TDS on lottery winning

[2005] 272 ITR 0534- CANAAN KURIES AND LOANS (P.) LTD. VS. ITO (KER)

The essential elements that go to constitute a lottery are : (1) a prize or some advantage in the nature of a prize ; (2) distribution thereof by chance, and (3) consideration paid or promised for purchasing the chance. The chance of a person getting the prize cannot be treated as part of the bargain unless independent consideration is there with respect to the prize awarded.

Where a Maruti car was won as a prize on the basis of a lottery promoted by the Government to promote a small savings scheme, such winning even in kind was held in K. C. Suresh v. Director of Lotteries [1993] 199 ITR 266 (Ker) to be assessable and tax deductible under section 194B of the Income-tax Act after pointing out that the petitioner was lucky in a lottery, but unlucky with the Income-tax Department. But on a similar prize, it was held in CIT v. Deputy Director of Small Savings [2004] 266 ITR 27 (Mad) that the fact that the prize winner was chosen by lot did not by itself convert it into a lottery winning, since the subscriber had not purchased the coupon. He won the prize as a subscriber, though chosen by lot. It is true that there was a narrower view, that whenever the winner is chosen by lot, there is lottery winning following earlier English and Indian decisions. But there are subsequent decisions of the English court in Reader\'s Digest Association Ltd. v. Williams [1976] 3 All ER 737 and Imperial Tobacco Ltd. v. Attorney General [1980] 1 All ER 866. There have been favourable decisions as regards similar winnings among purchasers of books in Indian law as well in Sesha Ayyar v. Krishna Ayyar, AIR 1936 Mad 225 [FB]. A similar issue came up before the Kerala High Court in Canaan Kuries and Loans (P) Ltd. v. ITO [2005] 272 ITR 534, regarding prize schemes by dealers for sale of consumer goods or by kuri companies rewarding subscribers who make prompt payments, by a draw among them can not be regarded as lottery. A similar view was expressed in H. M. M. Ltd. v. Director General, Monopolies and Restrictive Trade Practices Commission [1998] 94 Comp Cas 132 (SC) in respect of a prize scheme known as “hidden wealth prize offer” with some Horlicks bottles containing prize coupons.

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