SECTION
194B l
WINNINGS FROM LOTTERY OR
CROSSWORD PUZZLE
1082.
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 a lucky
ticket.
3.
The State Governments and 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 won
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.
Circular:
No. 264 [F. No. 275/58/79-IT(B)], dated 11-2-1980.
Judicial
Analysis
Explained
in
- In
Commercial Corpn. of India Ltd. v. ITO [1993] 201 ITR 348 (Bom.), the
above circular was commented upon with the following observations
:
“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 purchases 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 a lucky
ticket.” (p. 367)
“...We
conclude that the principle of contemporanea
expositio 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.” (p.
369)
Under Section
194B of
the Income Tax
Act, 30 per cent tax is deducted on any prize money in excess of
Rs 10,000 and other winnings from games, lotteries
etc. This is deducted at source (TDS). A Three per cent education cess is
payable on
the tax amount.
While filing your income tax
returnyou must include prize money under
‘income from other
sources’ and, you must submit the TDS certificate as
proof
that you have paid all the tax dueagainst the prize
money.
Taxation on prizes in
kind
A multitude of game/talent shows opt for a
combination
of cashand
kind. The
tax liability on cash prizes can be
arrived at by a simple calculation, but this is not the case
with prizes in kind.
Although the
applicable tax
rateis the same, that is, 30 per cent, it
poses a challenge on two fronts — who bears the tax liability and what is the
valuation of the
prize?
“If the prizes awarded are
in kind, the prize
distributor will, before releasing the prize, ensure that tax has been
paid in respect of the
winnings. It will eitherrecover it
from the
winner or bear the tax liability itself and
deposit TDS.
But if prizes are partly in
cash and partly in
kind, tax is deducted on the total value of
the
cashand kind from the
cash. And, if the
cashis insufficient to
meet the
TDS liability, either the winner or the prize
distributor pays the deficit. This will depend
entirely on
the terms and conditions of prize scheme.
Say, you win a car with a market value of
Rs 7 lakh and the conditions require you to
bear the
tax liability. You will have to cough up Rs 2.1 lakh tax, and Rs 6,300
education cess. Then there are registration charges, road tax, octroi
and insurance, which must be
borne by the
winner. The only alternative: Forego your
award.
Guidelines for valuing prizes, including
holidays, insurance products and
even contracts awarded by channels to winners, are unclear. The valuation will be largely
circumstantial. For instance, to value a holiday, you may have to consider how
much it costs an unrelated third party.