The Madras High Court has clarified that a person is chargeable to tax not on the basis what he saves in his pocket, but what goes into his pocket. As in this case, the petitioner (Assessee – Lottery Agency) had never paid any amount to the Dealer by way of commission, the amount saved by the Dealer cannot be termed as “Commission”. Since there is no payment of commission to the Dealer by the lottery agency at the time of purchase of the lottery tickets, Section 194G Income Tax Act becomes inapplicable and no deduction of tax is envisaged.
The Division Bench comprising Dr Justice G. Jayachandran and Justice Shamim Ahmed observed that the Assessee had purchased the lottery tickets at a reduced rate from the State Government and sold the same to its immediate Dealers at a profit margin. The face value of the lottery tickets is Rs.1.00 per ticket and the sale value is Rs.0.76 or Rs.0.77. The difference between the face value and the sale value is Rs.0.24 or Rs.0.23.
The Bench found that there was only payment of the price of the lottery tickets fixed as payable by the Principal and no Commission was paid by the Assessee to its immediate Agent or Dealer. Hence, such difference cannot be termed as “Commission” and it cannot also be held that the Assessee had paid commission to the extent of Rs.0.24 or Rs.0.23.
Thus, the Bench concluded that actually, no commission was paid by way of credit to the account of the immediate Dealer by the Assessee, by way of cash or any other mode. Hence, Section 194G of the Act has no application to the case of the Assessee.
Briefly, the Respondent/Assessee was carrying on the business of purchase and sale of lottery tickets, sponsored by various State Governments. It is alleged that while the face value of the lottery tickets sold being Rs.1.00, the Assessee sold the same to their immediate Agents/Dealers, at the rate of Rs.0.76 and Rs.0.77 per ticket. The Assessing Officer had raised a demand of Rs. 2.19 crores along with interest of Rs. 6.68 crores under Sections 201(1) and 201(1A) of the Income Tax Act, on the grounds that since the difference between the sale price and the face value of the lottery tickets would amount to payment of commission to the Agents/ Dealers, the Assessee is liable to deduct tax at source, under Section 194G of the Income Tax Act, which it had failed to do so.
Later, after amendment of Section 240A by the Finance Act, 2000, the Assessee approached the CIT, who held that the Assessee was not liable under Section 194G to deduct tax at source and the Assessee cannot be proceeded under Sections 201(1) and 201(1A) of the Income Tax Act, and thus cancelled the order of demand of the Assessing Officer. This order was upheld by the ITAT.
Appearances:
Dr. B. Ramasamy, for the Petitioner
P.S. Raman Sr Counsel and M. Ganesh Kannan, Advocate, for the Respondent
