INCOME TAX REVIEW

In this article provisions relating to Deduction of Tax on Income covered under section 194 B, Section 194 BB, Section 194 G, Section 194 D, Section 194 EE, Section 194 F and Section 194 LA of the Income Tax Act, 1961are discussed.

1. Section 194b : Winnings from Lottery or Crossword Puzzle

   1. This section was inserted by the Finance Act, 1972.

   2. It states that the person responsible for paying to any person any Income by way of any lottery or Crossword Puzzle or Card game and other game of any sort in an amount exceeding Rs.5,000/- shall at the time of payment, deduct tax thereon at the rates in force.
      The limit of Rs1,000/- was enhanced to Rs5,000/- with effect from 1st June 1986. Earlier an exemption under section 10(3) of the Income Tax Act, 1961 towards the receipts relating to casual or non recurring nature to the extent of Rs.5,000/- was allowed to the assessee. The aforesaid exemption under section 10(3) is omitted by the Finance Act, 2002 with effect from 1st April 2002.

   3. The rate of tax is 30 % (plus surcharge plus education cess).

   4. As per the explanation to the section 2(24)(ix) of the Income Tax Act, 1961:

      1. The term "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.

      2. Basically the "Lottery" means a chance for a prize against a price. As per the Oxford Dictionary, the lottery means an arrangement for distributing prizes by chance among purchasers of tickets. There is an element of purchase and sale of the lottery, wherein the purchaser is entitled to participate in the draw.

   5. The expression "Card Game and any other game of any sort" has been inserted by the Finance Act, 2001 with effect from 1st June 2001.

      1. As per the explanation to the section 2(24)(ix) of the Income Tax Act, 1961:
         The expression Card Game and any other game of any sort includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game.

      2. Section 2(24)(ix) is not confined to mere gambling or betting avtivities. Prize money received by the assessee on winning a motor rally constitutes income.

      CIT vs. G. R. Karthikeyan 201 ITR 866 (SC)

   6. The payer may be State Governments and Union Territories running lotteries whereas the payee can be a resident or non resident also.

   7. The relief for the deduction of tax at the lower rate as provided under section 197(1) is not available in this section.

   8. As per the statute the deduction of tax is applicable only at the time of an actual payment not at the stage of credit.

      1. The agent of the lottery tickets is not liable to deduct tax in respect of the unsold or unclaimed prize winning tickets in his possession. Director of State Lotteries vs. ACIT. (1999) 238 ITR 1 (Gah).

   9. A question arose that in case the prizes awarded to the agents under "Lucky dip Draws", whether tax is required to be deducted under this section ?
      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 were awarded, category-wise, through draws of the lucky tickets. These prizes are lotteries within the meaning of section 194 B. It was clarified vide circular no. 264 dt. 11th February 1980 that in case the prizes awarded to the agents under "lucky dip draws", the State Government & Union Territories running lotteries are requested to deduct tax at source.

   10. Hitherto it was provided that tax need not be deducted in cases where the winnings are wholly in kind. (Ref. CBDT Circular no. 428 dated 8th August 1985). However, instances have come to the notice of the Government where the lottery winnings in kind have escaped taxation.

       1. To safeguard the interest of the revenue, the provisions were amended by the Finance Act, 1997 by inserting a proviso effective from 1st June 1997. The proviso is read as "in case where the winnings are wholly in kind or where they are partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of the whole of the winnings, the person responsible for paying the winnings shall, before releasing such winnings either in cash or in kind, ensure that tax has been paid in respect of the aggregate winnings".

       2. The aforesaid provision can be understood as the person responsible to deduct tax can do so by collecting from the winner a sum equal to the tax deductible at source on the winnings in kind and thus meeting the liability for TDS before releasing the winnings. For this purpose the value of the winnings in kind shall be taken as the cost incurred by the payer in acquiring the said winnings in kind.

       3. Where the assessee has received a Maruti Car as a prize money in a lottery draw, the deduction of tax at source on the value of the car was held valid. K.C.Suresh vs. Director of lotteries. (1993) 199 ITR 266 (Ker.)

       4. As per the Income Tax Rule, the person responsible to deduct the amount of tax at source of payment is required to pay to the government within 7 days from the last day of the month in which the deduction is made.

       5. As per the Income Tax Rule, the TDS certificate will be issued vide Form 16A within 1 month during which the sums have been paid.

       6. As per the Income Tax Rule 37, the Annual Return for TDS is required to be filed vide Form no. 26. The Due date for filing the TDS Return is 30th June of the year succeeding the previous year.
           

2. Section N 194BB : Winnings from Horse Race

   1. This section was inserted by the Finance Act, 1978. The provisions of this section have come into operation with effect from 1st June 1978.

   2. It states that the liability to deduct tax at source will apply only where such winnings are paid by a Bookmarker or a person to whom the license has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race course.

   3. The tax deduction will arise where the income by way of winnings from any Horse race exceeds an amount of Rs.2,500/-.

      The limit for deduction of tax at source was raised to Rs.5,000/- by the Finance Act, 1986 but was reduced to Rs.2,500/- by the Finance (No. 2) Act, 1991 with effect from 1st October 1991. The exemption under section 10(3) relating to income by way of winning from races including horse races up to Rs.2,500/- is omitted by the Finance Act, 2002 with effect from 1st April 2003.

   4. The rate of tax deduction thereon is 30% (plus surcharge plus education cess).

   5. The payer may be a Bookmarker or a person to whom the licence has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race course whereas the payee can be any person, resident or a non resident also.

   6. The term "winnings" means the amount received by the punter in excess of the bet laid by him on the horse or horses which have won in the particular race. Where a punter places bets on more than one horse in particular race, the expression "winnings" will mean the amount won by the punter in that horse race as reduced by the amount invested by way of bet on the particular horse or horses which won the race and not by the amount invested in the horse or horses which lost in that race.

      Say : Where Mr. X invests Rs.100/- each on two Horses – A & B in a particular horse race. He wins Rs. 500/- on the bet placed on horse A but loses the bet on horse B. The winnings of Mr. X from this horse race would be Rs. 400/- (i.e. 500 - 100) and not Rs. 300/- (i.e. Rs. 500 - 200.)

   7. The expression "any horse race" means and includes more than one horse race. Winnings by way of Jack pot and treble pool would fall within the ambit of this section.

   8. The provisions of this section will not apply to income by way of stake money. As such stake money is not regarded as winnings from Horse race but constitutes the "prize money" received on a horse race by the owner thereof on account of the fact that the horse wins the race or stands second or in any lower position.

   9. As per the Income Tax Rules, the person responsible to deduct the amount of tax at source of payment is required to pay to the government within 7 days from the last day of the month in which the deduction is made.

   10. As per the Income Tax Rule 31, the TDS certificate will be issued vide Form 16A within 1 month during which the sums have been paid.

   11. As per the Income Tax Rule 37, the Annual Return for TDS is required to be filed vide Form no. 26. The Due date for filing the TDS Return is 30th June of the year succeeding the previous year.
        

3. Section 194G : Commission etc. on sale of Lottery Tickets

   1. This section was inserted by the Finance (No. 2) Act, 1991. It is effective from 1st October 1991.

   2. It states that any person who is responsible for paying to any person who is or has been stocking, distributing, purchasing or selling lottery tickets, any income by way of commission, remuneration or prize (by whatever name called) on such tickets in an amount exceeding Rs.1,000/- shall at the time of credit of such income in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force.

   3. The rate of tax deduction is 10% (plus surcharges plus education cess)

   4. As there has been no tax deduction in respect of payments in the nature of commission or service charges or rewards or bonus in connection with lottery or crossword puzzle. This being so, there is a scope for the agent to receive the aforesaid payments without paying any tax to the Government. Therefore, to curb this and in the interest of the revenue this section was inserted by the Finance (No. 2) Act, 1991, effective from 1st October 1991.

   5. The prize received on unsold tickets would now be covered under this section. It may be mentioned that the Bombay High Court in the case of Commercial Corporation of India Ltd. vs. ITO. (1993) 201 ITR 348 (Bom) had held that the prize on unsold tickets would not be liable to tax. After introduction of this section, the foresaid decision would now be relevant only in the context of section 194 B.

   6. The proviso providing for the relief for non-deduction or deduction of tax at the lower rate is omitted by the Finance Act, 2003 with effect from 1st June 2003.

   7. As per the Income Tax Rules, the person responsible to deduct the amount of tax at source of payment is required to pay to the government within one week from the last day of the month in which the income is paid or credited, whichever is earlier. If the payee’s account is credited on the last day of the accounting year then the amount should be paid to the Government within 2 months from the end of the month in which credit is given.

   8. As per the Income Tax Rule 31, the TDS certificate will be issued vide Form 16A within 1 month during which the sums have been paid. For consolidated Certificate at the request of the payee, the last date is 30th April. Lastly if the credit is given on the last day of the accounting year then within 7days after the expiry of 2 months from the end of the accounting year.

   9. As per the Income Tax Rules, the Annual Return for TDS is required to be filed vide Form no. 26. The Due date for filing the TDS Return is 30th June of the year succeeding the previous year.
       

4. Section 194D : Insurance Commission

   1. This section was inserted by the Finance Act, 1973.

   2. It states that any person responsible for paying to a resident any income by way of remuneration or reward, whether by way of commission or otherwise, for soliciting or procuring insurance business (including business relating to the continuance , renewal or revival of policies of insurance) shall at the time of credit of such income in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force.

   3. The limit for deduction of tax is Rs.5,000/-. In case of the payment made to a non resident, the aforesaid limit is not applicable. It shall be dealt with and covered under section 195 of the Income-tax Act, 1961.

   4. In case of the payments to non resident where any sum is credited to any account whether called "suspense account" or by any other name in the Books of Account of the person liable to pay such income to the non resident, such credit shall be deemed to be credit of such income to the account of the payee and tax shall be deducted therefrom.

      1. The doubt is whether at the time when a subsequent credit is made in the account of the agent and the tax is to be deducted from such credit, an adjustment for intervening debit is permissible, so that deduction at the rate in force is made only on the amount credited as reduced by the debit made to that account.

      2. The Board vide circular no. 120 dated 8th October 1973 has clarified that in such cases adjustments for intervening debits is not permissible. If the credit to the account is made subsequent to making of the debits, the deductions will have to be made from the full amount credited.

   5. The rate of tax deduction is 10% (plus surcharges plus education cess)
      In case the payee is the Company the rate of tax will be 20%. (plus surcharges plus education cess)

   6. As per the Income Tax Rules, the person responsible to deduct the amount of tax at source of payment is required to pay to the government within one week from the last day of the month in which the income is paid or credited, whichever is earlier. If the payee’s account is credited on the last day of the accounting year then within 2 months from the end of the month in which credit is given.

   7. As per the Income Tax Rules, the TDS certificate will be issued vide Form 16A within 1 month during which the sums have been paid. For consolidated Certificate at the request of the payee, the last date is 30th April. Lastly if the credit is given on the last day of the accounting year then within 7days after the expiry of 2 months from the end of the month in which credit is given.

   8. As per the Income Tax Rules, the Annual Return for TDS is required to be filed vide Form no. 26. The Due date for filing the TDS Return is 30th June of the year succeeding the previous year.
       

5. Section 194EE : Payments in respect of deposits under National Savings Scheme

   1. This section was inserted by the Finance (No. 2) Act, 1991. It is effective from 1st October 1991.

   2. It states that any person responsible for paying to any person any amount referred to in section 80CCA(2)(a) shall at the time of the payment thereof, deduct income tax thereon.

   3. The limit for deduction of tax is Rs.2,500/-.

   4. The rate of tax deduction thereon is 20% (plus surcharges plus education cess)

   5. As per the Income Tax Rules, the person responsible to deduct the amount of tax at source of payment is required to pay to the government on the day of deduction itself.

   6. As per the Income Tax Rules, the TDS certificate will be issued vide Form 16A within 7 days from the last day of the month in which deduction is made.

   7. As per the Income Tax Rules, the Annual Return for TDS is required to be filed vide Form no. 26. The Due date for filing the TDS Return is 30th June of the year succeeding the previous year.
       

6. Section 194F : Payments on account of repurchase of units by Mutual Fund or Unit Trust of India

   1. This section was inserted by the Finance Act, 1990.

   2. It states that any person responsible for paying to any person any amount referred to in section 80CCB(2) shall at the time of the payment thereof, deduct income tax thereon.

   3. The rate of tax deduction is 20 % (plus surcharge plus education cess)

   4. As per the Income Tax Rule 30, the person responsible to deduct the amount of tax at source of payment is required to pay to the government on the day of deduction itself.

   5. As per the Income Tax Rules, the TDS certificate will be issued vide Form 16A within 7 days from the last day of the month in which deduction is made.

   6. As per the Income Tax Rules, the Annual Return for TDS is required to be filed vide Form no. 26. The Due date for filing the TDS Return is 30th June of the year succeeding the previous year.
       

7. Section 194la : Payment of compensation on acquisition of certain immovble property

   1. This section was inserted by the Finance Act, 2004. It is effective from 1st October 2004.

   2. It states that any person responsible for paying to a resident any sum, being in the nature of compensation or the enhanced compensation or the consideration on account of compulsory acquisition of any immovable property shall at the time of credit of such income in cash or by the issue of cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon.

   3. The limit for deduction of tax is Rs.1,00,000/-.

   4. The Agricultural land is not included in the term immovable property.

   5. The rate of tax deduction is 10% (plus surcharge plus education cess)

   6. The Income Tax Rules relevant to Filing the Annual Return of TDS, Certificate for Deduction of Tax etc. have not been framed yet.