No TDS liability on wholesaler of lottery tickets who is distributing incentive on behalf of Govt.: HC

Case Details: PCIT v. Usha Murugan [2021] 133 taxmann.com 127 (Kerala)

Judiciary and Counsel Details

• • Bechu Kurian Thomas and S.V. Bhatti, JJ.
  • P.K.R. Menon, Jose Joseph and Christopher Abraham for the Appellant. 
  • Anil Sivaraman, Adv. for the Respondent.

Facts of the Case

Assessee was a proprietor of concern doing business as a wholesale dealer of lottery tickets. The assessee was engaged in the said business as a Stockist to sell lottery tickets of various government/quasi-government agencies and State governments.

During scrutiny, Assessing Officer (AO) disallowed the deduction of the sum paid to agents towards incentive for the prize money realized from the tickets sold by them. AO held that the relationship between the assessee and the end buyers of lottery tickets is the Principal and Agent. Thus, tax deduction at source (TDS) was required to pay such incentive.
The assessee contended that she was not the end recipient’s lottery ticket seller. She acted as post-office between the State government and the buyers of lottery tickets from Stockist/wholesale dealers, such as assessee. On appeal, the CIT(A) & ITAT reversed the order of AO. Aggrieved-AO filed the instant appeal before the High Court.

High Court Held

The Kerala High Court held that assessee acts as a post-office by receiving counterfoils of prize-winning tickets sold by different retailers in the organization of lottery business presented to the State government, and the prize/incentive/bonus received from the government is transferred to retailers

The person responsible for making the payment is the government, and the government, after affecting TDS, has paid the amount to the assessee towards prize incentive, etc. The assessee has collected the amount and claims to have made over the incentive to the end retailers. The assessee was not obligated to pay towards commission, etc., to any agents.
Thus, the CIT(A) and ITAT had rightly held that there was no question of applicability of TDS under either section 194G/194H on instant payment.