G.D. Kamat, J.
1. This petition under article 226 of the Constitution of India poses a question of some importance and may have a bearing outside Goa as we are told that several States have entered into contracts for organizing and conducting State lotteries.
2. The petitioner is a company having its registered office at Manipal. The company entered into an agreement dated December 21, 1989, with the Government of Goa to organize lotteries on behalf of the State of Goa on All-India basis except within the State, for a period of three years commencing from the date of the first draw admittedly held on March 5, 1990. Under that agreement, the company is required to cause the lottery tickets to be printed at its own cost against payment of guaranteed profit to the Government. The company is to deposit the prize money and the cost of the draw. The company conducted the lotteries for a considerable period without any difficulty under the agreement when, all of a sudden, the Ex-officio Director of Lotteries, Government of Goa, respondent No. 2, in the petition, wrote a letter dated February 25, 1992, demanding a sum of Rs. 2,53,78,080 by way of income-tax (Rs. 2,26,59,000 and surcharge of Rs. 27,19,080) on an amount of Rs 5,68,47,500 credited to a petitioner under clause 15 of the aforementioned agreement dated December 21, 1989, for the period March 5, 1990, to January 30, 1992. The director further threatened the petitioner that, with effect from February 1, 1992, the income-tax and surcharge will be deducted as per rates in force while giving credit to the petitioner for adjustment of prize money for future draws. The petitioner's inquiry revealed that the said letter of February 25, 1992, came into being because the Income-tax Officer, Ward No. 2, Panaji, Goa, demanded the said sum of Rs. 2,53,78,080 by way of income-tax and surcharge for enforcing the liability of the ex-officio Director under section 194B of the Income-tax Act, on the basis that the amount of Rs. 5,66,47,500 represented payment of income to the petitioner by way of winnings from lotteries.
3. According to the petitioner-company, what is credited to the petitioner under clause 15 of the agreement is nothing but return of monies deposited with the Government towards prize monies on lottery tickets remaining unsold with the company. The company says that there is no purchase of the lottery tickets nor participation in the draws in so far as the company is concerned.
4. The petitioner-company, it appears, wrote to the director and called upon him to request the income-tax Officer not to proceed with the recovery and grant to the company adjustment in respect of monies in terms of clause 15 of the agreement without deducting income-tax or surcharge as was being done earlier. The Income-tax Officer did not withdraw the demand and enforced the order contained in his letter dated February 25, 1992, with the result that the director refused to give credit to the petitioner under clause 15 of the agreement since February, 1992, to the extent of about one crore of rupees on the date of the filing of the petition and with that the business has suffered a severe setback, says the company. After refusal to withdraw the demand for tax and surcharge made on the director, the petitioner-company instituted the present petition some time in early June, 1990, for a declaration that the money credited to the petitioner by the Government of Goa under clause 15 of the agreement is neither payment of income nor by way of winnings from lottery; a writ of mandamus is also sought directing the Income-tax Officer, Wards-2, Panaji, to withdraw the demand of income-tax and surcharge made on the ex-officio Director of Lotteries; a further writ of certiorari is claimed for quashing the letter of the ex-officio Director of Lotteries, Government of Goa, dated February 25, 1992.
5. On instituting this petition, interim relief was sought in the nature of an injunction restraining the respondents from treating the money credited to be credited to the petitioner by the Government by way of income or winnings from lotteries. A statement was made that if no interim relief is granted, it will not be possible for the company to organize the lottery any more on account of financial constraints and with that not only the company and the state Government but the Revenue also will suffer. The Bench, therefore, directed that the petition be listed for final hearing. On behalf of the Income-tax Department, some adjournments were sought on account of which we made some interim order to release some amount to the petitioner.
6. Under the agreement dated December 21, 1989, the company has been styled as an agent. Since the company had experience in organizing and running several state lotteries throughout India, the Goa Government engaged the company. The company is prohibited under the terms and conditions of that agreement from operating within the territory of Goa for sale of the lottery tickets. The Government is to continue to conduct existing weekly/mini/bumper/special lottery draws as usual within the state of Goa with a prohibition that the Government of Goa shall not start lottery on an all-India basis without consulting the company. The company is required to submit schemes from time to time to the Government for holding weekly, monthly, bumper, instant and super-bumper draws to obtain the turnover envisaged. The company is required to follow the guidelines in respect of prize money as laid down by the Government of India. Clause 10 under the heading 'Deposit of Prize Money' reads thus :
'10. Deposit of prize money. - The agent shall deposit with the Government the prize money either in cash or by demand draft or letter of credit encashable on the date of concerned draw on the State Bank of India or any nationalised bank having its branch at Panjim, in respect of each draw covering prize over and above Rs. 5,000 at least 30 days before each draw. It is expressly agreed and understood between the parties that such deposit of the prize money by the agent is a condition precedent to the authorisation in terms of article 4 (ii) and that in the event of failure to make such deposit, no draw shall be held in that particular case.'
7. Clause 14 stipulates that the agent shall pay all the prize monies up to Rs. 5,000 in respect of each weekly/monthly/bumper/instant and super-bumper draws and the Government shall arrange for the disbursement of the prize of the value above Rs. 5,000 with a clear agreement that any disputed claim either in respect of prize below or above Rs. 5,000 are to be paid only after the dispute is finally decided by the Government, which decision of the Government is to be bending on the parties concerned. The present controversy centres on clause 15 (second part) having considerable importance in so far as the present case is concerned. It reads :
'15. Time limit for claiming the prize money. - The prize money shall be claimed within a period of sixty days from the date of draw in respect of weekly and monthly draws and within ninety days from the date of bumper, instant and super-bumper draws. The agent shall be entitled to the benefit of retaining with it the unclaimed prize amount of tickets valued up to Rs. 5,000 and the Government shall be entitled to the benefit of the unclaimed prize amount of tickets valued above Rs. 5,000 after the expiry of the aforesaid respective period provided for preferring the claims. The agent shall also be entitled for credit in respect of the prize of unsold tickets remaining with it on production of the same before the Government or other officer duly authorised by the Government. The Government and the agent shall jointly decide about entertaining of time-barred claims in respect of the prizes.'
8. Under clause 17, there is a stipulation in favour of the state Government about the guaranteed profit out of the lottery organized and conducted by the company. Under clause 20 of the stipulation, the company shall be liable to pay such taxes as may be levied anywhere in India on the sale of lottery tickets or incidental thereto, and clause 24 makes a provision for reference of disputes or differences arising out of or in any way relating to or concerning the agreement to an arbitrator appointed by the secretary to the Finance Department, Government of Goa.
9. The ex-officio Director Of Lotteries Government of Goa, and the state of Goa who are arrayed as respondents Nos. 2 and 3 are supporting the petitioner. On their behalf, an affidavit has been filed by respondent No. 2.
10. A brief affidavit has been filed on behalf of the first respondent who is the Income-tax Officer, Ward No. 2, Panaji. Shortly stated, the stand of the Income-tax Department is that the petition is not maintainable as an alternative remedy by way of appeal or revision under the Income-tax Act is available. Clause 15 of the agreement is construed to mean that the company is earning income as defined in section 2(24)(ix) of the Income-tax Act and that there is no return of money deposited by the petitioner towards the prize money; that what is credited to the petitioner by the State Government is, in fact, winnings of prizes on lottery tickets and the petitioner cannot be permitted to obfuscate the vital issue that income from winnings from lotteries can be permitted to be set off or adjusted against losses from other heads of income ordinarily permitted under section 115BB of the Income-tax Act; that any income from winnings from a lottery is to be taxed at the flat rate of 40 per cent., with no deduction or set off being permissible. This was obviously stated to counter the company's averment that the petitioner has been filing return before its Assessing Officer, namely, the Deputy Commissioner of Income-tax at Mangalore, showing monies credited to the petitioner under clause 15 of the agreement.
11. Two main issues are required to be considered in this petition, the first being whether the money credited by the State Government to the account of the petitioner-company is income from winnings from lotteries which were unsold and lying with the company and the second, whether on a true construction of the agreement dated December 21, 1989, the company is an agent in relation to its principal, namely, the state of Goa, and can the company be said to have purchased the unsold tickets
12. There can be no dispute and indeed there is none that, under section 194B of the Income-tax Act, 1961, the person responsible for paying to any person any income by way of winnings from any lottery in an amount exceeding Rs. 5,000 shall, at the time of payment thereof, deduct income-tax thereon at the rates in force. Section 115BB inserted by the Finance Act of 1986, with effect from April 1, 1987, says that where the total income of an assessee includes any income by way of winnings from any lottery, the income-tax payable shall be the aggregate of (i) the amount of income-tax calculated on income by way of winnings from such lottery at the rate of 40 per cent; and (ii) the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i) above. The result is that a flat rate of 40 per cent. is to be deducted by the person who is to pay the prize to the winner of a lottery without any other deduction whatsoever.
13. At the threshold, on behalf of the Department, some preliminary objection, viz, maintainability of this petition have been raised, including the locus standi of the petitioner.
14. It may be advantageous to record neatly the objections taken :
In the first, the action of the Income-tax Officer, Panaji, Goa, in issuing notice under section 226(3) of the income-tax Act, 1961, On January 31, 1992, to the Principle Officer, State Bank of India, Treasury Unit, Panaji, requiring him to pay income-tax on account of the Goa Government and the demand made under section 194B of the Act is no order made against the petitioner-company and, therefore, no cause of action arises and hence the petitioner-company has no locus standi to challenge that action.
Secondly, even if the petition seems to be good and worthy of challenge, it is premature because the petitioner has an alternate remedy by way of an appeal or a revision under the very Act. It is next contended that there is nothing onerous if the petitioner is made to seek remedies under the Act and in any event, the Income-tax Officer, Panaji, Goa, has no jurisdiction over the petitioner-company for the assessing authority of the company is at Mangalore.
It is next argued that the order is made against the Director of Lotteries. Therefore, if at all, the director is an aggrieved party and not the petitioner.
In as much as there is no challenge to the constitutional validity of the provisions, viz., sections 194B or 115BB, the question of entertaining this petition would not arise. It is also vehemently urged that even when the ex-officio Director of Lotteries acts and deducts amounts in terms of the provisions of the Income-Tax Act, it is a dispute between the State-Government and the company and inasmuch as the arbitration clause is available in the agreement, the petitioner's remedy is to resort to arbitration.
Thereafter, an attempt is sought to be made that the petition raises disputed questions of fact and, in any event, there is no evidence before the court to look into such questions. In other words, it is suggested that the petitioner may seek his remedy for an appropriate order before its assessing authority and lastly, it is pointed out that, in any event, the ex-officio Director himself felt aggrieved by the order of the order of the Income-tax Officer and the State Government even sought the remedy of an appeal before the Commissioner (Appeals) at Belgaum.
15. In support of its case on the locus standi of the petitioner, in the first instance, it is submitted by Mr. Jetley that the tax in the matter of winnings from lottery is liable to be deducted at source and when that event occurs. It is impossible to envisage a challenge from a person on whom the incidence of tax has fallen and the only remedy available to such a person is to take up the matter in his return and obtain an appropriate order from his assessing authority. It is then submitted that the liability to pay tax is created under a statute and inasmuch as section 194B is not claimed to be ultra vires, the petitioner will have to submit to the deductions and if any grouse against the same is available it can only be before the deputy Commissioner, Income-tax, Mangalore, when the company files its returns for the relevant year and, in any event, the deputy Commissioner, Mangalore, not being made a party in the present petition, it is not possible to hear the petitioner-company in this petition. The second aspect is that no order has been made against the petitioner by the Income-tax Officer, Ward No. 2, Panaji, and the Income-tax Officer has no jurisdiction over the company and, therefore, the petitioner lacks the locus standi to challenge the order made against the ex-officio Director of Lotteries.
16. Plainly stated, the Department is seeking to create a bar to decide the main controversy and wants to get the petitioner non-suited on the preliminaries. According to the petitioner, the order made vitally affects the company, as the incidence of tax is on the company. The genesis of the order and object of the Department is to against the petitioner through the Director of Lotteries. Therefore, the company is the aggrieved party and hence the main question is required to be decided one way or the other by this court; that it is impossible for the company to submit meekly to the situation created by the respondents and await orders from the assessing authority in future and, in the meantime, be out of business under the agreement; what is more, the issue is forced upon the petitioner by the Revenue and, therefore, the Income-tax Officer cannot be heard to say that the petitioner has no locus standi in the petition.
17. Whether the petitioner-company is in reality an aggrieved person is necessary to be seen to determine the locus standi. The order affects them prejudicially and the question is whether article 226 can be closed down (sic) on the company.
18. In the decision of Gadde Venkateswara Rao v. Government of Andhra Pradesh : [1966]2SCR172 , it is observed that the petitioner who seeks to file an application under article 226 of the constitution of India should ordinarily be one who has a personal or individual right in the subject-matter of the petition. A personal right need not be in respect of a proprietary interest. It can also relate to an interest. It can also relate to an interest of a trustee. That apart in exceptional cases as the expression 'ordinarily' indicates, a person who has been prejudicially affected by an act or omission of an authority can file even through he has no proprietary or fiduciary interest in the subject-matter thereof.
19. In Fertilizer Corporation Kamgar Union (Regd). v. Union of India [1981] 59 FJR 237; AIR 1981 SC 344, the Court observed that maintain ability of the writ petition which is co-related to the existence and violation of a fundamental right is not always to be confused with locus standi to bring a proceedings under article 32. The question whether a person has locus standi to file a proceedings depends mostly and often on whether he possesses a legal right and that right is violated but, in appropriate cases, it may become necessary in the changing awareness of legal rights and social obligations to take a broader view of the question of locus standi to initiate the proceedings be it under article 226 or article 32 of the Constitution.
20. The nearest case on locus in so far the present case is concerned is the decision in Indian Explosives Ltd. v. Commissioner, Sales Tax [1978] 41 STC 315 . The question was whether, in the matter of inter-State sale on supply of naphtha through pipelines from Bihar to U. P., the purchaser from whom tax has been collected by the dealer is entitled to file a writ petition. Under the Uttar Pradesh Sales Tax Act, tax is levied on the dealer effecting sales. The dealer in the instant case was the Indian Oil Corporation and tax had been levied upon it. The Indian Explosives Ltd. which brought the petition was not a dealer even through liable to pay tax to the Indian Oil Corporation. The contention of the Indian Explosives Ltd. was accepted that they are the aggrieved persons because ultimately the tax was borne by them. Calcutta Gas Co. (Proprietary) Ltd. v. State of West Bengal, : AIR1962SC1044 , was relied upon by the Allahabad High Court. The observation extracted is that article 226 confers a wide power on the High Court to issue directions and writs for the enforcement of any of the rights conferred by Part III or for any other purpose. That persons other than those claiming fundamental rights can also approach the court was recognized. These observations were reiterated in Gadde Venkateswara Rao v. Government of Andhra Pradesh, : [1966]2SCR172 . The remedy of writs is not confined to the parties alone but it extends to any person aggrieved which, as a principle, has been accepted, based upon several English authorities mentioned in the report.
21. We may refer to an authority cited at the Bar by Shri Jetley, learned counsel appearing for respondent No. 1, in the decision of Siliguri Municipality v. Amalendu Das : [1984]146ITR624(SC) as to how the court has viewed the matter. This decision is plainly against granting of stay from recovery of taxes. We think Mr. Kakodkar, learned counsel for the petitioner, is right in pointing out that the decision is restricted to interlocutory orders only.
22. We do not think that this petition can be thrown out at the threshold on the ground that the petitioner has no locus. The Department has called upon the ex-officio Director of Lotteries not to give credit to the petitioner-company. Notice has been issued under section 226(3) of the Act to the Principal Officer, State Bank of India, to withhold the amount for and on account of the Goa Government. The Director of Lotteries is also required to deduct in future the income-tax and surcharge payable instead of giving credit to petitioner-company. Seen in whatever way finally, the incidence of tax is on the petitioner and viewed thus the petitioner is surely an aggrieved party and being so they are entitled to challenge such action under article 226 of the Constitution of India.
23. We have also examined the question as urged by Mr. Jetley about the alternate remedy under the very Act. In this connection, we have examined section 201 which speaks about consequences on failure to deduct or pay the tax in so far as section 194B to concerned together with the provision of section 246(1)(i). Undoubtedly, any person on whom the liability has fallen under 194B to deduct the tax at source can prefer an appeal, but then it is not even the case of the Department that the petitioner can prefer any appeal or revision against such order. All that is urged is as and when the petitioner's returns are assessed by the assessing authority, the petitioner can do so. In our opinion, we cannot accept such a course.
24. We have also considered the point whether this petition is premature. The Director of Lotteries has withheld the petitioner's money to enforce the directive of the Income-tax Officer. A demand for justice was made from the Income-tax Officer in a letter by the petitioner but the Income-tax Officer refused to talk to the petitioner on the ground that he will not entertain any correspondence from them.
25. The next question that arises is whether, in a petition of this kind, the validity of any provision needs to be challenged and, in the absence thereof, it is not maintainable. In fact, we have not been able to reason out why a petition should be thrown out only because the validity of some provision has not been challenged.
26. Indeed, there is an arbitration clause in the matter of resolving disputes between the State Government and the petitioner-company, but then if the Department is trying to contend that the arbitrator is required to decide matters on taxation or an issue of that nature is arbitrable, then the Department will be in jeopardy and therefore, such a contention must be held to be not acceptable to this court for we cannot concede that jurisdiction to the arbitrators.
27. In our opinion, this is a typical case where the Department itself has forced the issue and this court cannot shy away from it, having regard to the facts and circumstances of the case.
28. We will, therefore, come to the merits of the petition.
29. Presently, what is required to be determined is whether unsold tickets can get a prize and the return of the money deposited by the petitioner-company can be said to be winnings from lottery. Mr. Kakodkar's contention is that regard being had to the definition of a lottery which is a chance for a prize for a price and when there is no participation in the draw, the company is not a purchaser of lotteries.
30. We are now driven to look into decided cases which are shown to us by learned counsel for the company.
31. The Supreme Court is directly in the field in the decision in H. Anraj v. Government of Tamil Nadu and Shri Dipak Dhar v. State of West Bengal [1986] 61 STC 165, where the question was whether sales tax can be levied by the State Governments on the sale of lottery tickets in their concerned States. The dictionary meaning of 'lottery ticket' and 'lottery' were viewed and after an elaborate discussion the court observed (at page 178) :
'It cannot be disputed that in every raffle scheme based on the sale of lottery tickets, similar to the schemes sponsored by each of the two States in this case, every participant is required to purchase a lottery ticket by paying a price therefor (the fact value of the ticket) and such purchase entitles him not merely to receive or claim a prize in the draw, if successful but before that also to participate in such draw. In other words, a sale of a lottery ticket confers on the purchaser thereof two rights : (a) a right to participate in the draw; and (b) a right to claim a prize contingent upon his being successful in the draw.'
32. It was further observed that when a purchaser purchases a lottery ticket, he pays a consideration (price) not merely for the right to claim in future a prize in the draw but also for the right presently to participate in the draw. On an examination of several aspects the court observed thus (at page 181) :
'The mere fact that under the Rules the promoter is disabled from participating in the draw or from claiming a prize in such draw does not mean that those rights do not come into existence or are not with the promoter before the actual sale of the tickets to the buyer nor does it mean that these rights come into existence for first time only upon the sale of the tickets to the buyer as urged by counsel for the dealers. Such disability imposed upon the promoter by the Rules is necessary to create confidence in the participants about the promoter's bona fides in the raffle scheme and prevents the scheme being viewed as a fraudulent or fishy affair. In other words a transfer of the rights from the promoter (grantor) to the buyer (grantee), is clearly involved in the sale of a lottery ticket.'
33. In the decision of Visveswaraiah Lucky Centre v. CIT : [1991]189ITR698(KAR) , a Division Bench of the Karnataka High court was concerned with a case of deduction under section 80TT, as it stood then, upon the sale of a lottery ticket and the seller received bonus/commission, as one of the tickets sold by him had won the first prize, and the question was whether the seller of the lottery ticket was winning a lottery.
34. From the facts, it is clear that Lucky Centre was an agent for selling lottery tickets, the lottery being conducted by the State of Karnataka. The agent was getting a commission at 15 per cent. In the return filed for the assessment year 1978-79, he disclosed a total income of Rs. 88,240 comprising the commission received from sales of lottery tickets as well as a sum of Rs. 1,00,000 received as bonus/commission on account of the fact that one of the tickets sold by the Centre in a particular draw had won the first prize of Rs. 10,00,000. The Lucky Centre claimed the benefit of section 80TT of the Income-tax Act. The assessment was made but in the appeal preferred against the assessment, a claim was made that the bonus/commission of Rs. 1,00,000 earned was in fact a lottery winning within the meaning of the expression. The Appellate Assistant Commissioner granted the benefit and allowed the appeal. The Revenue took up the matter before the Income-tax Appellate Tribunal which allowed the appeal of the Revenue and set aside the order of the Appellate Assistant Commissioner and denied the benefit of section 80TT of the Act. At the instance of the assessee, a reference was made under section 256(1) of the Act to the High Court which was to this effect :
'Whether the Appellate Tribunal is justified in holding that the bonus/commission of Rs. 1 lakh received by the assessee is assessable under the head 'Income from business' and not under the head 'Income from other sources' and the assessee is not entitled to deduction under section 80TT.'
35. The argument of the assessee in the first place that the Lucky Centre is a contributor because the Centre had purchased the ticket was rejected because the tickets were purchased by the firm as and by way of sub-agent. Relying upon the definition of 'lottery' and 'lottery ticket', it was held that the centre had not taken any chance and contributed to the prize amount with the hope and intention of winning the prize unlike the purchaser of the ticket who finally won the first prize and, because that purchaser won the prize, the Centre was given the bonus/commission of Rs. 1,00,000, which could not be assessed as a winning from lottery.
36. In another decision in CIT v. Sanjiv Kumar , it was held that the subscriber of a chit fund is entitled to the full amount without further contribution to the scheme when the lot is drawn in his favour. Such a scheme was held to be a lottery and, therefore, the amount received by the subscriber is liable to deduction under section 80TT. It was so held because there was an element of chance which was one of the important and relevant factors for consideration as to whether a particular scheme falls within the definition of the word 'lottery'.
37. Another decision is Bhola Nath Kesari v. Director of State Lotteries : [1974]95ITR171(All) , where the petitioner had challenged the deduction of income-tax after winning a prize of Rs. 1,00,000 in one of the draws of the Uttar Pradesh State Lotteries. Under the Rules, one-tenth of the prize money is to be given to a party who sold the ticket. Thus, the petitioner was entitled to Rs. 90,000. A sum of Rs. 31,050 was deducted on account of income-tax and the petitioner was paid the balance amount of Rs. 58,950. This deduction was challenged as also the necessary taxing provision. The Division Bench negatived the challenge. Tersely put, the question was whether winning from a lottery was income and the word 'income' in entry 82 of the Union List has a very wide connotation and included every kind of receipt and gain.
38. From the authorities, it is clear that a lottery is a chance for a prize against a price and, therefore, the element of purchase of a lottery ticket must be present and, secondly, the purchaser of a lottery ticket has a right to participate in the draw. Undoubtedly, it is a sale of goods and lastly it is an income liable to tax. We are, however, not concerned with the question whether a purchaser of a lottery ticket is liable to pay tax and the authority which conducts and organizes the lottery is liable to deduct the tax at source, for these are not disputed.
39. In the present petition, we are plainly concerned with the point whether the petitioner-company can be said to be the purchaser of the unsold tickets lying with them and whether, on an overall view of the agreement dated December 21, 1989, the company can be said to be the purchaser of the tickets.
40. We have not been able to satisfy ourselves as to why it has been contended on behalf of the Department that there are disputed questions of law involved in this petition. The question, in our view, is plainly one of fact which are not disputed and, secondly, the interpretation and construction of the agreement the petitioner-company has entered into with the State Government.
41. Relying upon some provisions of the Income-tax Act, it is the contention of Mr. Jetley that income by way of winnings from lottery is clearly exigible to tax and, according to him, the petitioner has not shown any material to suggest that any deduction is possible for the purposes of claiming the benefit of deduction from profits and gains of business, in terms of section 29 thereof.
42. We have seen section 4(2) of the Income-tax Act and it cannot be denied that, in respect of income chargeable under sub-section (1), income-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any of provisions of the Act. Sub-section (1) of section 4 is the charging section. In so far as section 5 is concerned, it speaks of the totality of the income which not only accrues or arises, but includes also the income which is deemed to accrue or arise.
43. Chapter III relates to income which does not form part of the total income and section 10(3) clearly excludes any receipts which are of a casual and non-recurring nature, but as from April 1, 1972, what is excluded is casual or non-recurring income when it does not exceed Rs. 5,000 in the aggregate. Sources of income are spoken of in Chapter IV. Section 29 provides for profits and gains of business or profession and section 29 thereof clearly lays down as to how income from profits and gains of business or profession are to be computed in accordance with the provisions contained in sections 30 to 43D.
44. What is being shown to us by Mr. Jetley can hardly be disputed.
45. Mr. Jetley now comes to the agreement dated December 21, 1989, to suggest that this agreement construed as a whole reveals that the petitioner-company purchases the lottery tickets. Take for instance, he says, clause 4 (1) where the cost of printing of the lottery tickets is required to be borne by the company. This also cannot be disputed. Under clause 4 (2), the petitioner is required to obtain a release order to obtain delivery of tickets only upon the company complying with the provisions of clauses 10, 12 and 17. Clause 10 requires the company to deposit the prize money either in cash or by demand draft or letter of credit negotiable on the date of the concerned draw at least 30 days before issue, The expenses of the draw under clause 12 thereof in the sum of Rs. 1,000 per draw are required to be paid in advance to the Government along with the prize money and all this is against the guaranteed profit as stipulated in clause 17.
46. Referring to clause 15 of the agreement. It is the contention of Mr. Jetley that the petitioner-company is the beneficiary and the prize that is paid by the Director of Lotteries arises out of the draw of the lottery. Taking all these provisions together with clause 20 of the agreement whereby the company is made liable to pay such taxes as may be levied anywhere in India on the sale of lottery tickets or incidental thereto, it is submitted that taxes will also include income-tax wherever liable to be paid.
47. It was next urged that, apart from the pure construction of the agreement, the parties also understood the contract in the spirit in which it is written and duly executed. This, according to him, is clear from two factors, namely : (1) clause 15 clearly stipulates that the petitioner-company is entitled for credit in respect of the prize for unsold tickets : the emphasis is on the word 'prize', and this is what the parties have themselves understood. In the second place, he says that a reference to the letter dated February 25, 1992, addressed by the Director of Lotteries to the petitioner-company clearly shows that the Government also understood the contract as construed by the tax authorities. He now says that merely because the Goa Government has now changed its stand, that by itself does not give any scope to understand the agreement in a different manner and, lastly, according to Mr. Jetley, on a proper perspective and a proper view of the matter, there can be no return of the capital. Learned counsel, Mr. Jetley, relies upon the following authorities to buttress the submissions made.
48. In the decision, Southern Brick Words Ltd. v. CIT : [1984]146ITR479(Mad) , it has been clearly laid down that the liability to pay tax arises on the credit entry itself and actual payment is not necessary in so far as sections 194A and 201(1A) are concerned. The question had arisen in the matter of crediting interest in the books of account though there had not been actual payment. The Madras High Court ruled that actual payment is necessary and the liability to deduct tax arises no sooner the credit entry was made.
49. In the decision, John Patterson and Co. (India) Ltd. v. ITO : [1959]36ITR449(Cal) , the Calcutta High Court held that no arrangement or agreement privately arrived at between an employer and employee can affect or alter or modify the statutory liability of the employer under section 18(2) of the Income-tax Act to deduct tax at source at the appropriate rates from payments made to the employee. The contention of Mr. Jetley is that irrespective of the contract the Government of Goa has with the petitioner-company, the liability being statutory, it arises when payments are to made or when credit is given to the petitioner-company.
50. He now refers to the Budge Speech of the Union Finance Minister when the Finance Bill, 1986, was introduced in parliament in support of the insertion of sub-section (4) in existing section 58 of the Income-tax Act relating to amounts not deductible in computing income chargeable under the head 'Income from other sources'. By the amendment, what was sought to be done is that no deduction in respect of any expenditure or allowance in connection with income by way of winnings from lotteries, crossword puzzles, races including horse races, card games, etc., is allowed in computing the said income. A new section 115BB in Chapter XII of the Income-tax Act was introduced whereby the income by way of winnings from lotteries was brought under the head 'Income from other sources' and as from April 1, 1987, such amendment was brought into force with the result that a flat rate of tax had to be paid without deduction. Mr. Jetley now says that in the light of the principle of contemporaneous exposition, the court will have to come to a finding that no agreement between the parties can in fact alter or modify the statutory liability to tax and secondly, however the matter is required to be viewed. On the principle of contemporaneous exposition, he has placed reliance on the decision in K. P. Varghese v. ITO : [1981]131ITR597(SC) . We will look into this authority a little later, for some more material has been shown to us to show as to how the principle of contemporaneous exposition of law has been accepted by the courts.
51. We have been shown a Circular bearing No. 264 [F. No. 275/58/79-IT(B)] dated February 11, 1980 (see : [1980]124ITR1(SC) ), being a Circular issued by the Ministry of Finance in the matter of section 194B, winning from lotteries or crossword puzzles. The Circular reads thus : [1980]124ITR1(SC) :
'577. Prizes awarded to agents under 'lucky dip draws' scheme. Whether they are 'lotteries' within the meaning of the section from which tax is required to be deducted at source.
1. This Ministry has had an occasion to consider the question of the deduction of tax at source under Section 194B from prizes awarded to lottery agents in what are popularly known as 'lucky dip draws'.
2. Under the scheme of 'lucky dip draws', the agents are generally grouped into various categories according to the number of tickets purchased by them. The prizes are awarded category-wise through draws of the lucky tickets. These prizes are 'lotteries' within the meaning of section 194B as they are dependent wholly on the chance draw of lucky ticket.
3. The State Governments and the Union Territories running lotteries are, therefore, requested to deduct tax at source at the rates prescribed by the Annual Finance Act in respect of 'lotteries or crossword puzzles' from 'lucky dip' prizes by lottery agents.
4. This clarification may please be brought to the notice of all concerned under the control of the State Governments and Union Territories.'
52. It must be seen in the first place that this circular has not been issued by the Central Board of Direct Taxes and the circular has been issued by the Ministry of Finance. Needless to say it covers what is known as 'lucky dip draws' which is meant purely for agents and not for the purchasers of the lottery tickets. In any case, it is the contention of the Ministry of Finance that the prizes awarded in lucky dip draws are lotteries within the meaning of section 194B on the sole ground that they are dependent wholly on a chance draw of lucky ticket.
53. We have already referred to the judgment of Division Bench of the Karnataka High Court in Visveswaraiah Lucky Centre v. CIT : [1991]189ITR698(KAR) , where the issue was about bonus/commission received by the vendor of the ticket which won the first prize. The Karnataka High Court clearly held that this type of chance does not amount to winning of lottery as the vendor of the prize winning lottery does not contribute to or take a chance for a prize against a price.
54. Reliance has also been placed on the Eighth Report of the Finance Commission of the Public Accounts Committee 1991-92 on the subject of assessment of lottery business. The Chairman of the public Accounts Committee pointed out certain lapses in the matter of avoidance, underassessment and short levy of tax in lottery business resulting in substantial loss to the national exchequer and the said report reveals that the public Accounts Committee viewed thus :
'6. The Committee have found that in three cases in Madhya Pradesh, prizes worth Rs. 20,39,70,500 were declared on unsold tickets and Govt. deprived of a sum of Rs. 5,38,83,350 as otherwise recoverable. According to the Department of Revenue, the liability to deduct tax at source arises only at the time of actual payment of the lottery prize, under section 194B of the Income-tax Act and a mere declaration of prize is not sufficient to attract the provisions of the section. The Committee have recommended that the question of leakage of revenue on this account should be examined in consultation with the Ministry of Law and corrective action taken within a period of six months.'
55. From the aforesaid extracted paragraph, it is clear that a definite grievance was made by the Committee that the prizes worth crores of rupees were declared on unsold tickets and the Government deprived of a large revenue which was otherwise recoverable.
56. All this material has been shown to us by Mr. Jetley to contend as to how the matters have to be viewed based upon contemporaneous exposition.
57. In K. P. Varghese v. ITO : [1981]131ITR597(SC) , the Supreme Court observed that the view taken by the court was reinforced in the matter of construction of sub-section (2) of section 52 as it then was, because soon after the introduction of that sub-section, the Central Board of direct Taxes, in exercise of the power conferred under section 119 of the Act, had issued a circular explaining the scope and object of that sub-section. The said circular also drew the attention of the income-tax authorities to the assurance given by the Finance Minister in his speech that sub-section (2) was not aimed at perfectly honest and bona fide transactions where the consideration in respect of the transfer was correctly disclosed or declared by the assessee, but was intended to deal only with cases where the consideration for the transfer was understated by the assessee and was shown at a lesser figure than that actually received by the seller. The Supreme Court further observed that, quite apart from their binding character, they are clearly in the nature of contemporaneous expositio furnishing legitimate aid in the construction of sub-section (2), but then what the Supreme Court further observed at page 612 of the report is worth looking into and that is what Mr. Kakodkar for the petitioner-company has pointed out to us. The rule of construction by reference to contemporanea expositio is a well-established rule for interpreting a statute is plain and unambiguous. Further, it was observed that the principle is non-controlling but nevertheless entitled to considerable weight and it is highly persuasive, but it must also be equally borne in mind that it is a well-settled principle of interpretation that courts, in construing a statute, will give much weight to the interpretation put upon it at the time of its enactment and since, by those whose duty it was to construe, execute and apply it. In the matter of the circular relating to lucky dip draws, Mr. Kakodkar says that it is not a circular by the Central Board of Direct Taxes which is to construe, execute and enforce tax law but a circular issued by the Ministry of Finance which does not administer the Income-tax Act, nor is it an authority under the Act.
58. Mr. Kakodkar is right in pointing out that instructions issued by the Ministry or Department for the guidance of its officers are of no assistance for considering a taxing statute. This principle has been clearly recognised in the decision in J. K. Steel Ltd. v. Union of India, : 1978(2)ELT355(SC) . It is not possible to ignore two more decisions of the Supreme Court which are of recent origin and they are available in J. K. Cotton and Spinning and Weaving Mills Ltd. v. Union of India : 1987(32)ELT234(SC) and Doypack Systems Pvt. Ltd. v. Union of India : 1988(36)ELT201(SC) . In the case of J. K. Cotton Spinning and Weaving Mills Ltd. [1988] 68 STC 421, the observations of the Supreme Court are that the maxim contemporanea exposition is applicable in construing ancient statutes but not to interpreting Acts which are comparatively modern. The observation further reads that, in a modern progressive society, it would be unreasonable to confine the intention of a Legislature to the meaning attributable to the words used at the time the law was made and, unless a contrary intention appears, an interpretation should be given to the words used to take in new facts and situations, if the words are capable of comprehending them. Some observations were reiterated in the decision in Doypack Systems Pvt. Ltd. v. Union of India : 1988(36)ELT201(SC) , where in paragraph 60, it is held (at page 30 of 65 Comp Cas) :
'Contemporanea exposition is a well-settled principle or doctrine which applies only to the construction of ambiguous language in old statutes... It is not applicable to modern statutes.'
59. The Supreme Court said that it will reject the attempt on the part of the parties therein to lead the court to the forbidden track by referring to various extraneous matters.
60. We do not think that it is necessary to dilate on this issue and we conclude that the principle of contemporaneous exposition cannot be made available to the Income-tax Department because, firstly, there is no exposition whatsoever by the Central Board of Direct Taxes and, secondly, we are not construing an ancient statute and, lastly, for the reason that we are not concerned with the construction of any provisions of the statutes which are ambiguous or which pose difficulties.
61. Mr. Kakodkar has indeed urged that on the application of the above principles and as laid down by the Supreme Court from time to time, the agreement dated December 21, 1989, is nothing but an agreement of agency where the Goa State is the principal and the petitioner-company is an agent and, by no stretch of imagination, is any sale and purchase of lottery tickets involved. We will look into some authorities cited across the Bar.
62. In the decision in Ascu Hickson Ltd. v. CCT , a question arose as to whether, in the agreement between a manufacturer and another as sole selling agent, the relationship between the parties was that of a principal and agent or vendor and vendee in connection with the liability to sales tax under the Bengal Finance (Sales Tax) Act. The facts were whether the agreement between M/s. Ascu Hickson Ltd. and M/s. V. D Swami and Co. Pvt. Ltd. was on a proper interpretation that of a vendor and vendee or agency. On a consideration of the terms and conditions of the agreement, the court held that though M/s. V. D. Swami and Co. Pvt. Ltd. were described as the sole selling agent not only for the goods, but also for the services to be rendered, those services could obviously be rendered by the principals, and the price at which the ultimate purchasers purchased the goods were controlled by the manufacturer. The manufacturer had similar control over publicity. The agreement authorized the agent to issue invoices on behalf of the manufacturers. The agents were entitled to a fixed stipulated commission in consideration of the guarantee, and when the ultimate purchaser failed to pay the price for the goods supplied, the manufacturer agreed to authorize the agent to sue in the name of the manufacturer to realize the same. It was, therefore, held that the agreement was as between principal and agent and not an agreement between vendor and vendee.
63. In the decision in Hyderabad Chemicals and Fertilizers Ltd. v. State of Andhra Pradesh , a question again arose in relation to the proper construction of an agreement between the manufacturing company and its sole selling agent and whether such a relationship envisaged is that of principal and agent and not that of vendor and purchaser. The question had to be viewed in the context of whether the commission paid to the agent was within the meaning of the appropriate section of the Andhra Pradesh general Sales Tax Act, 1957. The court found that, though the sole selling agent had guaranteed a minimum business of 5,000 tons per year and the sole selling agent had to take delivery by paying the full value, such payment is not repugnant to take idea of agency. The undertaking by the sole selling agent to deposit Rs. 10,000 as security and to furnish guarantees for the prompt payment of all the dues was also held to be a pointer in the direction of the relationship of agency, and as the principal had lien over the goods in the possession or custody of the sole selling agent, despite full value having been paid, such provisions were held to exist only in the case of agencies.
64. In the decision in CST v. Rowers Chemicals Pvt. Ltd. , again the question was between a manufacturer of chemicals and an agent appointed sole distributor. The manufacturer fixed prices and allowed commission on sales. The agent agreed to maintain prices on parity with those of allied manufacturers and despite the fact that the agreement did not cover the Government tenders and supplies handled by the company and the company was authorised to do direct business with the Government, it was held on a construction of the agreement that there was no sale, but it was an agreement of agency only.
65. In the decision in State of Bombay (now Maharashtra) v. Ratilal Vadilal and Bros. : [1961]2SCR367 , Ratilal Vadilal were commission agents and coal was supplied to Karsandas through them. Under the provisions of the Colliery Control Order, no person could acquire or purchase coal from a colliery except under an authorisation from the Central Government. A question arose as to when the colliery supplied goods directly to the purchaser, Karsandas, through the agents by, billing them and then Ratilal Vadilal made sales to Karsandas with commission, whether there was a second sale, first from the colliery to the respondent Ratilal and Company and thereafter from Ratilal to Karsandas. The court observed that having regard to the transaction, the respondent Ratilal was charging its middleman commission and the company had never become owners by purchase from the colliery.
66. What is, therefore, discernible from these authorities is that the court has to construe the agreement in the light of the circumstances, the nature of transaction involved and how the agreement is intended to be. In the light of these settled propositions and principles of law, the agreement dated December 21, 1989, will have to be construed to find out whether it is an agreement of agency or whether the petitioner-company becomes a purchaser of lottery tickets from the State Government.
67. Before we come to our conclusions, we may now refer to what was urged on behalf of the Director of Lotteries and the State of Goa by Mr. Bharne, the learned Additional Government Advocate, appearing for them.
68. We have already indicated earlier that the ex-officio Director of Lotteries of the Goa Government and the State of Goa, are supporting the petitioner-company. Mr. H. R. Bharne, Additional Government Advocate, contended before us that the Income-tax Department is trying to place a wrong interpretation upon section 194B. He produced agreements similar to the agreement in question by which the States of Nagaland, Manipur, Himachal Pradesh and Madhya Pradesh have entered into similar agreements with some parties who are agents of the State Government to organise and conduct lotteries. He thereafter contends that, on a true interpretation of this agreement, section 226(3) of the Income-tax Act has no application; that under clause 10 of the agreement, a security for the purpose of distribution is required to the deposited by the petitioner-company and when the prize is not won on the ground that the ticket is lying unsold, there is no question of attracting section 194B of the Act. Referring to clause 15 of the agreement, according to him, the word 'prize' must be read in the context of the return of the deposit. He then submits, placing reliance on section 14 of the Act read with the definition of 'business' in section 2(13), that the agreement is nothing but an adventure and what is derived from unsold ticket is part of such business. On an overall picture, according to him, the payment or giving credit is nothing but refund of the amount which is lying undisbursed in the hands of the Government because the Prize winning lottery ticket had not been sold and, therefore, section 194B cannot be invoked and, lastly, concludes saying that there must be a transfer of property in goods which is totally absent in the agreement and the agreement is nothing but an agreement of agency.
69. Reliance is placed on the decision in Alwaye Agencies v. Deputy Commissioner of Agricultural Income-tax and Sales Tax : [1988]3SCR879 . The question arose before the Supreme Court as to whether the agreement is a sale or agency. There, the company was manufacturing chemicals. Distributors were appointed under the agreement exclusively for specified areas. The company fixed the prices. The distributor under the agreement was responsible even when bulk supplies were made directly to the consumer. The distributor had to pay against documents of dispatch of goods. The goods were consigned to the consumer's place and the transport documents were taken in the name of 'self' and endorsed to the distributor. If the documents were not retired within the time set, the distributor was made to bear insurance charges for goods. The distributor was otherwise entitled to a rebate. In the matter of construction of the agreement, viz., sale or agency, the Supreme Court observed and laid down a principle based upon its earlier decision in Bhopal Sugar Industries Ltd. v. STO : [1977]3SCR578 . The court held that the question will have to be determined having regard to the terms and recitals of the agreement, the intention of the parties, as may be spelled out from the terms of the document and the surrounding circumstance and having regard to the course of dealings between the parties. While interpreting the terms of the Agreement, the court has to look to the substance rather than the form of it. The mere fact that the word 'agent' or 'agency' is used or the words 'buyer' and 'seller' are used to describe the status of the parties concerned is not sufficient to lead to the irresistible inference that the parties did in fact intend that the said status would be conference that the parties did in fact intend that the said status would be conferred.
70. There is a lot of merit in the contention of Mr. Kakodkar. We will presently point out that, in the first place, this agreement can, by no stretch of imagination, be said to be an agreement under which the petitioner company purchases lottery tickets from the State Government for the purposes of resale. It is an agreement in reality for organising and conducting lotteries for and on behalf of the State Government as the agent of the State Government and there is no manner of looking at it differently. Section 4 of the Sale of Goods Act, 1930, says what is 'contract of sale'. A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. Under a contract of sale, the property in the goods is transferred from the seller to the buyer. Under the Contract Act, an 'agent' is defined to mean a person employed to do any act for another or to represent another in dealings with a third person or persons and the person for whom such an act is done or who is so represented is called the principal. There is nothing under the law as to how an agent is required to be remunerated and there can be various modes of remunerating an agent. Whether the appropriate in goods passes or not is dependent upon the contract and the manner in which the agent acts. If there is a written agreement there is no scope for any presumption and one has to go by such agreement to find out what is the intention. The Goa Government thought of organising a lottery. The rights of organising and selling lottery tickets to ultimate purchasers are settled in favour of the company. We are not influenced by the word 'agent' used in the agreement, for expressions used in the agreement may in reality be sometimes misnomers. On a reading of the agreement, it is clear that the lottery tickets in fact are sold by the Goa Government, but through the agency of the company. There is no inkling whatsoever that the company as agent is buying them. All that the company does is for and on behalf of the Government. A ticket has been placed in the records to show that in so far as the ultimate purchaser of a ticket is concerned, he has to solely look to the Government for the fulfilment of the promise held out in that lottery ticket. In other words, the State Government as the principal is directly responsible to the members of the public. The tickets are issued in the name of the State Government. There is nothing suggested in the agreement that the property in goods passes on to the company as agent. The agreement, in clause 1 (1), says that for the purposes of running and organising of sale of lottery tickets on an all-India basis assistance is sought from the company on terms and conditions mentioned thereunder. At every stage the Government has retained control to itself. Mr. Kakodkar is right when he points out that if under the agreement, the petitioner-company purchases tickets from the Government, then why such control was at all necessary from the State Government, for such control will be inconsistent with the their sale. Take for instance, even in the matter of each and every lottery scheme to be floated from time to time, prior written permission is required to be floated from the Government. Even if there is any alteration or modification of any scheme, prior written permission of the Government is required. All the guidelines of the Government of India and directives of the State Government are required to be followed. The basic framework of the design of the lottery tickets is required to be approved, that too in writing from the Government. Though the tickets are printed at the cost of the company, the company is required to furnish an undertaking in writing from the concerned printing press. Unless there is a release order issued, the company cannot obtain delivery of tickets printed from the printing press and that too after deposit of the prize money with the Government after which a release order is to be handed over to the company. Rightly, the face value of the tickets is required to be commensurate with the prize structure. A proper account of ticket books received from the printing press and of the tickets sold, unsold, condemned, is required to be kept and that too for proper scrutiny of the Government. Monies are required to be deposited at least 30 days in advance before the draw. The draw is required to be held in public before the draw committee constituted by the Government. A sum of Rs. 1,000 per draw is required to be deposited in advance. The Government is to immediately supply a copy of the result of the draw. The company also has furnished a bank guarantee in the sum of Rs. 75,00,000 which is liable to be forfeited by the Government in case of (1) default on the part of the company to organise lottery draw; and (2) in the event of the breach of the terms of the lottery. One aspect of the matter which strikes immediately upon viewing these various clauses of the agreement is that barring the cost of printing and publicity material to be borne by the petitioner-company, nothing is paid to the Government, except under clause 17 of the agreement. The question that, therefore, arises is, 'where is the sale by the State Government to the company ?' If there is sale in favour of the company, 'why is the company required to maintain account of tickets that are sold as also unsold tickets ?' Clause 13 empowers the Government to conduct the draws. Clause 15 in terms states that there is no prize, if there is no claimant. The Government is to retain whatever exceeds Rs. 5,000 and the company to retain whatever below Rs. 5,000. Clause 18 speaks of deposit by way of security and that is for the performance under the agreement. Therefore, each and every clause is a clear indication against sale. Clause 17 which assures guaranteed profit to the Government says that the company shall pay to the Government from time to time under the agreement as follows :
Annual turnover Assured profitRs. Rs.75 crores 1.50% 112.50 lakhs100 crores 1.45% 145.00 lakhs120 crores 1.30% 156.00 lakhs.
71. For every extra Rs. 10 crores of turnover over Rs. 120 crores, the percentage of assured profit will come down by 0.02% up to Rs. 160 crores and on an annual turnover of above Rs. 160 crores, the profit will be calculated on pro rata basis.
72. These clauses in fact mutually destroy theory of the tax department that there is any sale of tickets to or purchase by the company. Payment of advance by the agent does not amount to a sale. In fact what is paid in advance by the company is the cost of paper and cost of printing of the tickets and for its publicity. This being a contractual term bearing costs in advance, it cannot be said to be a purchase.
73. It was indeed urged by Mr. Jetley for the Income-tax Department that in meeting the cost of printing and publicity, there is even payment in advance which is nothing but the price paid for purchase by the company and, therefore, the company must be held to be the purchase of lottery tickets from the Goa Government. In our opinion, expending money for printing lottery tickets and on publicity in advance is no ground to hold that the same amounts to payment towards the purchase price so as to make the agreement dated December 21, 1989, as agreement of purchase. Even in an agreement of agency, an agent can pay money in advance to the principal and such an advance payment would not render an agency agreement as agreement of purchase.
74. A Division Bench of the Madras High Court in the decision in State of Tamil Nadu v. State Trading Corporation of India Ltd. [1986] 61 STC 341, while construing whether an agreement is one of sale or of agency, held that the factum of pre-payment of the price or advance payment can be ignored, for payment in advance does not necessarily render the agreement into one of sale and what is required to be gone into is the essence of the contract. What is more relevant to be noted is that the Madras High Court held that there is transfer of title to the goods for a price paid or promised to be paid which is the essence of a contract of sale, whereas the essence of agency to sell is the delivery of the goods to a person who is to sell them not as his own property, but as the property of the principal who continues to be the owner of the goods.
75. We, therefore, conclude that the agreement dated December 21, 1989, is an agreement of agency and the State of Goa is the principal and the petitioner-company is its agent. No transaction of sale can be read into the agreement.
76. We have already seen, having regard to the definition of lottery, that it is chance for a prize. Therefore, there must be consideration paid for taking a chance. The company does at the draw. The company also does not equally participate in the draw. It is, therefore, not possible to hold that when the ex-officio Director of Lotteries credits the amount under the second part of clause 15 of the agreement, the Government gives prizes to the petitioner-company for unsold tickets. Mr. Jetley's contention that the word 'prize' in clause 15 is income from winnings from lottery of unsold tickets, cannot be accepted merely because such expression has been incorporated in that clause. The word 'prize' which appears in clause 15 of the agreement obviously refers to clause 10 of the agreement. Under clause 10 of the agreement which we have extracted elsewhere in this judgment, the petitioner-company is required to deposit the prize money 30 days in advance before the draw. This is a guarantee to the Government as finally the Government is responsible to pay the prizes to the ultimate purchasers of winning tickets. When tickets remain unsold, the Government is required to return or credit the money in favour of the petitioner. The word 'prize' used in clause 15 has to be understood in the context of clause 10 of the agreement. It is in reality not a prize, for a ticket which has remained unsold cannot win a prize.
77. The genesis of the orders made by respondent No. 1 is that the company is making income by winning the lottery. When we answer the question in favour of the petitioner-company and against the Department, the question of deciding the matter whether it is return of capital or otherwise, what sort of income it is, are not necessary to be gone into in this petition. We accept the case of the petitioner-company that, in their returns, they show all the accounts in relation to the conduct of the lotteries in Goa before the assessing authority. We direct the petitioner-company to do so in future also. Whether there is return of capital and/or income other than winning from lotteries is left at large for the appropriate assessing authority at Mangalore to decide.
78. It must be indeed mentioned that Mr. Kakodkar heavily relied upon the decision in Acharya D. V. Pande v. CIT : [1965]56ITR152(Guj) to show that return of money or crediting money in favour of the petitioner by the Goa Government is not income. More particularly, he referred, to the connotation of the word 'income' that, for the purposes of tax, it must be money or money's worth and that what saves the pocket is not income, but income is what goes into the pocket.
79. We need not go into the question at all. As mentioned earlier, the matter is left at large for the petitioner's assessing authority under the Act.
80. The petition succeeds. Accordingly, a declaration is made under article 226 of the Constitution of India that monies credited to the petitioner company by the Government of Goa under clause 15 of the agreement dated December 21, 1989, are not income by way of winnings from lottery. Further, a writ of mandamus directing respondent No. 1, the Income-tax Officer, Ward No. II, Panaji, to withdraw the demand for income-tax and surcharge made by him on the ex-officio Director of Lotteries, Government of Goa, in respect of monies credited to the petitioner under clause 15 of the agreement and accordingly the letter dated February 25, 1992, of the ex-officio Director of Lotteries, respondent No. 2 is quashed. Rule accordingly made absolute to the extent as indicated. Parties are, however, directed to bear their own costs.