A prize scheme must exhibit defined characteristics of a lottery to attract tax under the Income Tax Act; considering whether independent consideration exists is crucial.

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 is liable to pay advance tax under S.194B of the Income Tax Act, 1961 (for short 'the Act'). In all these cases the Income Tax Officer (TDS) Division-II, Thrissur had issued notices regarding deduction of tax at source under S.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 Income Tax Officer (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 Income Tax Officer (TDS) pursuant to the notice issued by him. In some cases it so happened that the petitioners took up the matter with the Commissioner of Income Tax and the Commissioner of Income Tax has also taken the same view as taken by the Income Tax Officer (TDS) as is evident from the communication dated 20.5.1999 (Ext. P4 in O.P. 19342 of 1999). It is stated therein that as per S.194B of the Income Tax 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 Income Tax Officer, (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 through out the State, a decision with regard to the liability to deduct tax at the time of distribution of the prizes under S.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. Balachandran, learned counsel for the petitioners in all these cases submits that petitioners in O. P. No. 5589, 6638, 6639, 21311/1998 and O. P. No. 31027 of 1999 are kuri companies and that the said kuri companies, in order to ensure prompt payment of kuri instalments by the subscribers, framed a scheme as per which every month lots are taken among the subscribers who are promptly remitting the kuri instalments and a prize is given to the person in whose favour the lot is taken. The counsel submits that in the matter of awarding such gift there is no independent consideration other than prompt payment of the kuri instalments. In other words, no separate consideration is required for participation in the draw. Sri. Balachandran also submitted that the petitioners in O.P. No. 7197 and 7208 of 1998 and O.P. No. 19342/99 and 29291/99 are dealers in consumer goods and that in order to have more sales of their consumer goods a scheme is framed under which certain discount/incentives are given to persons who win in the draw conducted pu