RAJES KUMAR, J. - (1.) THIS is an appeal under Section 260A of the Income Tax Act filed by the assessee against the order of the Income Tax Tribunal, Lucknow Bench, Lucknow dated 20.11.2001 relating to assessment year 1989 - 90 raising following questions of law: I) Whether, the money retained by the assessee being prize money on unsold tickets is "business income" of the assessee and not "any winnings from lotteries" within the meaning of Section 2(24)(ix) and Section 115BB of the Income Tax Act, 1961? ii) Whether, the agreement entered into between the Directorate and the assessee is in substance an agreement appointing the assessee as an agent of the Directorate and the Tribunal has erred in law and in fact in misconstruing and wrongly interpreting the same to be otherwise? Iii) Whether, the entires in the Prize -winning Tickets Creditors Account could be disallowed to the extent of Rs.7,21,840/ - and the finding to this effect is against the material and evidence on record? iv) Whether, loss of Rs.1,91,680/ - (approximated by the assessing authority to Rs.2,00 lacs) could be disallowed and the finding to this effect is against the material and evidence on record?
(2.) THE brief facts of the case are that the appellant is a partnership firm and has been appointed as a stockist by the State of U.P. through the Governor of U.P. vide agreement dated 1.4.1988. Under the agreement the appellant was appointed as a stockist at Kanpur for the financial year 1988 -89 on payment of such commission on the sale of lottery tickets under the terms and conditions provided in the agreement. The appellant filed income tax return declaring the total income at Rs.18,250/ -. The assessing authority passed the assessment order on a total income of Rs.14,09,490/ -. During the year under consideration, the appellant had disclosed income of Rs.14,43,685/ -, gained by winning the prize on the unsold lottery tickets as a business income. The assessing authority has treated the said receipt as income by way of winning prize money on lottery tickets and subjected to the assessment under Section 115BB of the Income Tax Act (hereinafter referred to as the "Act") at the rate of 40%. The appellant had also claimed a sum of Rs.21,13,848/ - towards loss on account of unsold tickets. The assessing authority asked the appellant to furnish the details of unsold tickets. On furnishing of details to the extent of Rs.19,22,168/ -, the assessing authority disallowed a loss of Rs.2 lacs. Under clause 10 of the agreement, the appellant was to collect the prize of winning tickets, out of the tickets sold by him and shall make the payment of prizes of winning prize upto Rs.1,000/ - on the basis of the left hand counter foils kept with him. During the year under consideration, a sum of Rs.1,30,08,093/ - had been determined as value of the prize winning tickets payable by the appellant to the prize winners as per the agreement. However, during the year under consideration, a sum of Rs.1,22,86,253/ - had been paid to the winners and the balance amount of Rs.7,21,840/ - which remained unclaimed and unpaid to the winners were shown as a liability. The assessing authority sought the details of such tickets against which the amount had been paid and details of those winning tickets against which the amount could not be paid to the winners. On non -furnishing of such details, the assessing authority has invoked the provisions of Section 145(2) of the Act and made an addition under Section 68 of the Act. Being aggrieved by the aforesaid additions, the appellant filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide order dated 17.11.1992 allowed the appeal in part. The appellate authority has held that the amount gained by the appellant by way of winning the prize on the unsold tickets was the business income and could not be assessed under Section 115BB of the Act. The appellant authority further held that the loss on account of unsold tickets was quite normal in the line of business and merely because the details of unsold tickets could not be furnished, the loss could not be disallowed. With regard to addition of Rs.7,21,840/ -, the CIT (Appeals) has held that the assessee had maintained various registers in the regular course of business and authenticity of credit worthiness had not been doubted by the assessing authority. On that basis the final accounts had been prepared and, therefore, to say that liability is a bogus one appears to be incorrect. It has been further observed that the provision for the last dates in the month of March could not be made because in fact it makes time to submit statement to U.P. State Lottery and, therefore, unless the statement is submitted, it is not possible to create the provision and the provision has not been created as stated by the appellant in subsequent year. Moreover, the source of credit is explained and, therefore, Section 68 of the Act does not have any applicability. It has been held that genuineness of PWT creditors cannot be doubted. Being aggrieved by the order of the appellate authority deciding three issues in favour of the appellant, the revenue filed an appeal before the Tribunal. The Tribunal by the impugned order dated 20.11.2001 allowed the appeal and restored the order of the assessing authority. The Tribunal has recorded the following findings: We have considered the rival submissions. From the details and specific reference to agreement, it is apparent that the assessee was not appointed as Agent by U.P. State Lotteries and in the capacity of stockist of lottery tickets, the assessee was selling lotteries tickets on agreed terms and conditions in specified area i.e. Kanpur. The fact remains that for sale of lottery tickets, the assessee was entitled to a specified commission, where as the unsold tickets were to be notified/surrendered and the consequences for not intimating timely or for not surrendering any in a specified period entails certain consequences such as the tickets were to be treated as sold, which were not surrendered within the specified time and such tickets were eligible for participation for draw of prizes. Therefore, even by conduct the assessee became purchaser of tickets and as a consequence he participated in draw for prizes and also received prize money and not commission, therefore, the amount in his hands in respect of such tickets was very much an amount winning from lotteries. If the source of winnings is fro m lottery, the application of section 115BB comes into force and this aspect of the matter is very clear in term of para 7 of the Agreement that the tickets not returned to U.P. State Lotteries and to be treated as tickets having been sold to the assessee and as a consequence, the assessee was burdened to pay the price of such tickets and also became eligible to participate in the draw. All these facts clearly establish that the assessee opted to by the tickets and to pay for its price and also participated in the draw for prizes and having won the prize, the assessee cannot escape the application of section 115BB of the Income Tax Act. Therefore, in view of the facts and circumstances, we are of the opinion that the amount received by the assessee on winnings from lotteries is subject to provisions of section 115BB of the Income Tax Act, therefore, the findings of the Ld. CIT (A) are reversed and that of the A.O., are restored, therefore, the revenue's ground is allowed.
(3.) WE have considered the rival submissions. The fact remains that the amount retained was out of sale proceeds and the amount which remained in disbursement is a portion of trading receipt only and in view of no provision for surrendering such amount to U.P. State Lotteries, the amount not so disbursed being a trading receipt is to be accounts for profit and loss of the appellant assessee. Since the assessee was provided opportunity to prove liability which the appellant assessee failed to prove, the A.O. was justified in treating the amount as taxable. Merely because the A.O. added the amount by resorting to proviso to section 145(2) & section 68 for making the impugned disallowance the CIT (A) is not justified in deleting the same since the nature of the amount in view of the facts and circumstances is such which is liable to be taxed, therefore, we are of the opinion that the Ld. CIT (A) is not justified in deleting the addition, therefore, the addition is directed to be restored, thus, we restore the addition made by the A.O. and ground of the revenue is treated as allowed.;