"Kaun Banega Crorepati" (KBC) has brought the issue of taxes from winnings from game shows to the forefront. Are such game shows considered as lotteries? Is tax deductible on winnings from such game shows and, if not, what would be the rate at which tax is payable on such winnings? Is the rate of deduction of tax at source for winnings from lotteries justified?
2. The provisions for deduction of tax at source are contained in Chapter XVII-B of the Income-tax Act, 1961 ("the Act"). If one peruses the various sections for deduction of tax at source provided in this Chapter, it will be seen that the broad heads for deduction of tax at source are as under:
(i) Section 192 : Salary (ii) Section 193 : Interest on securities (iii) Section 194 : Dividends (iv) Section 194A : Interest other than Interest on securities (v) Section 194B : Winnings from lottery or crossword puzzle (vi) Section 194BB : Winnings from horse race (vii) Section 194C : Payments to contractors and sub-contractors (viii) Section 194D : Insurance commission (ix) Section 194E : Payments to non-resident sportsmen or sports associations (x) Section 194EE : Payments in respect of deposits under National Savings Scheme, etc. (xi) Section 194F : Payments on account of repurchase of units by Mutual Fund or Unit Trust of India (xii) Section 194G : Commission, etc., on the sale of lottery tickets.(xiii) Section 194-I : Rent (xiv) Section 194-J : Fees for professional or technical services (xv) Section 194K : Income in respect of units (xvi) Section 194L : Payment of compensation on acquisition of capital asset (xvii) Section 195 : Other sums (this is applicable only in the case of payments to non-residents).
3. From the above chart, it will be clear that the only section which could apply, if at all, so far as tax deduction at source is concerned, is section 194B, which deals with winnings from lottery or crossword puzzles. This section is applicable in respect of any incomes by way of winnings from any lottery or crossword puzzle in an amount exceeding Rs. 5,000/-. Tax has to be deducted at the rates in force which is currently at 40 per cent.
4. It will be clear that, prima facie, this section is not applicable. The term "lottery" has not been defined in the Act. The dictionary meaning of this term, therefore, has to be resorted to. The New Webster's Dictionary of English Language, Deluxe Encyclopedic 1981 Edition, gives the following meaning to the word lottery "a game or method of fund raising, for public, charitable or private purposes, by sale of numbered tickets which, when drawn by chance, entitle the holder to prizes; any affair or happening that seems determined by lot or chance". Similarly, the Random House Dictionary of the English Language, Unabridged 1983 Edition, gives the following meaning to the word lottery "(i) a gambling game or method of raising money, as for some public, charitable purpose, in which a large number of tickets are sold and a drawing is held for certain prizes; (ii) any scheme for the distribution of prizes by chance;
(iii) any happening or process that is or appears to be determined by chance."
5. I cannot see game shows like KBC falling under the purview of the word lottery. This kind of a game show is certainly not dependent purely on chance. It has the input of the general knowledg of the participant. If at all he succeeds in winning the game it is because of this input of general knowledge.
The element of chance is extremely small so that it cannot be termed a lottery under any circumstances. Therefore, the payment of prize money earned by the participant without deduction of tax at source in cases of such game shows would be perfectly in order and would not visit the organiser/prize giver with any penal consequences for non-deduction of tax at source.
6. The second issue which arises is the rate of tax leviable on the winnings from such game shows in the hands of the winning participant. Here, as far as the actual winnings from game shows is concerned, an amount of Rs. 5,000/- would be exempt under section 10(3) of the Act as receipts of a casual and non-recurring nature.
This Rs. 5,000/- exemption is an overall exemption for all such casual receipts during the concerned year and not exclusively for the receipts from game shows.
7. After taking into account this exemption, the balance will be included in the total income of the assessee and tax paid on the basis of the applicable rates of tax to an individual. This rate currently, at the maximum marginal slab (which is above a total income of Rs. 1,50,000/-) does not exceed 34.5 per cent, i.e., the rate of 30 per cent plus 15 per cent surcharge on the tax.
8. One aspect of this whole issue of deduction of tax at source strikes me as odd. The rate for deduction of tax at source in the case of winnings from lotteries and crossword puzzles as well as from winnings from horse races, in case payment is made to a person who is a resident in India, other than a company, has been fixed at 40 per cent.
However, the maximum marginal slab does not exceed 34.5 per cent currently. Why is the department keen on collecting higher taxes from such categories of individuals and then asking them to claim refunds. In fact, one could challenge the validity of the collection of tax at source at a rate higher than the maximum marginal slab. After all, deduction of tax at source, is only an advance method of collecting tax which would otherwise perhaps be payable by the individual. To, therefore, collect a higher amount than the tax which could, at the maximum, be levied on the individual on the basis of the rates in force is, in my opinion certainly unjustified.
9.It may not be out of place to point out that section 194B pertaining to deduction of tax from winnings from lottery or crossword puzzles was introduced with effect from assessment year 1972-73. On its introduction from Ist April, 1972 the rate for deduction of tax at source had been fixed at 30 per cent and relevant surcharge was added each year to the deductible amount. However, this was raised to a flat 40 per cent by the Finance Act, 1986 and has remained at that rate since. That rate of 40 per cent was justified at that time because the maximum marginal rates of tax in those years right upto and inclusive of assessment year 1997-98 was 40 per cent or higher. With effect from assessment year 1998-99, the maximum marginal rate of tax fell to 30 per cent and after that surcharge was levied at 10 per cent for assessment years 1999-2000 and 2000-2001 and the surcharge has now been increased to 15 per cent for assessment year 2001-2002.
10. In this background, the rate for deduction of tax on winnings from lotteries, crossword puzzles and horse races at 40% is not in order and should be reduced to match, at the maximum, the maximum marginal rate plus surcharge ( currently 34.5% for individuals).
11.To sum up,
(i) game shows are not lotteries and, therefore, no tax is deductible from the winnings from such shows;
(ii) in any event, the rate of tax for deduction at source in the case of winnings from lotteries, crossword puzzles and horse races at 40% is not justified as it exceeds the maximum marginal rate of tax (including surcharge) which is chargeable on such income.
-- The author is a Mumbai-based chartered accountant
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