M/S.SRILAKSHMI GANESWARA ENTERPRISES KHA vs. THE INCOME TX OFFICER WARD-I KHAMMAM

HON’BLE SRI JUSTICE B. PRAKASH RAO AND HON’BLE SRI JUSTICE R. KANTHA RAO I.T.T.A.Nos. 22 and 23 of 1999 Date: 11-03-2011

Between: M/s. Sri lakshmi Ganeswara Enterprises & Financiers ….. Appellant and The Income Tax officer, Ward I, Khammam ………. REspondent HON’BLE SRI JUSTICE B. PRAKASH RAO AND HON’BLE SRI JUSTICE R. KANTHA RAO I.T.T.A.Nos. 22 and 23 of 1999 COMMON ORDER: (Per BPR, J) Since these two appeals arise out of the common order and the assessee being the same, hence, they are taken up together for disposal. The appellant, who is an assessee for the relevant assessment year of 1988-89, files these appeals purportedly under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’), inter alia, seeking to assail the orders dismissing the appeals by the Income Tax Appellate Tribunal as per the common order, dated 22-02-1999 in I.T.A.Nos.253/Hyd/97 and 254/Hyd/97 at his instance. Briefly the facts, which gave rise to the present proceedings, are that a prize scheme was launched by the assessee consisting of 250 members with a subscription of Rs.300/- every month for a period of 52 months with a lucky draw. The winner of the lucky draw will either get a scooter or an equivalent value of Rs.15,100/- and he need not pay the balance thereafter. Others, who were not successful, are entitled to get back the entire amount though without interest. Therefore, with this

nature of things in the process of transaction, the question arose as to whether it amounts to lottery. Since the assessee failed to deduct the tax at source as provided under Section 194(B) of the Act, an order was passed under Section 201(1) of the Act to pay the amount which could have been deducted at source. Consequently, in parallel, proceedings are also initiated purportedly under Section 201(1A) of the Act imposing interest on the said amount. Though initially it was fixed at Rs.34,378/-, later on it was varied to Rs.44,440/-. The matter has undergone various proceedings. In the meanwhile the aforesaid original orders were set aside in the Appeals at the instance of appellant and the matter was remanded by the appellate authority as per the orders, dated 30-08-1989 and 26-12-1989 for re-examination, especially as to the applicability of Section 194(B) of the Act to the scheme. Again the Assessing Officer passed orders under Sections 201 and 201(1A) of the Act on 29-12-1995 holding that the provisions of Section 194(B) of the Act are applicable and demanding the tax and the interest thereon. The asessee filed appeals before the CIT(A) and the same were dismissed as per the orders, dated 19-11-1996. Further the assessee carried the matter to the Income Tax Appellate Tribunal, where also the appeals were dismissed negativing various contentions raised by the appellant-assessee. Hence, these Appeals. On consideration of the entire submissions made across the Bar from both sides and on perusal of the material on record, the main controversy narrows down to a question as to whether, on the facts and circumstances, the scheme as aforesaid would amount to a lottery and consequently any liability arises on the assessee. It was the contention on the part of the appellant-assessee before the authorities that the ultimate orders which have been passed are barred by limitation and since none of the subscribers were assessed or assessable to income tax, no liability can be fastened at such stage.

Coming to the main aspect, the Tribunal has considered the well laid principles and interpretation as given to the expression ‘lottery’ with ingredients which are; 1) Winning of the prize must be a chance; 2) Subscriber should contribute to the scheme; and 3) The intention of the subscriber should be the winning of the prize, decided by the chance. While so, it was also found that the following matters are not decisive in examining whether a scheme is lottery or not— 1) Subscribers need not lose even the contribution; 2) Even if the amount of subscription is disturbed or returned, that does not impair the character of the lottery, as losing something is not the essential characteristic; and 3) The prize may be paid directly out of the proceeds received by way of subscription from the participants or from the interest earned thereon. Hence, having regard to those tests as laid down, it was held that it is a lottery and further, on the facts and circumstances, in view of the proceedings at different stages passing through, the same are not time barred. That apart, it was also held that under the provisions of sub-section (1) of Section 201 of the Act, if the person liable to deduct the tax at source does not deduct tax, or after deducting such tax, fails to pay the tax as required by or under the Act, he shall be deemed to be an assessee in default in respect of the tax. Therefore, once the assessee is declared as an ‘assessee in default’ under the statute in respect of that tax, the Assessing Officer is perfectly justified in demanding the payment of tax from the assessee. Ultimately it was held that the provisions of Section 194(B) of the Act are squarely applicable. Even though several other decisions have been cited across the Bar, however, in SESHA AYYAR v. KRISHNA AYYAR [1], the Full

Bench of Madras High Court, while considering the definition of ‘lottery’, held that a scheme is a lottery even though no one may lose. Subscribers purchasing chance to win makes scheme lottery. Not only on the aforesaid principles but also even on the facts, the decision of the Madras High Court is squarely applicable to the facts of this case and is a binding precedent and it deter us to delve into any aspect much less the other decisions cited across the Bar. Having regard to the findings, which have been arrived at exclusively on facts, it cannot be said that the same are either perverse or otherwise, nor can be interfered with. No question of law much less any substantial one arises in these matters to come to a different conclusion. Hence, we hold that the scheme as enunciated by the appellate-assessee is a lottery and consequently, the provisions of Section 194(B) of the Act are applicable and the failure to discharge the obligation necessarily impels the liability towards tax. We are in entire agreement with the findings arrived at by the Tribunal and do not find any valid reason to come to any varied conclusion nor the reasons given in support thereon. There are no merits in either of these appeals. Both the Appeals are, accordingly, dismissed. No order as to costs.

________________ B. PRAKASH RAO, J

_______________ R. KANTHA RAO, J Date:11-03-2011 YCR [1] AIR 1936 MADRAS 225, Full Bench