SAMPANNA KURIES (P) LTD. Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) IN all these writ petitions, the sole question is as to whether the petitioners who are either conducting kuries or conducting business in consumer goods giving prizes by taking lots either for prompt payment of kuri instalments or for increasing the sale of consumer products are liable to pay advance tax under Section 194B of the IT Act, 1961 (for short 'the Act'). In all these cases the ITO (TDS) Division -II, Thrissur, had issued notices regarding deduction of tax at source under Section 194B of the Act directing the petitioners to appear before him for a personal hearing. Since the petitioners did not respond to the said notices, they were asked to furnish details regarding the scheme under which the lottery is taken. The petitioners have challenged the said notices in these writ petitions.

(2.) ACCORDING to the petitioners, who are conducting chits, a scheme for taking lot for awarding certain prizes to subscribers who are making prompt payment of the kuri instalments was framed under which every month lot is taken with reference to prompt subscribers and gifts are given, It is the case of the said kuri companies that no independent consideration is involved so far as the gift is concerned. On the other hand, the ITO (TDS) has taken a prima facie view that the prize amount either in kind or in cash given by taking lots is liable to tax under the Act. This is also the position, according to the petitioners, who are dealers in consumer goods. They also contend that no independent consideration is received in respect of the gift given to the winners in the lottery. Ordinarily this is a matter which has to be canvassed by the petitioners before the ITO (TDS) pursuant to the notice issued by him. In some cases it so happened that the petitioners took up the matter with the CIT and the CIT has also taken the same view as taken by the ITO (TDS) as is evident from the communication dt. 20th May, 1999 (Ext. P4 in O.P. 19342 of 1999). It is stated therein that as per Section 194B of the IT Act, the company is liable to deduct tax while distributing the prizes and the petitioners were directed to pay tax with interest demanded by the tax authority. In the circumstances, there is some justification in the petitioners challenging the notices issued by the ITO (TDS). That apart, all these writ petitions have been admitted somewhere in 1998 -99. Apart from the above, having regard to the fact that the prize schemes are introduced by the kuri companies and dealers in consumer goods throughout the State, a decision with regard to the liability to deduct tax at the time of distribution of the prizes under Section 194B of the Act will enable the authorities under the Act to decide the matters in a uniform way. This is particularly so, since it is stated that in no other districts such notices were issued.

(3.) SRI P.K.R. Menon, learned senior counsel appearing for the respondents also relied on the decision of the Full Bench of the Madras High Court in Sesha Ayyar's case (supra). The senior counsel took me to p. 227 of the Full Bench decision and the illustration discussed in the right hand column which reads : 'Then Clause 7 provides that at the end of the 51st month the 575 subscribers who have not drawn prizes will be repaid without interest, the total amount of their subscription, viz., Rs. 150, Clause 6 shows the benefit which the temple was to derive from the arrangement; it permitted the subscription money to be deposited for interest with banks and merchants or to be, sent to subscribers, and the temple was to get the profit from these deposits and loans. So that a subscriber to the kuri had the prospect of at least getting back the amount of his total subscription of Rs. 150 at the termination of the drawings; but his purchase of a ticket for Rs. 3 gave him a chance of a prize of Rs. 150 if his ticket, was drawn at the first drawing, a chance of a prize of Rs. 150 for a payment of Rs. 6 if his ticket was successful at the second drawing, and so on down to the 49th drawing, when the winner would get Rs. 150 for an expenditure of Rs. 147 on his ticket. In my opinion this kuri was clearly within the above mentioned definition of a lottery....' The senior counsel also took me to the separate judgment of Justice Varadachariar, J. occurring the passage obtained in the right hand column of the said passage which reads : '......The result of the authorities seems to me to be that a scheme may fairly be regarded as a lottery if it is clear that whatever other benefit the subscriber or competitor may get in return for his money, the chance of his getting the prize was also part of the bargain and must have entered into his calculation. It is the fact of the prize and not the source from which it is paid that I think is the deciding factor.'