CIT vs. Hindustan Lever Ltd.; 264 CTR 93 (Kar):
The assessee company was engaged in manufacture and sale of certain consumer products. Under its sales promotion scheme the purchasers were entitled to prizes as indicated on the coupons inserted in the packs/containers of their products. The prizes were Santro car, Maruti car, gold chains, gold coins, gold tablas, silver coins, emblems etc. The total amount of prizes distributed valued at Rs. 6,51,238/- for A. Y. 2001-02 and Rs. 54,73,643 for A. Y. 2002- 03. The Assessing Officer held that what has been paid by the assessee as prize in kind is a lottery on which tax was deductible u/s. 194B of the Income-tax Act, 1961 and treated the assessee as an assessee in default on the ground that the assessee neither deducted the tax nor ensured payment thereof before the winnings were released. Accordingly, the Assessing Officer raised a demand of Rs. 3,78, 550/- for the A. Y. 2001-02 and Rs. 17,73,902/- for A. Y. 2002-03 u/ss. 201(1) and 201(1A). The Tribunal cancelled the demand and held that there was no obligation on the assessee to deduct tax at source in respect of prizes paid in kind and in absence of any such obligation no proceedings u/s. 201 could be taken against the assessee.
On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:
“i) From the plain reading of the proviso to section 194B, it is clear that it does not provide for deduction of tax at source where the winnings are wholly in kind and it simply puts a responsibility to ensure payment of tax, where winnings are wholly in kind. In the present case, admittedly the winnings were wholly in kind.
ii) The combined reading of sections 194B and 201 would show that if any such person fails to “deduct” the whole or any part of the tax or after deducting, fails to pay the tax as required by or under this Act, without prejudice to any other consequences, which he may incur, be deemed to be an assessee in default in respect of the tax. In other words, the provisions contained in these sections do not cast any duty/responsibility to deduct the tax at source where the winnings are wholly in kind. If the winnings are wholly in kind, as a matter of fact, there cannot be any deduction of tax at source.
iii) The proceedings against the person u/s. 201, such as the assessee in the present case, who fails to ensure payment of tax, as contemplated by proviso to section 194B, before releasing the winnings, are not maintainable or the proceedings against such person are without jurisdiction.”
