A sale of lottery tickets at reduced prices does not equate to commission payment under Section 194G of the Income Tax Act, making tax deductions inapplicable.

ORDER :

Shamim Ahmed J.

1. This Tax Case is filed by the Commissioner of Income Tax, Coimbatore, against the order of the Income Tax Appellate Tribunal, D-Bench, Chennai, dated 04.08.2005, passed in ITA.No.451/Mds/2001.

2. The facts of the case, in a nutshell, leading to filing of this Tax Case are that the Respondent/Assessee was carrying on the business of purchase and sale of lottery tickets, sponsored by various State Governments, during the relevant period of time. 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.2,19,58,083/- along with interest of Rs.6,68,785/- for the assessment year 1999-2000, under Sections 201(1) and 201(1A) of the Income Tax Act, by the proceedings dated 25.03.1999, 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. As against the same, the Assessee had preferred an appeal before the Commissioner of Income Tax (Appeals), Coimbatore, in ITA.No.1726-C/98-99, which was dismissed as not maintainable, by the order dated, 24.06.1999, on the ground that the order of demand of the Assessing Officer is not an appealable order. Thereafter, after amendment of Section 240A by the Finance Act, 2000, the Assessee had preferred an appeal before the Commissioner of Income Tax (Appeals)-X, Chennai in ITA.No.323/2000-2001, which was allowed by the order dated, 18.12.2000, holding that the Assessee was not liable under Section 194G of the said Act to deduct tax at source and the Assessee cannot be proceeded under Sections 201(1) and 201(1A) of the Income Tax Act and cancelling the order of demand of the Assessing Officer. As against the same, the Revenue Department had filed an appeal before the Income Tax Appellate Tribunal Bench ‘D” Chennai, in ITA.No.451/Mds/01, which was also dismissed, by the impugned order, dated 04.08.2005, upholding the order, dated 18.12.2000, passed by the Commissioner of Income Tax (Appeals)-X, Chennai. Aggrieved by the same, the Revenue Department has filed this Tax Case.

3. This Tax Case was admitted, by the order, dated 23.07.2008, on the following question of law:-

“Whether the difference between the face value and the amount to which the lotteries were given to the distributors/ stockists/ dealers in order to encourage the sale of lottery, would amount to the 'Commission or Not?”

4. This Court heard Dr.B.Ramasamy, the learned counsel for the Petitioner and Mr.P.S.Raman, the learned senior counsel, assisted by Mr.M.Ganesh Kannan, Advocate for the Respondent.

5. The learned counsel for the Petitioner has submitted that since the difference between the sale price and the face value of the lottery tickets would amount to payment of commission made 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 and hence, the Assessing Officer had rightly made a demand to the tune of Rs.2,12,89,298/-, along with interest of Rs.6,68,785/- under Sections 201 and 201(1A) of the Income Tax Act.

6. The learned counsel for the Petitioner has further submitted that the relationship between the Assessee and the Dealer is not that of a 'Seller' and 'Buyer', when the Dealer returns the unsold tickets to the Assessee and pays only for the tickets sold before the draw and that when the Dealer returns the unsold tickets and pays for the sold tickets at the face value, after deducting some amount retained for him, it can be treated as only a payment of commission allowed to him by the Assessee and it is not a sale and that so called margin money is, in reality, a commission allowed to the Dealer, thereby attracting