Law:

Section:

section 10(3) of the income-tax act, 1961 [as it stood prior to 1-4-1972]-receipts of casual and non-recurring nature-assessee was a sole selling agent for lottery department of karnataka government-under an agreement it was to purchase a minimum of seventy-five per cent of total number of tickets issued for each draw-whether prizes from lottery on tickets remaining unsold were casual and nonrecurring in nature and hence were exempt from tax-held, on facts, that prizes constituted business income and were taxable Facts The assessee-company entered into an agreement with the lottery Department of the Karnataka Government for acting as its sole selling agent of the lottery tickets issued by the Department. The agreement provided that the assessee would be responsible for the sale of at least seventy-five per cent of the lottery tickets issued by the Department for each draw and that in case the sale was less, the assessee would be deemed to have purchased the balance of seventy-five per cent and would pay the Department the price of seventy-five per cent of the tickets released in each draw. The assessee was entitled to a commission of twenty-five per cent of the face value of the tickets sold and deemed to have been sold. An incentive of 2½ per cent would be given in cases where at least 50 lakh tickets were issued and all of them were sold. In the assessment year 1971-72, the assessee, in accordance with the terms of the agreement, purchased unsold lottery tickets of the face value of Rs. 12,53,186 and showed that amount as business expenditure. During that year the assessee received besides the usual commission, a total of Rs. 6,69,152 as prizes on some of the unsold tickets purchased by it. The assessee claimed that Rs. 6,69,152 was not taxable under section 10(5) as it was of a casual and non recurring nature. The ITO allowed the claim of the assessee. The CIT, however, set aside, under section 263, the ITO's order granting exemption of Rs. 6,69,152 and directed him to bring that amount to tax. The Tribunal affirmed the CIT's order. On reference : Held The fact that the assessee purchased the lottery tickets as a part of his business of earning com-mission…

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