Manvendar Singh is a distributor of lottery tickets purchased various series of lottery tickets of Rajasthan Government for sale for the draw to be held on 01-09-2019. He won ₹10,00,000 as prize money on an unsold lotter

The issue under consideration is whether winning of prize money on unsold lottery tickets held by the distributor of lottery tickets can be subject to tax prescribed under section 115BB of the Income tax Act, 1961, or is to be taxed as business income. Kerala High Court in CIT vs. Manjoo and Co. (2011) 335 ITR 527 observed that the receipts of winnings from lottery by the distributor was not on account of any physical or intellectual effort made by him and therefore cannot be said to be "income earned" during the course of his business. The unsold lottery tickets cease to be stock-in-trade of the distributor because, after the draw, those tickets are unsalable and have no value except waste paper value and the distributor will get nothing on account of the tickets except any prize winning ticket if held by him, which, if produced will entitle for the payment of prize money. Hence, the receipt of the prize money is not in the capacity as a lottery distributor but as a holder of the lottery ticket which won the prize. The Lottery Department also does not treat it as business income received by the distributor but instead treats it as prize money paid on which tax is deducted at source. Thus, winnings from lotteries are assessable under the special provisions of section 115BB of the Act, irrespective of the head under which such income falls and the rate of 30% prescribed under section 115BB would be applicable on the amount of prize money winnings. Accordingly, the Assessing Officer's intention to tax the prize money received by the distributor on unsold lottery tickets held by him at the rate prescribed under section 115BB of the Act is justified and correct.