Kerala High Court
The Principal Commissioner Of ... vs Smt.Usha Murugan on 23 June, 2021
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
WEDNESDAY, THE 23RD DAY OF JUNE 2021 / 2ND ASHADHA, 1943
ITA NO. 18 OF 2017
AGAINST THE ORDER IN ITA 512/2013 OF I.T.A.TRIBUNAL,COCHIN BENCH,
ERNAKULAM
APPELLANT/S:
THE PRINCIPAL COMMISSIONER OF INCOME TAX
KOTTAYAM.
BY ADVS.
SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)
SRI.JOSE JOSEPH, SC, FOR INCOME TAX
SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT
RESPONDENT/S:
USHA MURUGAN
WIFE & L/H OF T.MURUGAN,M/S. MEENAKSHY LUCKY
CENTRE,YMCA ROAD, KOTTAYAM - 686 001.
BY ADV SRI.ANIL SIVARAMAN
THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING, ALONG WITH
ITA.13/2017, 29/2017, THE COURT ON 23.06.2021 DELIVERED THE FOLLOWING:
I.T.A. Nos. 18, 13 & 29/2017
-2-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
WEDNESDAY, THE 23RD DAY OF JUNE 2021 / 2ND ASHADHA, 1943
ITA NO. 13 OF 2017
AGAINST THE ORDER IN ITA 510/2013 OF I.T.A.TRIBUNAL,COCHIN BENCH,
ERNAKULAM
APPELLANT/S:
PRINCIPAL COMMISSIONER OF INCOME TAX
KOTTAYAM.
BY ADVS.
SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)
SRI.JOSE JOSEPH, SC, FOR INCOME TAX
SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT
RESPONDENT/S:
M/S. MEENAKSHY ENTERPRISES
YMCA ROAD, KOTTAYAM-686001.
BY ADVS.
SRI.ANIL SIVARAMAN
SMT.RAJI VINCENT
THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING, ALONG WITH
ITA.18/2017 AND CONNECTED CASES, THE COURT ON 23.06.2021 DELIVERED THE
FOLLOWING:
I.T.A. Nos. 18, 13 & 29/2017
-3-
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE S.V.BHATTI
&
THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS
WEDNESDAY, THE 23RD DAY OF JUNE 2021 / 2ND ASHADHA, 1943
ITA NO. 29 OF 2017
AGAINST THE ORDER IN ITA 511/2013 OF I.T.A.TRIBUNAL,COCHIN BENCH,
ERNAKULAM
APPELLANT/S:
THE PRINCIPAL COMMISSIONER OF INCOME TAX
KOTTAYAM.
BY ADVS.
SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)
SRI.JOSE JOSEPH, SC, FOR INCOME TAX
SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT
RESPONDENT/S:
SMT.USHA MURUGAN
WIFE AND L/H OF T. MURUGAN, M/S. MEENAKSHY LUCKY CENTRE,
YMCA ROAD, KOTTAYAM-686001.
BY ADV SRI.ANIL SIVARAMAN
THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING, ALONG WITH
ITA.18/2017 AND CONNECTED CASES, THE COURT ON 23.06.2021 DELIVERED THE
FOLLOWING:
I.T.A. Nos. 18, 13 & 29/2017
-4-
JUDGMENT
[ITA Nos.18/2017, 13/2017, 29/2017]
S.V. Bhatti, J.
These appeals are under Section 260A of the Income Tax
Act, 1961 (for short 'the Act'). The Principal Commissioner of
Income Tax, Kottayam (for short 'the Revenue') is the appellant
in these Tax Appeals. M/s.Meenakshy Enterprises, a proprietary
concern, represented by T. Murugan, since deceased,
represented by his wife Usha Murugan, is the respondent in
these appeals (for short referred to as 'the assessee').
2. The appeals deal with common questions of law and
fact, hence are taken up together for hearing and disposal. The
details of orders till the date of filing of the tax appeals are as
follows:
I.T.A. Nos. 18, 13 & 29/2017
Sl. No. Assessment Order date of Order of Order of Income Tax I.T.A. No.
Year Assessing Commissioner of Appellate Tribunal
Officer Income Tax
(Appeals)
1 2008-09 31/12/10 ITA ITA No.510/Coch/2013 13/2017
No.78/Ktm/CIT(A)- dt.25.10.2016
IV/10-11
dt.04.06.2013
2 2008-09 31/12/10 ITA ITA No.512/Coch/2013 18/2017
No.79/Ktm/CIT(A)- dt.25.10.2016
IV/10-11
dt.04.06.2013
3 2006-07 28/12/09 ITA ITA No.511/Coch/2013 29/2017
No.37/Ktm/CIT(A)- dt.25.10.2016
IV/09-10
dt.05.06.2013
3. Heard learned Senior Standing Counsel
Mr.Christopher Abraham for Revenue and learned Counsel
Mr.Anil Sivaraman for assessee. Both the counsel refer to and
rely on the details covered by I.T.A. No.18/2017 and stated that
advertance to the details in I.T.A. No.18/2017 would be
sufficient for disposing of the other two appeals as well.
4. One T Murugan was the Proprietor of
M/s.Meenakshy Lucky Centre/a proprietory concern doing
I.T.A. Nos. 18, 13 & 29/2017
business as a wholesale dealer of lottery tickets. The assessee
was engaged in the said business as Stockist for the sale of
lottery tickets of various government/quasi-government
agencies and State governments. The assessee purchases lottery
tickets from the agencies referred to above and claim to sell the
lottery tickets to the retailers. In the subject financial year, the
assessee purchased lottery tickets from the State of Kerala and
claims to have sold to the retail vendors. The assessee in the
Tax return for the Assessment Year 2008-09 returned total
income of Rs.1,62,45,266/-. The return filed for the subject
Assessment Year was taken up for scrutiny and resulted in
issuance of notice under Section 143(2) of the Act. The notice
refers to alleged impermissible deduction of Rs.7,72,66,051/-
received and transferred by the assessee, to agents towards
incentive for the prize money realised from the tickets sold by
them. According to the assessee, there is no relationship of
I.T.A. Nos. 18, 13 & 29/2017
Principal and Agent between the assessee and the end sellers of
lottery tickets to the general public and the retailers have
become eligible for receiving their entitlement as successful
agents' prize money/commission, etc. The assessee is not the
seller of lottery ticket to the end recipient and the assessee
acted as post-office between the State government and the
buyers of lottery tickets from Stockist/wholesale dealers, such
as assessee. Therefore, the deduction claimed is expenditure
and the notice issued for addition of the said amount is
impermissible. The Assessing Officer, from the details and
materials available on record, held that the relationship
between the assessee and the end buyers of lottery tickets is
one of Principal and Agent; the incentive/commission has been
paid after deducting tax at source and the total payment is
liable to be disallowed under Section 40(a)(ia) of the Act. The
Assessing Officer further held that Section 194H is attracted to
I.T.A. Nos. 18, 13 & 29/2017
the subject entry. For argument sake even if one assumes that
Section 194H has no application, Section 194G will be attracted.
The Assessing Officer determined the net income assessable to
tax for the Assessment Year 2008-09 at Rs.9,01,24,618/- and
demanded Rs.3,96,11,900/- towards difference of tax from the
assessee.
5. The assessee filed I.T.A. No. 79/KTM/CIT(A)-IV/2010-
11 before the Commissioner of Income Tax (Appeals),
Ernakulam. The CIT (Appeals), through Annexure-B Order dated
04.06.2013, allowed the appeal and the Revenue filed I.T.A. No.
512/COCH/2013 before the Income Tax Appellate Tribunal,
Cochin. Through Annexure-C Order dated 25.10.2016 the
Tribunal dismissed the appeal. Hence the appeal. The appellant
raises the following substantial questions of law in the instant
appeal:
I.T.A. Nos. 18, 13 & 29/2017
"1. Whether, on the facts and in the circumstances of the case-
i) The payment made by the assessee to the Sub-agents fall
within the clutches of Section 194G/194H of the Income Tax
Act?
ii) The provisions of section 40(a)(ia) are attracted to the above
payments?
2. Did not the Tribunal err in deleting the disallowance made
u/s 40(a)(ia) for non-deduction of tax at source u/s.194H/194G
of the Income Tax Act from the payment of commission to sub-
agents?
3. Should not the Tribunal have considered the issues raised
(declined to be considered in paragraph 12 of the order on
merits?"
6. The learned Counsel appearing for the parties have, in
great detail, invited our attention to all the three orders of the
authorities filed as Annexures A to C. The arguments now made
in support of the respective cases by the learned counsel are
I.T.A. Nos. 18, 13 & 29/2017
similar to the arguments made before the CIT(Appeals) and the
Tribunal. The Revenue contends that from the nature of
admitted circumstances and the conduct of lottery business, the
assessee, though a Stockist or wholesale dealer of lottery tickets
organised by the State of Kerala, upon purchase of the lottery
tickets, is dealing with conduit sellers as agents. Even assuming
without admitting that the agents' prize money, commission,
etc are received by the assessee, but is transferred to respective
sellers of lucky lottery tickets. The assessee is paying or
transferring the amount so received as commission etc to the
agents. In the foremost consideration of entries, Section 194G
of the Act is attracted and the assessee failed to comply with
Section 40(a)(ia) of the Act and the Department, therefore, is
justified in adding the commission etc paid by the assessee to its
agents in the net income of the assessee. At the cost of
repetition, stated differently, the Revenue proceeds on the
I.T.A. Nos. 18, 13 & 29/2017
assumption that in sale and purchase of lottery tickets between
the assessee and its purchasers, relationship of Principal and
Agent exists, amount so transferred represents commission etc.,
therefore, TDS should have been deducted and Section 194G is
attracted in all fours. Alternatively, in the admitted fact
situation of the subject assessment Section 194H is attracted.
7. Advocate Anil Sivaraman invites our attention to the
explanation given by the assessee to the notice under Section
143(2) of the Act and contends that from the nature of lottery
ticket business, the government is exclusively authorized to
conduct lottery, and does not prefer to deal with several
thousands of retail sellers of State lottery tickets. In the module
followed by the State, the lottery tickets are sold to
Stockists/wholesale dealers; the Stockist/wholesale dealers
purchase tickets from the State government and sell the lottery
tickets to the individual retailers. Thereafter, what had been
I.T.A. Nos. 18, 13 & 29/2017
undertaken between the assessee/wholesale dealer and the
retailers is a sale for a margin of discounted price. The assessee
acts as a post-office. There is no relationship of Principal and
Agent between the assessee and his retail buyers. The retail
sellers did not provide service to the assessee thus entitling for
receipt of commission/incentive from the assessee. He places
strong reliance on Section 194G of the Act and argues that the
basic ingredients warranting application of Section 194G are not
available in the case on hand and levy of tax for the amount
received and made over to agents is illegal.
8. We have heard the Counsel and perused the record.
Questions 1 to 4
9. The short and long of substantial questions framed
centers around the premise on which deduction is rejected and
added to the income of assessee and tax is levied, and, on the
I.T.A. Nos. 18, 13 & 29/2017
other hand, assessee contends: that the relationship between
the assessee and the buyers of lottery tickets from the assessee
is not an agent or purchaser. Stated simply, assessee claimed
that lottery tickets were purchased at discount from the
organising agency and, by retaining a margin of the discount so
received, lottery tickets were sold to retail sellers. Hence, none
of the incidences covered by Section 194 G or Section 194 H is
attracted. At this juncture, to avoid reiteration of what has
been held as a fact we deem it very useful to refer to the
consideration of this aspect by the CIT (Appeals). In his order
dated 04.06.2013, the learned CIT (Appeals) first had taken up
for consideration the scope and applicability of Section 194H of
the Act to the controversy in the subject assessment, and,
thereafter, examined whether the sub-dealers purchasing
lottery tickets from the assessee had rendered any service to
the assessee in the course of buying or selling of goods in
I.T.A. Nos. 18, 13 & 29/2017
relation to any transaction relating to any asset, valuable article
or thing. And on this crucial aspect, the first appellate authority
recorded a finding that the buyers of lottery tickets from the
assessee do not render service in the sale and purchase of
lottery tickets between two of them. Therefore, in the absence
of any service being received to the assessee it cannot be held
that Section 194H is attracted. Thereafter, applicability of
Section 194G is examined and held that in the transactions of
sale of lottery tickets to end buyers the assessee is a conduit or
a postman. Therefore, Section 194G is not attracted and
deduction of tax at source by the assessee would amount to
double deduction of tax on the same amount.
9.1 The CIT (Appeals) accepted the case of assessee that
the assessee was not liable to deduct tax either under Section
194H or under Section 194G in respect of the amount collected
from the government and paid or made over to the sub-dealers.
I.T.A. Nos. 18, 13 & 29/2017
Section 40(a)(ia) does not contemplate dis-allowance
consequent upon default under Section 194G. The Tribunal
approved the view of appellate authority. Stated very briefly,
examined applicability of Section 194G and Section 40(a)(ia) of
the Act and rejected the argument of the Revenue. The
Tribunal categorically held that Section 194G of the Act is not
applicable and dis-allowance under Section 40(a)(ia) excludes
Section 194G of the Act.
10. A bare reading of Section 194H together with the
definition of expression 'commission or brokerage' in clause (i)
of the explanation to Section 194H would be clear that the
definition would not include any payment receivable, directly
or indirectly, for services in the course of buying or selling of
goods. The converse of the applicability of the said explanation
is that the payment received or receivable either directly or
indirectly by a person acting on behalf of another person and
I.T.A. Nos. 18, 13 & 29/2017
the said amount is received:
(i) for services rendered not being professional, or
(ii) for any services in the course of buying or selling goods, or
(iii) In relation to any transaction relating to any asset,
valuable article or thing by discharging any of these functions
referred to above, the element of agency is there between the
recipient and the provider.
The record does not disclose that any of the ingredients
referred to above are attracted to the transactions covered for
the addition made by the Revenue..
10.1 The alternative argument of the Revenue is that
Section 194G of the Act is attracted and addition of amount
covered by payments made to buyers of lottery from assessee is
correct. Section 194G reads thus:
I.T.A. Nos. 18, 13 & 29/2017
Section 194G is attracted, which reads as under:
"Any person who is responsible for paying, on or after the 1 st
day of October, 1991 to any person, who is or has been stocking,
distributing, purchasing or selling lottery tickets, only income
by way of commission, remuneration or prize (by whatever
name called) on such tickets in an amount exceeding one
thousand rupees shall, at the time of credit of such income to
the account of the payee or at the time of payment of such
income in cash or by the issue of a cheque or draft by any other
mode, whichever is earlier, deduct income tax thereon at the
rate of ten per cent"
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 flow of
counterfoils into the hands of assessee and presentation of
I.T.A. Nos. 18, 13 & 29/2017
counterfoils to government and receipt of incentive by assessee
and subsequent transfer of incentive to retailers. The person
responsible for making the payment is the government.
Admittedly, the government after affecting TDS has paid the
amount to the assessee towards prize incentive etc. The
assessee has collected the amount and claims to have made over
the incentive to the end retailers. Section 194G, as rightly held
by the Commissioner of Income Tax and the Tribunal, is not
attracted to the instant payment inasmuch as assessee is not
under obligation to pay towards commission etc to any of these
persons.
10.3 The substantial questions of law framed by the
Revenue are examined by keeping in perspective the
confirming order of the Tribunal. And the findings of facts
recorded by the Tribunal on which no exception is pointed out
to the effect that Sections 194H and 194G are not attracted. It is
I.T.A. Nos. 18, 13 & 29/2017
definitely a case for consideration of substantial questions of
law, had the Revenue established the basic ingredients required
for attracting any one of the sections to the controversy
covered by the appeal. We are of the view that the assessee
being a wholesale dealer/Stockist of lottery has purchased from
the government and sold to the retailers. It is accepted as a
purchase from the organizing agency of lottery and sale to
retailers. The amount covered is incentive payable by the
organizing department to the agent and none of the ingredients
required for adding the disputed amount is established. The
questions, in our view, do not arise for consideration
particularly having regard to the findings appreciated by the
CIT (Appeals) and the Tribunal and accordingly the questions
are answered in favour of the assessee and against the Revenue.
The consideration of the issues should be understood as made
in the circumstances of the case and not relied on as precedent
I.T.A. Nos. 18, 13 & 29/2017
on the applicability of any of the sections referred to above vis-
a-vis lottery business and implications on tax liability. In other
words, the decision is fact specific to the cases on hand.
For the very same reasons ITA Nos.13 and 29 of 2017 are
dismissed.
Sd/-
S.V.BHATTI
JUDGE
Sd/-
BECHU KURIAN THOMAS
JUDGE
jjj
I.T.A. Nos. 18, 13 & 29/2017
APPENDIX OF ITA 13/2017
PETITIONER ANNEXURE
ANNEXURE A ASSESSMENT ORDER U/S 143(3) DT. 31-12-2010
ANNEXURE B CIT (APPEALS) ORDER NO. 78/KTM/CIT (A)-IV/2010-11
DT. 04/06/2013
ANNEXURE C ITAT'S ORDER NO.510/COCH/2013 DT.25.10.2016
I.T.A. Nos. 18, 13 & 29/2017
APPENDIX OF ITA 29/2017
PETITIONER ANNEXURE
ANNEXURE A ASSESSMENT ORDER U/S 143(3)/147 DT. 28/12/2009
ANNEXURE B CIT (APPEALS) ORDER NO. 37/KTM/CIT (A)-IV/2009-10
DT. 05/06/2013
ANNEXURE C ITAT'S ORDER NO.511/COCH/2013 DT.25.10.2016
I.T.A. Nos. 18, 13 & 29/2017
APPENDIX OF ITA 18/2017
PETITIONER ANNEXURE
ANNEXURE-A ASSESSMENT ORDER U/S 143(3) DT. 31-12-2010
ANNEXURE B CIT (APPEALS) ORDER NO. 79/KTM/CIT (A)-IV/2010-11
DT. 04/06/2013
ANNEXURE-C ITAT'S ORDER NO.512/COCH/2013 DT.25.10.2016
