Any person responsible for paying, whether resident or non resident, any income by way of winnings from nay lottery or crossword puzzle or card game and other game of any sort, an amount exceeding Rs. 10000/- shall at the time of payment thereof deduct tax thereon at the rates in force. This articles is basically on customer prizes which are sales promotion and not akin to winnings from to lottery tds sections. Where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of TDS in respect of whole winnings, the person responsible for paying the winnings should prior to releasing the winnings, ensure that tax has been paid in respect of such winnings. As per section 115BB, if the total income of an assessee includes any income by way of winnings from any lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, tax shall be paid @ 30% Case Study 1)      The assessee-company was engaged in the business of manufacture and sale of various consumer products. It had conducted certain sales promotion schemes, wherein coupons were inserted in packs/containers of the consumer products. Some of those coupons indicated that on purchase of the packs/containers, the customers would get prizes as indicated in coupons. During the previous years, the assessee distributed the prizes wholly in kind of an amount of Rs. 60 lakhs. 2)      The Assessing Officer held that although the customers did not pay anything extra to receive the prize, nevertheless they had participated in the schemes by purchasing the products advertised to take a chance at winning the prize. What had been paid as prize in kind in various schemes conducted by the assessee was by way of winnings from a lottery on which the tax was deductible under section 194B. As the assessee neither deducted the tax, nor ensured payment thereof before the winnings was released, the Assessing Officer treated the assessee as an assessee in default of its obligation in terms of section 194B and raised tax demand under section 201(1)/201(1A) against it. 3)      On appeal, the Commissioner (Appeals) affirmed the view taken by the Assessing Officer. 4)      On second appeal, the Tribunal held that the schemes conducted by the assessee were not a lottery as the said expression was understood upto the assessment year 2001-02. The customers did not pay any excess amount for getting coupons indicating winnings in the packs/containers of products they purchased and, therefore, nothing was paid by them for participating in the schemes. Although there was an element of chance, but as no consideration or payment was made by the customers for the purpose of participation in the lottery with the object of winning the prizes, the schemes conducted by the assessee would not fall within the ambit of section 194B. It further held that having regard to the insertion of theExplanation below section 2(24)(ix) by the Finance Act, 2001, with effect from 1-4-2002, the schemes conducted by the assessee would be a lottery for the assessment year 2002-03, but nevertheless having regard to the Circular No. 390, dated 8-8-1984, 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 under section 201(1) could be taken against the assessee. It, therefore, set aside the orders passed by the lower authorities. Judgement 1)      From bare perusal of section 194B, as was in force during the assessment years 2001-02 and 2002-03, it is clear that the person responsible for paying to any person any income by way of winnings from any lottery in an amount exceeding ten thousand rupees shall, at the time of payment thereof, is obliged to deduct income-tax thereon at the rates in force. Proviso to this section clarifies that in case where the winnings is wholly in kind or partly in cash or partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings. From a plain reading of the proviso, it is clear that it does not provide for deduction of tax at source where the winnings is wholly in kind and it simply puts a responsibility to ensure payment of tax, where winnings is wholly in kind. In the instant case, admittedly, the winnings was wholly in kind. 2)      A plain reading of section 201(1), as it stood before its amendment by the Finance Act, 2008, w.r.e.f. 1-6-2002, shows that if the person referred to therein does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under the Act, he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax. The proviso to this section states that no penalty shall be charged under section 221 unless the Assessing Officer is satisfied that such person has without good or sufficient reasons failed to deduct and pay the tax.   3)      From a reading of section 194B, in particular the proviso thereto, it is clear that there could be winnings wholly in kind and in which case, the duty casts on the person responsible for paying is to ensure that tax has been paid in respect of the winnings before releasing it to the winner. The proviso makes it further clear that no duty of deduction of tax in respect of the winnings is cast on the person who is responsible for paying, where the winnings is wholly in kind. Undoubtedly in that eventuality such person should ensure that the tax has been paid in respect of the winnings before releasing it to the winner. The combined reading of sections 194B and 201(1) 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, he shall 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 is wholly in kind. If the winnings is wholly in kind, as a matter of fact, there cannot be any deduction of tax at source.   4)      Therefore, the initiation of the proceedings under section 201(1) against the assessee was without jurisdiction. However, the authorities under the Act in such situation would not render remediless against such person, who fails to ensure that tax is paid before the winnings is released in favour of its winner. In the Act, there are two provisions, namely, sections 271C and 276B. Section 271C empowers the Joint Commissioner to levy any penalty where an assessee fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVII-B or fails to discharge the obligation under the second proviso to section 194B. Similarly section 276B makes it an offence against the person who fails to pay to the credit of the Central Government the tax deducted at source as required by or under the provisions of Chapter XVII-B or the tax payable as required by or under the second proviso to section 194B. Thanks for reading for this article. Please feel free to write to us, We want to hear it all!Suggestions? Complaints? Feedback? Requests?  at [info@taxmantra.com] or call us at +91 88208208 11. We would be more than happy to assist you.