The Income Tax Appellate Tribunal (ITAT) Mumbai has ruled that business loss incurred by the Lottery Ticket Distributors after exclusion of prize money from net profit is eligible for set-off against winnings from lotteries under section 71 of the Income Tax Act.
The assessee, M/s Pooja Marketing is a “Sole State Level Distributor” for distributing lottery tickets in the State of Maharashtra. The Principal Commissioner of Income Tax had directed the Assessing Officer to compute the winnings from lottery not as business income but as income within the meaning of section 115BB of the Income Tax Act.
Judicial Member Shri Ravish Sood and Accountant Member Shri M.Balaganesh relied on the judgment of the Allahabad High Court in the case of J N Sharma vs ACIT reported in 270 CTR 594 (All) and held, “From the aforesaid decision of Hon‘ble Allahabad High Court, it could be safely concluded that the Hon‘ble Court had not categorically decided the winnings from lotteries as business income or income from other sources only. What they had held is irrespective of the head of income, the same shall be taxed at a special rate u/s 115BB of the Act. In the instant case before us, there is absolutely no quarrel regarding the applicability of tax rate u/s 115BB of the Act.
The real quarrel is only whether the business loss incurred by the assessee after exclusion of prize money from net profit is eligible for set-off against winnings from lotteries u/s 71 of the Act. As regards the second question before the Hon‘ble Allahabad High Court, the Court held that the assessee could not prove the claim to the extent of Rs 1,91,680/- and therefore disallowance is confirmed. It is pertinent to note here that the assessing authority had actually allowed the loss on account of unsold tickets to the extent of Rs 19,22,168/- (21,13,848 – 1,91,680) which was then never questioned at any stage including before the Hon‘ble Court. Hence this decision had actually addressed the issue in dispute in favour of the assessee with regard to the set-off of business loss with winnings from lottery u/s 71 of the Act to the extent of Rs 19,22,168/-.”
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