,733 out of the unsold stocks of lottery tickets is liable to be taxed as profits and gains of business or it can be construed to be winnings from lotteries, and as such, eligible for the deduction under section 80TT of the Income Tax Act, 1961 ? ',

2. The facts leading to formation of Special Bench are that Tribunal Delhi Bench "E" was seized of the matter involved in ITA No. 95/Del/1990 in which ground No. 2 reads as under :

That the learned Deputy Commissioner erred in law and facts in not allowing the claim of the assessee under section 80TT at Rs. 1,31,37,733 and the learned Commissioner (Appeals) erred in law and facts in confirming the disallowance of claim under section 80TT amounting to Rs. 1,31,37,733."

3. The Division Bench noted that assessing officer had disallowed the claim of the assessee on the basis of assessment orders for assessment years 1984-85 and 1985-86 and order of the Commissioner (Appeals) for these two assessment years but during the course of hearing the learned counsel for the assessee placed reliance on the decisions of Tribunal Delhi Bench "E" in ITA No. 580/Del/1990 in the case of Dy. CIT v. Ashwani Khurana for assessment year 1986-87 in which the claim of the assessee was allowed after following the decision of Hon'ble Madras High Court in the case of CIT v. G. Krishnan (1997) 228 ITR 557 (Mad) in which it was concluded that bonus is a winnings from lottery and not business income. The Bench further noted that in the case of assessee himself the identical question came up before Tribunal Delhi Bench "B" in ITA Nos. 2370 and 2371/Del/1988 and that Bench after following the decision of Hon'ble Karnataka High Court in the case of Visweshariah Lucky Centre v. CIT (1991) 189 ITR 698 (Karn) concluded that similar receipts were not "winnings from lottery" and deduction under section 80TT cannot be allowed. In view of these two conflicting orders of the Benches of Tribunal Delhi, prayer was made for constitution of Special Bench to resolve conflicts in the above referred two orders. Accordingly, the Hon'ble President was pleased to refer the above reproduced issue for disposal.

4. However, during the course of hearing it was felt by the learned representatives of the parties that issue referred by the Division Bench does not bring out the real controversy involved in correct perspective and both the parties agreed that the issue if framed as under will clearly bring out the entire controversy in the matter :

"Whether, in the facts and circumstances of the case, the income of Rs. 2,62,70,467 comprising prizes on unsold tickets, unclaimed prizes, agents' and stockists bonus unclaimed, is liable to be taxed as profits and gains of business or it can be construed to be winnings from lotteries and, as such, eligible for deduction of Rs. 1, 31,37,733 under section 80TT of the Income Tax Act, 1961. "

5. At the very outset it will be proper to give out the details of the alleged income of Rs. 2,62,70,467 shown by the assessee, which is as under :

Sl No.

Particulars

Amount

(Rs.)

(1.)

Prizes on unsold tickets

(a) Nagaland State Lotteries

17,94,965

(b) Manipur State Lottery

29,84,130

31,70,065

79,49,160

Agents'bonus unclaimed

(a) Nagaland State Lotteries

4,98,840

(b) Manipur State Lottery

8,62,579

10,49,338

24,10,757

Stockists' bonus unclaimed

(a) Nagaland State Lotteries

28,500

(b) Manipur State Lottery

18,950

35,200

82,650

(4) Unclaimed prizes

(a) Nagaland State Lotteries

57,39,254

(b) Manipur State Lottery

51,77,876

49,10,370

1,58,27,500

Total

2,62,70,467"

6. In the year under consideration the assessee claimed the above referred to income as winnings from the lottery and claimed deduction of Rs. 1,31,37,733 under section 80TT of the Act. The assessing officer while completing the assessment noted that identical claims were made by the assessee during assessment years 1984-85 and 1985-86 which were disallowed by his predecessor. The appeals preferred by the assessee were also dismissed by the Commissioner (Appeals). Following the same, the assessing officer rejected the claim of the assessee for the year under consideration and in appeal the Commissioner (Appeals) followed the order of his predecessor while confirming the order of assessing officer. In view of these facts, it was necessary to go to the assessment order for assessment year 1984-85, copy of which is appearing at pp. 27 to 41 of the paper-book. A perusal of the said order reveals that assessee had shown a net profit of Rs. 38 lakh but filed return of income at Nil on the basis of deduction under section 80TT of the Act claimed at Rs. 2,14,78,716. The assessing officer noted that assessee was organising agent to conduct lotteries on behalf of State of Nagaland and that of State of Manipur. He reproduced the relevant clauses of the agreement entered into between the assessee and respective State Governments of Nagaland and Manipur and noted that assessee was supposed to pay guaranteed profit to each of the Government and had also undertaken to pay the prize money of each draw of the lottery being conducted by him and to bear other miscellaneous expenses. The assessing officer further noted that assessee being organising agent had acquired the right from each of the respective Governments to conduct the lotteries, lend his name to lotteries and to sell tickets thereof to stockists after formulating conditions. The assessee was also supposed to frame schemes of lotteries and to decide amount to be paid as prize money subject to approval of the respective State Governments and to publish results. From the sale proceeds the assessee was supposed to 'remit the amount to the Government to enable it to pay the prizes to the winners. In other words the assessing officer noted that the financial responsibility to provide the prize money as per the scheme was of the organiser/assessee.

7. The assessing officer further proceeded to examine the system of accounting being adopted by the assessee and noted that as per scheme, certain amount was offered by the organiser as prize winnings in general, a fixed amount as stockist bonus, agents' bonus and sellers' bonus. The assessee was claiming whole of the amount offered as prize money provisionally in the profit and loss account on the debit side as liability of the organiser. Liability/expenses claimed under the head "prize money" was being claimed on accrual basis as the assessee was following mercantile system of accounting. The assessee was showing closing stock which was valued at cost and which included the following expenses

(1) prize money,

(2) paper, printing., and

(3) royalty.

8. The assessing officer noted that though the assessee claimed prize money as per the scheme, this liability was not as per actual claim received and actual amount to be paid to the prize winners but the same liability was being claimed provisionally. The assessing officer was of the opinion that responsibility for meeting the prize money claims was that of the organiser. According to him the amount of prize, on unsold tickets, unclaimed prizes, unclaimed agents' bonus and stockists' bonus cannot be treated as winnings from lottery because the said amount is not winning of any person but reduction in liability of the provision created by the person responsible for disbursing the winning prizes. The assessing officer observed that had this amount not been shown on the credit side of profit and loss account and provision not created on the debit side what would have come in the debit side of the profit and loss account would have been the actual prize winning ticket liability as per tickets sold. As every winning is the organiser's liability as per the agreement, then liability of any person cannot be to himself. The profit of the assessee were broadly sale less expenses and prize winnings being one of those expenses.

9. The assessing officer took also note of the order of Tribunal in the case of the assessee for earlier years and noted that in assessment years 1976-77 to 1978-79 prize winning money was not the assessee's trading liability because he was an agent and stockist of lotteries but not an organiser. However, during the year under consideration the assessee acted as an organiser and prize winning monies being the trading liability of the assessee, the reduction in its liability on receipt and finalisation of actual prize winning claims cannot be taken as his winning because as an organiser he is himself responsible for paying these winnings and in the event of non-payment to prize winners he shall get a refund of the amount deposited by him with the State Government to meet the prize winning claims. The assessing officer summarised his finding as follows :

"(1.) The facts of the present case are entirely different to state of affairs as existed in assessment years 1976-77 to 1978-79.

(2) The conduct of business of assessee has been brought out as quoted earlier in the order through terms of his contract with the State Governments, which have authorised him to conduct the lottery.

(3) Contract makes it clear that the assessee as organiser has to bear the expenses of prize money.

(4) Cost of closing stock of tickets is valued at cost on the following expense.,

(a) Paper and printing.

(b) Guaranteed profit.

(5) Payment of prizes is made from prize money account and total prize money as per the contract is payable by organiser which shows that the person paying for the winnings is the organiser i.e., the assessee.

(6) Amount shown as prize money winning by organiser is not winnings but reduction in his liability to pay the prize winnings. It is very important to quote again that the contract states'.

"The unclaimed, undisbursed prizes will be refunded to the organising agent

The word refunded shows that it is the organiser's money paid by him to the prize money account to meet prize winning liability which is returned to him as prize winning liability was less than the amount given by him to meet the same.

10. The assessing officer had not left at this but proceeded to record that deduction under Chapter VI-A and under section 80 (sic) are deduction on gross total income. The amount should constitute "income" before any deduction or benefit can be taken. He further noted that income as per the Act is grouped into six heads viz., "salaries, income on interest from securities, income from house property, income from profits and gains of business and profession, capital gains and income from other sources". According to him, the assessee's income constitutes income from profits and gains of business and profession. The assessee was maintaining regular books of account. profit and loss account and balance sheet were being drawn up every year and profit and loss account contains the assessee's receipts and expenditure as credit and debit and the balance sheet contains the assessee's liabilities and assets. Prize winnings paid and to be paid were being taken by the assessee as his expenses in profit and loss account and liability in the balance sheet. Taking note of the provision of section 41(1) of the Act the assessing officer noted that prize winning money was assessee's expenses being trading liability and it there was remission or cessation of that liability then the same shall be deemed to be profits and gains of business or profession as per that section and cannot be "winnings of lottery".

11. On the basis of above discussion the assessing officer ultimately noted that "In these circumstances it shall be wrong to first claim complete prize winning as per the scheme as his liability and expenses on the debit side of the profit and loss account and then take the excess provision created on the credit side and claim benefit of section 80TT by presenting accounts in that manner". He further noted that amount on which deduction under section 80TT was claimed was merely cessation of assessee's trading liability which was not so in assessment years 1976-77 to 1978-79. He thus rejected the claim of the assessee for deduction under section 80TT.

12. The assessee had preferred appeal against this order before the Commissioner (Appeals) who vide order dated 12-2-1988, dismissed the same. Copy of that order is appearing at pp. 42 to 59. The learned Commissioner (Appeals) confirmed the finding of the assessing officer that amount was not related to winnings from lotteries as assessee had never made any investment in purchases of the tickets but that amount represented reduction of his liability to that extent. The assessee was holding the tickets as stock-in-trade. It was not that assessee purchased tickets and won the prizes but the assessee himself was engaged in the running of the lottery business and charging the amount of unsold stock to the profit and loss account.

13. It is also to be noted that in assessment year 1985-86 the assessing officer as well as the Commissioner (Appeals) followed their orders for assessment year 1984-85 and assessee filed appeals in ITA Nos. 2370 and 2371/Del/1988 and "B" Bench of Tribunal, New Delhi, vide order dated 3-8-1994, confirmed the action of assessing officer as well as the Commissioner (Appeals). Copy of that order is appearing at pp. 60 to 74. Reference Application Nos. 1116 and 1117/Del/1994, however, had been allowed vide order, dated 24-10-1995. Copy of order appearing at pp. 76 to 78 of the paper-book.

13A. Before us the learned counsel for the assessee took up all the pleas which were raised by the learned counsel before the Tribunal "B" 'Bench which had decided the appeal of the assessee for a.y. 1984-85. The reference to the Tribunal's order in the case of assessee for assessment years 1973-74 to 1978-79 was also made in which identical claim of the assessee was allowed. Copy of those orders are appearing at pp. 8 to 13 of the paper-book. The learned counsel also pointed out that reference application of the department were rejected by the Tribunal for assessment years 1973-74 to 1975-76 vide order, dated 25-10-1982, copies of the same are appearing at pp. 16 & 17. department moved petition under section 256(2) of the Act before the Hon'ble High Court of Delhi as is evident from copy of petition appearing at pp. 18 to 21 and that petition was withdrawn by the department on 12-5-1983, as noted by their Lordships, copy of which is appearing at p. 23 of the paper-book. The learned counsel further pointed out that in assessment year 1983-84 the assessing officer had allowed the claim of the assessee under section 80TT as is evident from copy of assessment order appearing at pp. 24 of 26. Subsequently the learned counsel referred to the decision of Tribunal "E" Bench of Delhi in the case of Dy. CIT v. Ashwani Khurana in ITA No. 580/Del/1990 for assessment year 1986-87 decided on 12-11-1998, copy of which is appearing at pp. 79 and 80 of the paper book in which the Bench has allowed the claim of deduction under section 80TT in an amount of Rs. 11,10,364 after placing reliance on the decision of Tribunal in the case of assessee itself in ITA Nos. 1225, 1351 and 1352/Del/1981 decided on 3-4-1992, referred to above and after rejecting the submission of the learned Departmental Representative who had placed reliance on the decision of Punjab & Haryana High Court in the case of CIT v. Sanjeev Kumar (1980) 123 ITR 187 (P&H) and that in the case of Bhola Nath Kesari v. Director of State Lotteries, U.P. & Ors. (1974) 95 ITR 171 (All). The contention of the learned counsel is that identical point is involved in the present case of the assessee. Further, learned counsel submitted that the assessee had earned the above referred to amount of Rs. 2,62,70,467 as winnings from the lottery and that was not income from the business. The above submission was based on the ratio of the decision of Hon'ble Supreme Court in the case of H. Anraj v. Government of Tamil Nadu AIR 1986 SC 63 in which their Lordships have defined the transaction involved in sale of lottery tickets and laid down that every participant in the lottery tickets issued by the State Government, required to purchase lottery ticket by paying a price therefor (the face value of the ticket) and such purchase entitles him not merely to receive or claim a prize in the draw being successful but before that also to participate in such draw. Their Lordships further observed that sale of lottery ticket confers on the purchaser thereof two rights-(1) a right to participate in the draw., and (2) right to claim prize contingent upon his being successful in the draw. The learned counsel also referred to the observation of Hon'ble Justice Sabyasachi Mukharji, as he then was, appearing at last page of order. in which His Lordship has mentioned that the right to participate in a draw under a lottery ticket remains a valuable right till the draw takes place and it is for this reason that licensed agents or wholesalers or dealers of such tickets are unable to take sales thereof till the draw actually takes place and, therefore, lottery tickets, not as physical articles but as a slip of paper or memorandum evidencing the right to participate in the draw can be regarded as dealer's merchandise and, therefore, goods which are capable of being bought or sold in the market. On the basis of this observation the contention of the learned counsel was that assessee had paid the consideration for the tickets which remained unsold and prizes were declared on those tickets and also for those tickets which won the prizes but purchasers thereof could not claim the said prize. The chance of winning was also there in favour of the assessee and thus the amount was to be treated as winnings from lottery.

14. The learned counsel also referred to the decision of Hon'ble Supreme Court in the case of B.R. Enterprise v. State of U.P. & Ors. AIR 1999 SC 1867 in which it was observed by their Lordships that lottery contains an element of chance and it is gambling and cannot be treated as trade or commerce. It was further laid down that sale of lottery tickets organized even though by the State could not be construed to be trade and commerce and even if it could be construed to be so, it could not be raised to the status of "trade and commerce", as understood at common parlance or as used under article 301 of the Constitution of India. The plea of the learned counsel was that once lottery is not to be treated as trade or commerce then authorities below were not justified to treat the amount of prizes on unsold tickets, unclaimed prizes, agents' bonus and stockists' bonus, which remained unclaimed as income of the assessee from business. It was pleaded that these have to be treated as income from lottery.

15. The learned counsel also tried to distinguish the case law referred to by the Tribunal "B" Bench which decided the appeal of the assessee for just preceding two years and contended further that the factual position had not been appreciated in those cases in proper perspective, while the case of the assessee was fully covered in view of the earlier order of the Tribunal in assessee's own case for assessment years 1973-74 to 1978-79. In the end the learned counsel also submitted that amount of unclaimed bonus of agent and stockist was fully allowable in view of the decision of Hon'ble Madras High Court in the case of CIT v. G. Krishnan (supra) in which it was concluded that bonus was dependent on winning of sold tickets by stockiest/agent and it was to be treated as winnings from lottery and not business income and claim under section 80TT was allowable.

16. As against it the learned Departmental Representative emphatically placed reliance on the decision of Tribunal in the case of assessee itself for assessment years 1984-85 and 1985-86. Referring to the argument from the department before the said Bench, the learned Departmental Representative submitted that the earlier view of the Tribunal in the case of assessee involving assessment years 1973-74 to 1978-79 was not applicable, as the status of the assessee at that time was that of a selling agent and stockist of different lotteries of State Governments. The factual position changed from assessment year 1984-85 onwards. The assessee became organising agent and he undertook to conduct the lotteries on behalf of the States of Nagaland and Manipur. Reference to the different clauses of agreement were made which were highlighted by the assessing officer while completing the assessment for the assessment year 1984-85 and it was submitted that assessee was supposed to bear the financial responsibility to pay the amount of prizes of winning tickets, to give the guaranteed money to respective State Governments and to bear other expenses excluding the expenses of Lottery Directorate. The assessee being agent of respective Governments was acting on behalf of those State Governments and it was rightly pointed out by the assessing officer that assessee who was claiming the amount of prize money in respect of each draw, though provisionally in the profit and loss account and showing the said amount as liability in the balance sheet, it was keeping that amount back when unclaimed by the purchaser of prize winning tickets or in respect of prizes which were on unsold tickets. Thus, he was reducing his own liability and later on the said amount cannot be treated as income from lottery winnings. The assessee was deriving different benefits like prize money on unsold tickets or unclaimed prize and the bonus relating to stockists and agents. All these benefits were part of business regularly carried on by the assessee and as such the assessing officer rightly treated the same as business receipts and not income by way of winning of lottery.

17. The learned Departmental Representative further placed reliance on the decision of Karnataka High Court in the case of Visweshariah Lucky Centre v. CIT (supra) and on the decision of Bombay High Court in the case of Commercial Corporation of India Ltd. v. Income Tax Officer & Ors. (1993) 201 ITR 348 (Bom) in which the decision of Hon'ble Supreme Court in the case of H. Anraj v. Government of Tamil Nadu (supra), relied upon by the learned counsel, was also considered. The learned Departmental Representative further placed reliance on the decision of Hon'ble Gauhati High Court in the case of Director of State Lotteries v. Asstt. CIT & Ors. (1999) 11 DTC 42 (Gau-HC) : (1999) 238 ITR 1 (Gau) which, according to the learned Departmental Representative, is direct authority on the point. In this case the issue was relating to deduction of tax at source and their Lordships have discussed the meaning of lottery and in that case the income as defined under section 2(24)(ix) relating to winnings from lotteries was also considered and ultimately it was concluded that an agent or trader in lottery ticket was not entitled to participate in the draw and to claim the prize in such a draw whereas an participant is entitled to participate in a draw and claim the prize. The agent or trader does not participate in the lottery draw with intention to win the prize but derives income from sale of lottery tickets and thus the gains and commission from the sale of lottery tickets is a business income assessable under section 28 of the Income Tax Act- Their Lordships further. opined that income accruing to an agent/trader in respect of prizes on unsold/unclaimed tickets in the possession of an organising agent is income from business and does not constitute winnings from lotteries. It cannot be brought within the meaning of section 2(24)(ix)- The learned Departmental Representative pointed out that facts of the case of assessee are identical to the facts of that case and assessing officer was justified in treating the income as income from business and not from winning from lotteries.

18. The learned Departmental Representative also pointed out that clause (22) of the agreement entered into in between the assessee and the State of Nagaland, copy of which had been filed by the assessee as well as the Departmental Representative go to show that unclaimed/undisguised prizes would be refunded to the organising agent after expiry of ninety days from the date of draw. The learned Departmental Representative further referred to clause 7 of this agreement which goes to reveal that organising agent/assessee had undertaken to bear all the expenses incurred for each draw in respect of guaranteed profits, prize money and other miscellaneous expenses. The learned Departmental Representative emphasised on the fact that once the assessee was supposed to reimburse the amount of prizes then in case any prize remained unclaimed or undisbursed, what he is getting is nothing but refund of expenses which he had already claimed in the profit and loss account and had shown as liability in the balance sheet. Thus, whatever amount comes to him in such circumstances, has flown from the very business in which he was involved and question of treating that amount as winnings from lottery does not arise. Therefore, contention was rightly repelled by the Income Tax Officer and Commissioner (Appeals) and by the Bench in the earlier years.

19. The learned Departmental Representative had made efforts to distinguish the case law referred to and relied upon by the learned counsel for the assessee. At the very outset it was submitted that ratio of Hon'ble Supreme Court decision in the case of B.R. Enterprises v. State of U.P. (supra) is not applicable. The definition of the lottery was referred to by their Lordships at the beginning and it was observed that there were three ingredients in the sale of lottery tickets viz., (1) prize., (2) chance., and (3) consideration. Their Lordships further pointed out that lottery contains an element of chance and this may be gambling but not a trade or commerce, The Departmental Representative argued that assessee was having no chance to win the prize as he had not paid consideration for the purchase of the ticket. He himself being the organiser of the lottery, could not be said to have purchased tickets of lottery from himself. Question of chance was absolutely absent nor assessee was having any intention of winning any prize because he himself is the organiser of the lotteries. The learned Departmental Representative also distinguished the case of CIT v. G. Krishnan (supra) and submitted that it was a case of selling agent who received commission at 11.5 per cent and bonus of 10 per cent on prize winning ticket. The learned Departmental Representative argued that the facts of the present case are quite different as assessee is not selling agent but himself is organising the lottery on behalf of the State Government. Thus, said ratio is not applicable whereas the case of Director of State Lotteries v. CIT (supra) and the case of Bombay Commercial Corporation of India Ltd. v. Income Tax Officer (supra) and that of Visweshariah Lucky Centre v. CIT (supra) are direct on the point and their ratio are fully applicable.

20. The learned Departmental Representative also pointed out that no doubt the assessee had filed a letter from State Government of Nagaland issued on 19-5-1985, showing deduction of Tax deducted as Source of Rs. 27,63,725 but it is deducted from State of Manipur or in similar case might have deducted from State of Nagaland. It is for Tax deducted as Source purposes and not conferring any right on the assessee that income from which such deduction of tax were made was income from winning of lotteries as in such cases it is the concerned income-tax authority which is supposed to decide as to whether income is to be assessed as income from business or from winnings from lotteries which had rightly been decided in the earlier years up to Tribunal level and in the year under consideration by assessing officer and Commissioner (Appeals).

21. The learned Departmental Representative referred to the decision of Tribunal in the case of Dy. CIT v. Ashwani Khurana for assessment year 1986-87 relied upon by the learned counsel and submitted that in that case full facts were not brought before the Bench nor the decision of the Karnataka High Court and Bombay High Court were referred to and thus that view' is not deciding the correct legal situation. Further, the said Ashwani Khurana was not the organising agent on behalf of the State Government as in the case in hand and thus factual position is also quite different. On the basis of above, the learned Departmental Representative submitted that the view taken by the Tribunal in the case of assessee for earlier two years should be adopted as facts are identical and principle of consistency requires the same.

22. The learned counsel in rejoinder reiterated his arguments and submitted that if the income of the assessee was from business then why tax at source was deducted in the hands of States of Nagaland and Manipur. Once that has been done by the department then it is to be treated as income from winnings of lottery and deduction is to be allowed. The other contention was that status of the organising agent also is that of an agent and assessee's case is fully covered by the decisions referred to by him in earlier part.

23. We have considered the rival submissions and have gone through the entire material available on record including the case laws referred to by the respective parties. The issue involved before us is about the claim of the assessee for deduction under section 80TT of the Act on an amount of Rs. 2,62,70,467 which the assessee claimed to be the income from winnings from lottery while the case of the department is that it is the income of assessee from business. To appreciate the respective pleas of the learned representatives of the parties, we are reproducing the definition of income from winning from lotteries, etc. appearing under section 2(24)(ix) inserted by the Finance (No. 2) Act, 1972. It reads as under :

"2(24) "Income" includes

(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."

24. At the same time it will be in the fitness of things to reproduce the section 80TT which was existing at the relevant periods :

"80TT. Deduction in respect of winnings from lottery.-Where the gross total income of an assessee, not being a company, includes any income by way of winnings from any lottery (such income being hereafter in the section referred to as winnings), there shall be allowed, in computing the total income of the assessee, a deduction from the winnings of an amount equal to,-

(a) in a case where the winnings do not exceed five thousand rupees, the whole of such winnings,

(b) in any other case, five thousand rupees as increased by a sum equal to fifty per cent of the amount by which the winnings exceeded five thousand rupees."

25. So far as word "income" is concerned it had been subject of judicial interpretation and the Hon'ble Supreme Court in the case of CIT v. G.R. Karthikeyan (1993) 201 ITR 866 (SC) has discussed the same in context of "winnings from races and other games of any sort" appearing in section 2(24)(ix) of the Act and observed that word "income" is of the widest amplitude and it must be given its natural and grammatical meaning. Further, the word "lottery" had also been defined and interpreted by different High Courts in different cases. The first on the point is the case of CIT v. Sanjiv Kumar (supra) and their Lordships noted that word "lottery" is not defined under the Act. Definition of this word as appearing in different dictionaries, etc, were quoted by their Lordships. In this context the definition of word "lottery" as given in Webster's New International Dictionary was reproduced which reads as under :

"to mean a scheme by which one or more prizes are distributed by chance among persons who have paid or promised a consideration for a chance to win them, usually as determined by the numbers on tickets as drawn from a lottery wheel. "

26. The definition of word "lottery" in Legal and Commercial Dictionary by S.D. Mitra is as under :

"A lottery has been compendiously defined as a scheme for the distribution of money by chance. It usually, if not always, takes the form of the creation of a fund by the participants in the lottery, who buy tickets or pay subscriptions in consideration of an offer by the promoters to award them a prize on some contingency the happening whereof depends on chance."

27. The other definition of word "lottery" as defined in Corpus Juris Secundum, reads as under:

"Pooling the proceeds derived from chances or tickets taken or purchased and then allotting such proceeds or a part of them or their equivalent by chance to one or more such takers or purchasers are indicia of a lottery."

28. Their Lordships further observed from the above referred to definitions that element of chance is one of the important relevant factors for considering that particular scheme falls within the definition of the word "lottery". Not only this their Lordships of Hon'ble Supreme Court in the case of H. Anraj v. Government of Tamil Nadu (supra) had also an occasion to examine as to what the word "lottery" stands for and after going through different definitions of the word "lottery", their Lordships have given the following observations

"It cannot be disputed that in every raffle scheme based on the sale of lottery tickets, similar to the schemes sponsored by each of the two States in this case, every participant is required to purchase a lottery ticket by paying a price therefor (the face value of the ticket) and such purchase entitles him not merely to receive or claim a prize in the draw, if successful but before that also to participate in such draw. In other words, a sale of a lottery ticket confers on the purchaser thereof two rights.. (a) a right to participate in the draw' and (b) a right to claim a prize contingent upon his being successful in the draw."

29. From the above it is quite clear that three ingredients are must in the lottery viz. (1) purchaser., (2) right to participate; and (3) right to claim prize contingent upon his winning. We have to examine as to whether the income shown by the assessee from prize on unsold tickets, unclaimed prize and unclaimed agent's bonus and stockist bonus is to be treated as income from winnings from the lottery or not.

30. In order to appreciate the pleas of the assessee we have to look into the factual position as emerging from the record. Prior to 1985 the assessee was merely a stockist of lottery tickets on behalf of different organisers viz., State Governments but in 1985 the State of Nagaland appointed the assessee as organising agent" vide agreement dated 26-8-1985, for a period of three years. Copy of the said agreement had been filed by representatives of both the parties. Salient features of this agreement are that lottery was to be run under the name and style of "Nagaland State Lottery" and draw of that will be weekly, to be conducted every Saturday. Rate of lottery ticket was fixed at Re.1 and minimum first prize money was agreed to be Rs.1 lakh for each draw subject to increase or decrease as per mutual understanding. The organising agent viz., the assessee was to arrange the printing of tickets in advance from a press approved by the Government of Nagaland and was to pay to the Government the guaranteed minimum profit of Rs. 60 lakh per 52 draws in a year which was to be deposited in ten equal instalments of Rs. 6 lakh. Apart from it, the organising agent was supposed to bear all other expenses for each lottery draw for the items mentioned below:

(i) guaranteed profit.

(ii) prize money., and

(iii) other miscellaneous expenses.

31. Rs 2 lakh per draw were also to be deposited to meet expenditure for payment of prize money. The amount of Rs. 2 lakh were also to be deposited as security in the form of cash or fixed deposit and further a bank guarantee of Rs. 10 lakh to cover entire period of agreement. The assessee was supposed to sell the lottery tickets through his stockiest/agent and sellers at predetermined rates in accordance with the scheme formulated for particular draw and assessee again was to account for the ticket books received from printers, etc. Clause 22 of the said agreement is significant which reads as under : -

'22. The unclaimed, undisbursed prize will be refunded to the organising agent after expiry of ninety days from the date of the draw."

32. The assessee appears to be having same agreement with the Government of Manipur a copy of fresh agreement dated 16-5-1985, which was in operation at the relevant time for assessment year 1986-87 had been filed which is also on the same pattern as agreement with the State of Nagaland except some modifications. The assessee undertook to organise lottery for the Government and he was supposed to pay a guarantee profit at 3 per cent of the face value of the total number of tickets and not less than Rs. 33 lakh in an year. Total prize money payable for every draw was to be deposited by the assessee one day before the final date of each running draw and to incur all other expenses to conduct the said lottery. He was also supposed to furnish bank guarantee and to make other advance deposits of Rs, 5 lakh and Rs. 20 lakh, respectively. About unclaimed or undisbursed prize money clause 11 of this agreement provided that same belonged to the Government.

33. From the perusal of the above terms and conditions, it is evident that assessee had undertaken to conduct the lottery for both the State Governments and undertook to deposit the guaranteed profit with respective Governments as well as to deposit the amount of prize money of each respective draw and to incur all the expenses. The status of the assessee is quite different from that of the stockists, agent, retailer and other sellers, as the assessee himself was to formulate schemes for appointments of stockists, agents, retailers, etc. with the approval of the State Government(s). In nutshell the assessee was all in all so far as conduct of the lottery draw is concerned viz., from printing of the tickets to the giving of prizes. The only role of each of the Government was to give its own name to the lotteries which were being run under their names.

34. In view of the above admitted facts we shall proceed to examine as to whether status of assessee as of organising agent may be such as to claim amount of prize on unsold tickets., amount of unclaimed prize., unclaimed bonus of agents and stockists as winnings from lottery- We have already reproduced the definition of word "lottery" as considered by different High Courts and the Apex Court. Three ingredients are there viz.

(i) purchaser.,

(ii) right to participate., and

(iii) right to claim prize contingent upon his winning.

35. It is now to find out as to whether the assessee is purchaser of lottery tickets, possesses right to participate and right to claim prize as such or on.-

36. On this point, identical matter was before their Lordships of Bombay High Court in the case of Commercial Corporation of India Ltd. v. Income Tax Officer & Ors. (supra). In that case the assessee- company also entered into an agreement on 21-12-1989, with the Government of Goa to organise lottery on behalf of the State Government. Their Lordships were seized with the point as to whether assessee who was organising lottery on behalf of the State Government was purchasing tickets or was merely acting as agent even though assessee had made advance payment of the prize of lottery tickets got printed by it. Their Lordships cited with approval the decision of Hon'ble Madras High Court in the case of State of Tamil Nadu v. STC of India Ltd. (1986) 61 STC 341 where the question was whether identical agreement is one of sale or agency and, it was held that factum of prepayment of the price or advance payment can be ignored, for payment in advance does not necessarily render the agreement into one of sale and what is required to be gone into is the essence of the contract. It was held by their Lordships that there is transfer of title to the . goods for a price paid or promised to be paid which is the essence of a contract of sale whereas the essence of agency to sell is the delivery of goods to a person who is to sell them not as his own property but as the property of the principal who continues to be the owner of the goods. The Hon'ble Bombay High Court after approving the above proposition concluded that agreement entered in between Bombay Commercial Corporation of India, the assessee in that case, and State of Goa was an agreement of agency and State of Goa was the principal and company was its agent. It was also opined that no transaction of sale can be read into the agreement. Their Lordships have further opined that there is no sale of lottery tickets by State to the organising agent and, therefore, prizes on unsold tickets are not winnings from lottery because assessee cannot be treated to have participated in the draws by not purchasing the ticket. Their Lordships observed (at p. 373 of the decision) that by no stretch of imagination it can be said that the assessee purchased a ticket under that agreement as it is State Governments who are selling the tickets to stockists, agents, retailers etc. through the agency of the assessee and purchasers are those who are purchasing tickets from those persons.

37. The agreement in between the assessee and State of Nagaland as well as State of Manipur is on identical terms as of State of Goa and after going through the terms and conditions of both the agreements which have been reproduced by us in the above para it can safely be concluded on the basis of above citations that States of Nagaland and Manipur were the principal and assessee was its agent and it cannot be said that assessee purchased tickets from these two companies (sic Governments) .

38. In this connection we may refer the decision of Karnataka High Court in the case of Visweshariah Lucky Centre (supra). That case was of a lottery agent and he received a sum of Rs. 1 lakh as bonus commission on account of the fact that one of the tickets sold by him in a particular draw of the lottery had won the first prize of Rs. 10 lakh. The assessee did not claim benefit of section 80TT before the assessing officer but before the Appellate Assistant Commissioner he claimed such deduction for the first time who allowed the same treating the amount of Rs. 1 lakh of bonus commission as winnings from lottery. The Bangalore Bench of Tribunal reversed the view of the Appellate Assistant Commissioner and their Lordships decided the reference against the assessee upholding the view of the Tribunal on the ground that for claiming deduction under section 80TT it is necessary that winner must be not only a contributor to the price but also be a participant in the lottery. All the ingredients which were set out in the definition in the Corpus Juris Secundum must be present to identify the winner and the winnings of the lottery. Their Lordships opined that it was only purchaser of prize winning ticket who took the chance and contributed to the prize amount with the hope and intention to win the prize and incentive bonus offered to agent was to promote the sale of the lottery.

39. Not only this the latest decision of Hon'ble Gauhati High Court though not directly on the point in issue before us is an authority covering all the issues before this Bench. In the case of Director of State Lotteries v. Assistant Commissioner & Ors. (supra) the petition was filed by the Director of State Lotteries with the prayer that orders dated 25-1-1994 and 6-6-1994, passed by the assessing officer under section 201(1) of the Act were ultra vires, illegal and assessee was not supposed to deposit a sum of Rs. 2.80 and Rs. 7.90 crores approximately under those orders.

40. The other factual position that emerges from that decision is that State of Assam was conducting a lottery through its organising agent M.S. Associates by entering into an agreement. M.S. Associates was responsible to deposit the prize money with the State Government and was entitled to receive the amount of prize winning tickets which either remained unsold or unclaimed. Director of State Lotteries made payments of such amount to M.S. Associates and department was of the opinion that the amount so paid by the State Government to its organising agent was winnings from lottery. The case of the State Government as well as of M.S. Associates was that it is not income from winnings from lotteries but business income. The definition of "lottery" as appearing in different dictionaries as well as in case laws were cited before the Hon'ble High Court and the following is another relevant definition in the case of Robb & Rowely United v. State Tex Civ. Appl. 127 SW 2d, 221 which is appearing at p. 10 of the said report :

"Three things must concur to establish a thing as a "lottery". A prize or prizes, the award or distribution of the prize or prizes by chance., and the payment either directly or indirectly by the participants of a consideration for the right or privilege of participating."

41. Their Lordships after going through the definition as well as on the basis of terms and conditions of the agreement entered into between the State Government and the organising agent concluded that organising agent cannot be said to have purchased the lottery tickets from the State Government. It was also concluded that organising agent does not participate in the draw with an intent to win the prize and is not a prize winner of the lottery ticket. The unsold tickets which yielded prizes were in possession of organising agent and those were in the part of its business activities as an organising agent. Ultimately it was concluded that gains or commission from the sale of lottery ticket is a business income assessable under section 28 of the Act and in the context of various clauses of the agreement it cannot be called that the income was winnings from the lottery. The view of Hon'ble Bombay High Court in the case of Commercial Corporation of India Ltd. v. Income Tax Officer (supra) was cited with approval and ultimately the petition was allowed treating the receipts as income from business and not from winning from lottery.

42. After going through the above case law it may be pointed out that in all the above cases particularly in the case of Director of State Lotteries v. Assistant Commissioner & Ors. (supra) the stand of the organising agent as well as that of Director of State Lottery was quite contrary to the stand of the present assessee. Here assessee asserts that the amount from unclaimed prizes as well as amount of prize on unclaimed tickets is winnings from lottery while in that case Director of Lotteries as well as organising agent took just opposite plea claiming such incomes from business and department took just different plea as in the case before us and their Lordships decided that such incomes are not to be treated as income from winnings of lotteries. The reasoning in the case of Visweshariah Lucky Centre v. CIT (supra) then the decision of Bombay High Court in the case of Bombay Commercial Corporation of India Ltd. v. Income Tax Officer (supra) and the latest decision of Gauhati High Court in the case of Director of State Lotteries v. Assistant Commissioner (supra) had laid down a consistent proposition that such income will not be income from winnings from lotteries but will be income from business.

43. The assessee had placed reliance on the decision of Hon'ble Madras High Court in the case of CIT v. G. Krishnan (supra) which had been followed by Tribunal in the case of Ashwani Kumar Khurana for assessment year 1986-87 and concluded that claim of the assessee for deduction under section 80TT on amount of bonus commission is allowable. Facts of that case are quite relevant as that assessee was a selling agent entitled to get commission @ 11-1/2 per cent. He was also to get bonus @ 10 per cent of the prize winning ticket. The Commissioner (Appeals) allowed the relief under section 80TT and Tribunal also confirmed the view. The Hon'ble High Court confirmed the view of Tribunal by taking note of the relevant fact that while assessee was selling ticket, he was retaining counterfoils and it could not be said that he was not participating in the draw as in such position two persons are participating viz., (i) purchaser of ticket., and (ii) selling agent. This ratio is not at all applicable to the facts of the present case as assessee is not selling the tickets and assessee has not claimed bonus on prize winning tickets but he has claimed the unclaimed agents' bonus and unclaimed stockists' bonus as winnings from lotteries. These amounts might be winnings from lottery in the case of selling agents as they were entitled to get such bonus as in the case of CIT v. G. Krishnan (supra) though different view of another High Court in the case of Visweshariah Lucky Centre v. CIT (supra) is there, but in the case of the assessee facts are quite different as assessee had stepped into the shoes of State Government so far as conducting the lottery is concerned. He is doing all acts on behalf of the State Government.

44. The main business of the assessee is to conduct lotteries on behalf of the State Government and whatever he is deriving viz. prize on unclaimed tickets, unclaimed prize, unclaimed bonus of agent and stockists out of business activities on the basis of the terms and conditions of the agreement assessee has entered into with respective Governments and to be treated as his business income and not as winnings from lotteries.

45. Clause 22 of the agreement with the State of Nagaland as reproduced above indicates the very intention of the parties entering into the said agreement and that provided that unclaimed/undisguised prize will be refunded to the assessee and in that context the view taken by the assessing officer on the basis of system of accounting being followed by the assessee, mentioning therein that assessee was claiming the amount of prizes on provisional basis and getting the adjustment made after draw and by this method he was simply reducing his financial responsibility is justified. Undisputedly the assessee was having all financial responsibility of reimbursement to the State the amount of prize and he was claiming the said amount of prizes, etc. as his expenses in the profit and loss account and also claiming the same as liability in the balance sheet then whatever he was getting, was refund and that amounted to cessation of the liabilities and thus it will be profit and gains of the business in view of the provisions of section 41(1) of the Act and the view taken by the assessing officer on that point was also justified one. The amount of prize on unsold tickets, unclaimed prize as well as amount of unclaimed agents' and stockists' bonus is coming to the assessee as business income and not in the form of winnings from lotteries as assessee in view of the decision referred to above never purchased the tickets nor participated in the draw nor was entitled for any type of prize but whatever he got it was on the basis of terms and conditions of the agreement which regulated the business activities of the assessee and thus source of all these amounts was business transactions and the very intention of the assessee was to get all such amounts as profit and gains of the business. The view taken by the Tribunal in the case of assessee for years up to 1978-79 had rightly been differentiated by the earlier Bench which decided the issue against the assessee in just two preceding years with a well reasoned order.

46. So far as the view of Tribunal in the case of Ashwani Kumar Khurana (supra) is concerned that was also decided on factual position of that case as said assessee was selling agent and liability as applicable in the case of selling agent in the case of CIT v. G. Krishnan (supra) was found fully applicable by that Bench and there was no question of any conflict of decisions.

47. On the basis of what we have discussed above, we are of the considered view that prize on unsold tickets, amount of unclaimed prize, unclaimed bonus of agent and stockist was not income from winnings from lottery but was rightly treated as income from business and claim of the assessee for deduction under section 80TT had rightly been rejected by the assessing officer as held by the Commissioner (Appeals). Issue is decided accordingly.