IN THE INCOME TAX APPELLATE TRIBUNAL: JODHPUR BENCH: JODHPUR

BEFORE SHRI R.S. SYAL, HONBLE ACCOUNTANT MEMBER, AND SHRI HARI OM MARATHA, HONBLE JUDICIAL MEMBER

ITA No. 645/JU/2004

(A.Y. 2001-02)

Tax on the income earned from T.V. programme KBK - such this issue is certainly beyond the scope of sec. 154 and hence the A.O. was not justified in taxing the income @ 40% in the certification proceedings (Para 9)

O    R   D   E   R

PER R.S. SYAL, A.M.:

            This appeal by the revenue arises out of the order passed by CIT (A) on 03.11.2004 in relation to the A.Y. 2001-02.  The only effective ground projects the grievance of the revenue as under: -

            On the facts and in the present circumstances of the case, the ld. CIT(A) has erred in directing to charge tax at normal rate on the income of Rs.12,50,000/- earned from T.V. programme Kaun Banega Kororepati as against tax charged at the maximum marginal rate, ignoring that the income so earned by the assessee is covered by Other income of any sort mentioned in section 2(24)(ix) of the IT Act and insertion of explanation (i) and (ii) with effect from 1.04.2002 will not exclude the income under consideration.

2.         The facts leading to the controversy are that the assessee filed his return declaring total income of Rs.12, 91,530/-, which was processed u/s 143(1) on 25.02.2003 and the necessary intimation was sent to the assessee.  On the perusal of the assessment records it was noticed by the A.O. that the assessee had received income of Rs.12,50,000/- under a T.V. programme Kaun Banega Kororepati (here after called KBC). It was observed that such income was taxable at the flat rate of 40% u/s 115BB read with sec. 2(24) instead of normal rate of taxation as applied by the assessee.  Notice u/s 154 was issued in which the assessee claimed that the prize was won due to the in depth knowledge and skill etc.  Not convinced, the A.O. charged the tax at the rate of 40% on the total receipt of Rs.12, 50,000/-.  In the first appeal the ld. CIT (A) overturned the action of the A.O.

3.         Before us it was strenuously argued by the ld. D.R. that the winning of prize from KBC was a sort of lottery in as much as it was a question of sheer luck to get selected to the Hot Seat of KBC and won the prize. It was further stated that one out of thousands was called for participation in this programme on the basis of lucky draw. It was thus summed up that the winning of prize was in the nature of lottery and hence the provisions of Sec. 115BB were attracted. He further took us through the relevant provision to stress that the expression other games of any sort employed in this sec. was of widest amplitude and encompassed the games like KBC within its purview. It was still further argued that winnings from crossword puzzles also requires a good level of intelligentsia and if such winnings are included within the scope of sec. 115BB then there is no reason to exclude the winnings from KBC, which too required a good level of knowledge. The ld. D.R. strongly objected to the view of the CIT (A) in holding that Explanation to Sec. 2 (24)(ix) inserted by the Finance Act, 2001, w.e.f. 01.04.2002 including the winnings from T.V. programme, was effective from A.Y. 2002-03. The sum and substance of his submissions was that this Explanation was clarificatory in nature as the main sub-sec. using the expression other games of any sort already covered the winnings from entertainment programme on T.V. or electronic mode and hence the case of the assessee was covered within the sub-sec. itself.   

4.         Per contra the ld. counsel for the assessee reiterated the submissions advanced before the first appellate authority and on the basis of his reasoning urged that his order be sustained. He took us through CBDT Circular No. 14 of 2001, copy placed at page 36 onwards of the P.B. to contend that the Explanation inserted by the Finance Act 2001 was effective from A.Y. 2002-03 and argued that since the assessment year under consideration is 2001-02, the same would not apply and hence the income form KBC cannot be brought within the ambit of sec. 115BB. He further contended that there was no mistake in the Intimation sent by the A.O. u/s 143(1) and the provisions of sec. 154 could not have been pressed into service to take a contrary view. In the final analysis he strongly relied on the impugned order.

5.         We have heard both the sides and perused the relevant material on record. It is obvious that the assessee offered a sum of Rs.12.50 lacs, being the winning from KBC in his return at the normal rate of tax by making a specific mention that it was earned on 06.01.2001. He also gave a note in his computation of income, as per pages 7 and 8 of the P.B., to the effect that he is a Chemical Engineer (Top Ranker) and the amount was earned from the participation in KBC after a rigorous preparation and study and hence it was shown as normal income subject to tax as per the regular rates of tax in force. The A.O., in rectification proceedings u/s 154 opined that sec. 115BB was applicable and the amount was liable to be taxed at the rate of 40% as stipulated in the section.

6.         It has been vehemently argued by the ld. D.R. that the amount in question is in the nature of lottery and hence covered under section. It has been emphasized that the winning in this game is the result of luck and it is not possible to participate in the game without the luck smiling on a person. We are not convinced with this argument because the winning is not attached to participation in the programme alone. It is true that it is a question of luck to get selected for participation in the game, but the prize is not attached to mere participation. The question of winning arises only when the participant reaches the Hot seat and then with his calibre and quickness answers the question and starts winning the amount. So winning of the prize is associated with the giving of correct answers and not reaching the hot seat. Thus to equate the winning from this game with the luck is an incorrect approach. Here it would be relevant to note the meaning of Lottery, which implies a small payment by many persons and then by a draw or lot, the winner is selected, who gets the chunk of the pool of contribution by all the participants, depending upon the terms and conditions of the scheme. Thus the purchase of ticket or payment of some sort of contribution is sine qua non in order to be eligible fro participation in the lottery. The Honble Madras High Court in CIT VS. Deputy Director of Small Savings (2004) 266 ITR 27 (Mad) considered the meaning of lottery by holding that Before a scheme can be regarded as lottery, there must distribution of prizes which should be by chance or lot and such distribution should be among those who had paid a price for participating in the scheme. Mere gratuitous distribution without any price having been paid by the participants for acquiring the chance and receiving a prize that is ultimately distributed, would not amount to a lottery. Amendment by the Finance Act, 2002, in the shape of insertion of Explanation (i) to section 2(24)(ix) expanding the scope of  lottery laying emphasis on the winnings awarded by draw of lot or chance is posterior to the year under consideration. This contention of the ld. D.R. therefore, stands repelled.

7.         Now the short controversy before us is to decide as to whether the action of the A.O. in charging the receipt from KBC to tax at the rate of 40% in the proceedings u/s 154 is justified? Income has been defined in an inclusive manner u/s 2(24) and the relevant clause applicable is (ix), as per which any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any from or nature whatsoever, comes within the scope of income. Normal income earned by the assessee from any source or under any head is accumulated and is put to tax as per the regular rates. The legislature is empowered to make provision for determination of tax in special cases. In this set of sections we find the placement of sec. 115BB, as per which tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or betting of any from or nature whatsoever was charged at 40% at the material time. There is no dispute about the legal position that the special provision always overrides general provision and holds the filed when it is attracted in superiority to the general provision. But before bringing an item of income within its sweep, it has to be established that the concerned income strictly falls in its ambit. An item of income can be brought within the general or special provision only when it is covered within the controlling sec. 2(24) which defines Income subject to the other provisions of the Act. Averting to the facts of the case we find that sec. 115BB under scanner, is a special provision taxing the winnings from lotteries etc. Thus both the sections, viz 2(24)(ix) and 115BB are to be read conjointly to reach any conclusion on the controversy. It is pertinent to mention that the following Explanation was inserted to clause (ix) w.e.f. 1.4.2002.:-

            Explanation- For the purposes of this sub-clause,-

(i)         Lottery includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called:

(ii)        Card game and other game of any sort includes any game show, an entertainment programme on television or electronic mode, in which people complete to win prizes or any other similar game:]

Here it would be apt to consider the Memorandum explaining the provisions in the Finance Bill 2001 [248 ITR 185 (St)] to note the rationale of the insertion of the Explanation which is as under:-

It is also proposed to clarify that lottery shall include winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever under any scheme or arrangement by whatever name called. It is further proposed to clarify that the card game and other game of any sort shall include any game show, an entertainment programme on television or electronic mode, in which people complete to win prize or any other similar game. 

These amendments will take effect from 1^st April, 2002 and will accordingly. Apply in relation to assessment year 2002-03 and subsequent years.

The above referred Circular no. 14 of 2001, being the Explanatory noted on provisions relating to direct taxes in para 6, states as under:-

            6.        Definition of lottery and card game and other game of any sort       

            6.1       Sub-clause (ix) of clause (24) of section 2 of the Income-tax Act refers to income as including any winning from lotteries, crossword puzzles races including horse races, card games and other game of any sort of from gambling or betting of any from or nature whatsoever.

            6.2       An explanation has been inserted by the Act in the said sub-clause to clarify that lottery shall include winning from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever under any scheme or arrangement by whatever name called. It has also been clarified that card game and other game of any sort include any game show, an entertainment programme on television or electronic mode, in which people complete to win prizes or any other similar game. 

            6.3       The amendment will take effect from 1^st April, 2002 and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. 

Now the question which has been debated at length before us is to the nature of amendment to sec. 2(24)(ix), being whether the said Explanation is retrospective or prospective. The claim of the ld. D.R. is that it is only clarificatory in nature as the Circular in para 6.2 states that it has been clarified that card games and other games of any sort shall include any game show an entertainment programme on television. On the contrary ld. A.R. is relying upon para 6.3 of the Circular for making out a case that the amendment will take effect from 1^st April, 2002 and will accordingly apply in relation to the A.Y. 2002-03 and subsequent years. No judgment or order of the Tribunal has been brought to our notice by the either side in support of the rival claims. 

8.         Be that as it may we find that the A.O. processed the return u/s 143 (1) by accepting the assessees claim as it is, despite the fact that the assessee had given note in the computation of income to the effect that the he had earned the above sum form the KBC winning. No action was taken by the A.O. for making a regular assessment u/s 143 (3) and determine the rate of taxability of such income. At a later stage he initiated action u/s 154 for charging the winning from KBC at special rate. Here the question arises as to whether the action of the A.O. can be held to be justified? Sec. 154 empowers an Income Tax Authority to amend any intimation or deemed intimation u/s 143 (1), with a view to rectifying any mistake apparent from record. Thus the provision of sec. 154 can be invoked only when there is a glaring mistake in the order which is proved on the face of it. If however the alleged mistake is not apparent on record and requires to be settled down after extensive arguments, the same goes out of the purview of this section. The Honble Supreme Court in the celebrated case of T.S. Balaram, ITO Vs. Volkart Brothers and others (1971) 82 ITR 50 has held that a mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on the points on which there may conceivably be two opinions. It was emphatically held that a decision on the debatable point of law is not a mistake apparent from the record. This view has been reiterated by several courts of the country in enumerable decisions. The Honble Apex Court again in CIT Vs. Hero Cycles Pvt. Ltd. and others (1997) 228 ITR 463 (SC) came to hold that rectification u/s 154 can only be made when a glaring mistake of facts or law committed by the Officer passing the order becomes apparent from the record. It was laid down in this case that a point which was not examined on facts or in law cannot be dealt with as a mistake apparent from the record. Recently the Honble Calcutta High Court in Hindustan Liver Limited Vs. JCIT and Others (2006) 248 ITR 42 (Cal) considered a case in which the A.O. had originally applied sec. 32(1) and thereafter a notice u/s 154 was issued on the ground that he had ignored the provisions Explanation 2 to sec. 43(6). When the matter traveled to the Honble Court it was held that the interpretation of the provision of law is per se a debatable issue. It was further made clear that if there is a wrong decision of law or misapplication of law then the same can be set right in a appropriate manner otherwise than by the provision of sec. 154 of the said Act. 

9.         The legal position discussed above in relation to the scope of sec. 154 makes it abundantly clear only the patent mistakes can be rectified within the ambit of this section ad if the issue is debatable or two views are possible on it, the same cannot be settled within the rectification proceedings. Coming back to the facts of the case we find that the controversy raised in this appeal centers around the nature of Explanation to Sec. 2(24) (ix) as to whether it is retrospective or prospective. If it is held to be retroactive then the amount in question would be taxable under the special provision of sec. 115BB and if it is decided as prospective then it would be taxed as per the normal rates. Though this Explanation has been inserted by the Finance Act 2001 w.e.f. 1.4.2002 thereby giving a broader idea of its being prospectively applicable, the contention of the ld. DR and the intention of the legislature as appearing from the Memorandum explaining the provisions of the Finance Bill and the above referred Circular, prima facie, puts it in the category of a clarifying provision and thereby retrospective. We are not expressing any opinion on the nature of the operation of this Explanation. There would have been no difficulty in accepting the stand of the Revenue if the A.Y. under consideration had been 2002-03 or a later year and rectification proceedings would been perfectly in order. But since we are dealing with A.Y. 2001-02 and that too the rectification proceedings, the claim of the Revenue does not merit acceptance. Suffice to say that two possible views exist on this point. As such this issue is certainly beyond the scope of sec. 154 and hence the A.O. was not justified in taxing the income @ 40% in the certification proceedings. We therefore, uphold the final view of the ld. CIT (A) in accepting the assessees case. 

10.       In the result, the appeal is dismissed.