Lottery Taxation Issue – UPSC GS3

Context: Supreme Court in a judgement held that a state legislature has the right to impose tax on lotteries conducted by other States within its jurisdiction.
  • The judgement came on appeals filed by the Karnataka and Kerala governments against the decisions of their respective High Courts to quash laws enacted by their legislatures to tax lotteries organised and promoted by the States of Nagaland, Arunachal Pradesh, Sikkim, Manipur in Kerala and Karnataka.
  • The High Courts had found the tax laws enacted by the two States invalid and unconstitutional and had even directed Kerala and Karnataka to refund the money collected as tax from lotteries to the north-eastern States.
Supreme Court’s Ruling:
  • The court observed that ‘lotteries’ is a “species of gambling activity”.
  • ‘Betting and gambling’ is part of the State List in the Seventh Schedule of the Constitution.
  • The power to tax is on all activities which are in the nature of ‘betting and gambling’ including lotteries.
  • Betting and gambling is a genus and includes several types or species of activities such as horse racing, wheeling and other local variations/forms of ‘betting and gambling’ activity.
Central Laws related to Lottery, Gambling and Betting:
  • The Lotteries Regulation Act, 1998:
    • Lottery is considered legal in India. Lottery should be organised by the state government and the place of Draw should be in that particular state.
  • Indian Penal Code, 1860:
    • The code has provisions for punishing anyone who to the annoyance of others does any obscene act in a public place or sings, recites or utters any obscene song, ballad or words, in or near any public place.
    • These provisions of the IPC may be attracted if any obscene matter is used for the purpose of advertising betting and gambling activities.
  • Foreign Exchange Management Act, 1999:
    • Remittance of the income generated from lottery winning, racing/riding is prohibited under this Act.
  • Information Technology Rules, 2011:
    • Under these rules, any internet service provider, network service provider or any search engine will not host any such content which directly or indirectly supports Gambling.
  • Income Tax Act, 1961:
    • Current taxation policy in India covers all types of Gambling industry directly and indirectly. Thus, it can be said that all regulated and legalised Gambling is supported in the Gross Domestic Product (GDP) of India.
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