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States have power to tax lotteries organised by other states

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States have power to tax lotteries organised by other states

Recently the Supreme Court has ruled that State Legislatures have the power to levy tax on lotteries organized by other states.

The court’s decision came on appeals filed by the Karnataka and Kerala governments. The Supreme Court also set aside the orders of the Karnataka and Kerala High Courts, which held that these states lacked the legislative power to tax lotteries.

Issues involved in this case:

  • Does “betting and gambling” include “lottery”?
  • Whether states have the power to levy tax on them as per entry 62 of the state list?
  • Does entry 40 in the Union List restrict the power of states to levy taxes on lotteries held by other states?

Observation of the Supreme Court in this matter:

  • Lotteries come under the purview of ‘betting and gambling’. It is included as a subject in the State List in Entry 34 of List I of the Seventh Schedule.
  • Under entry 40 of List-(i.e. Union List), lotteries other than those conducted by the Government of India or any State Government shall be subject to the State List.
  • Entry 40 of the list does not take away the power of states to tax the lotteries of other states.
  • The Court held that when the problem of direct overlapping arises between two entries, a law and the “doctor of pith and substance” should be applied to ascertain the true nature of the entry. From this, it can be found out which subject comes in which list.
  • The Finance Act, 1994 has defined ‘betting or gambling’.
  • According to it, betting or gambling refers to betting money or something of value on the outcome of a game or competition, where it involves the risk of losing money as well as the temptation to earn a lot of money. The outcome of such a game or competition is determined by chance or accident, or is based on the likelihood of something happening or not happening.
  • The lottery is listed under Entry 40 of List-I of the Seventh Schedule. The lotteries are governed by the Lotteries (Regulation) Act.

Source – The Hindu

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