Decided on August 31,1994



Vimal Gandhi, Judicial Member - (1.) THESE three appeals - two by the assessee for assessment years 1984-85 and 1985-86 and one by the revenue for assessment year 1985-86, are directed against orders of CIT(A). As common points are involved, these appeals were heard together and are being disposed of through this consolidated order for the sake of convenience. The main controversy relates to denial of deduction Under Section 80TT of the Income-tax Act on the sum of Rs. 2,14,78,116 and Rs. 3,16,09,892 in the A.Ys. 1984-85 and 1985-86, respectively which according to the assessee were "winnings from lottery".
(2.) Facts of the case briefly stated are that as per agreements in writing, the assessee was appointed "agent" to organise and conduct lotteries on behalf of Governments of Nagaland and Manipur on All India basis. The agreements provided that the assessee was to get lottery tickets printed of different denominations, carry and conduct lotteries for State Governments, realise sale proceeds against payment of guaranteed stipulated profit to the Governments. The number of tickets to be printed, printing press wherefrom the tickets were to be printed, the design of the tickets etc. was to be got approved from the State Governments. All incidental expenses necessary for organising different draws of lotteries were to be borne by the assessee. The payment of lottery prizes of draws was the responsibility of the assessee. Prizes less than Rs. 1,000 were to be directly paid by the assessee, whereas prizes of denominations higher than Rs. 1,000 were to be paid by the State Governments after recovery from the assessee. The unclaimed prizes, unclaimed bonus and prizes on unsold tickets belonged to the assessee. These amounts were claimed as "winnings from lotteries" within the meaning of Section 80TT of the Act. The assessee thus claimed sums of Rs. 1,07,41,858 and Rs. 1,58,07,446 as deductions Under Section 80TT in A.Ys. 1984-85 and 1985-86, respectively. The AO on consideration of terms of agreements with Governments of Nagaland and Manipur and the provisions of I.T. Act concluded that in respect of unsold tickets, there was cessation of liability of the assessee. There was no winning from lottery. It was further observed that person responsible for paying the winnings cannot include winnings in his income. There cannot be a liability to pay to himself. It was further observed that on the facts and the circumstances of the present case were entirely different from those prevailing in earlier years and, therefore, orders of ITAT of earlier years were not applicable. The earlier years related to prize bonus and winnings on stocks left over and unsold tickets in the hands of the stockist. In the instant case the assessee was the source of payment of prizes on tickets of denomination higher than 1,000 which was paid by the Governments. In case of winnings less than Rs. 1,000, the prize was to be directly paid by the assessee. The AO also referred to provisions of Section 41(1) and held the same to be applicable to unrealised prize or prizes on unsold tickets. It being a case of cessation of trading liability cannot be treated as "winnings from lottery". The claim made by the assessee was accordingly rejected. Similar order was passed in A.Y. 1985-86.
(3.) THE assessee impugned the assessment in appeal before the CIT(A). THE 1d. CIT(A) again noted relevant terms under which the assessee was to organise lottery tickets. THE CIT(A) found that in profit and loss account relevant to the A.Y. 1984-85, the assessee has credited a sum of Rs. 2,14,85,751 under the head "prizes" besides, share of purchases, agent bonus, stock bonus, unclaimed prize bonus, unclaimed stocks bonus and other miscellaneous receipts. THE assessee charged unsold stock of three lotteries at Rs. 5,01,90,394 to profit and loss account with other items of expenses like salary, postage, publicity, depreciation paid, unsold tickets, unsold stock etc. Before him it was contended that total sum of Rs. 2,14,55,751 included Rs. 1,72,92,444 as prices of unsold tickets. THE assessee was thus ticket holder/owner of unsold tickets and should be equated with any other person who purchased the lottery ticket. It was further pointed out that the above figure also included Rs. 22,965 representing share in price of tickets purchased and sold by the assessee. It was further emphasised that TDS of Rs. 1,97,140 on unclaimed prize money of Rs. 5,97,392 in respect of certain prize money was deducted which clearly showed that prize money was nothing but income as "winnings from lottery".;

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