Context: Recently, the 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.

Background

• Earlier, the Karnataka High Court delivered a judgement striking down major portions of the Karnataka Police (Amendment) Act, 2021 which banned online gambling and skill-based gaming platforms.
• In 2020, the Supreme Court held that lottery, gambling and betting are taxable under the Goods and Services Tax (GST) Act, 2017.

Key Issue

• It was regarding the interpretation to be given to the expression 'betting and gambling' in Entries 34 and 62 of List II of the Seventh Schedule of the Constitution of India.
• Whether "betting and gambling" includes "lotteries" and whether States have the competence to tax them as per Entry 62 of the Constitution of India.
• Whether Entry 40 of List I (Lotteries organized by the Government of India or the Government of States) restricts the power of States to levy tax on lotteries organized by the other states.
• Whether the State legislations are void because of their extra-territorial application.

Court’s verdict

• Lotteries are a species of gambling activity and hence lotteries are within the ambit of 'betting and gambling' as appearing in Entry 34 List II.
• Lotteries, except those organized by Govt of India or a Govt of a State covered under Entry 40 List I, come within the State subject.
• Betting and gambling are a state subject except to the extent of it being denuded of its powers insofar as Entry 40 of List I is concerned.
• Entry 40 of List I does not take away the power of States to levy tax on other-state lotteries.
• Entry 62 of List II is a specific taxation Entry on 'luxuries, including taxes on entertainments, amusements, betting, and gambling.

Laws Pertaining to gambling in India

• Betting and Gambling in India falls under the List II of the Seventh Schedule of the Constitution.
• Under entry 62 of the State List, the government is equipped to make laws on tax collection on betting and gambling.

The Lotteries Regulation Act, 1998

• The lottery is considered legal in India.
• Lottery should be organized by the state government and the place of Draw should be in that particular state.
• Horse racing and lotteries are legal in India.
• Horse racing involves some prior skills so it isn’t all about gambling.

Several Indian states have legalized lotteries.

• These are Goa, Kerala, Arunachal Pradesh, Assam, Maharashtra, Madhya Pradesh, Mizoram, Manipur, Meghalaya, Punjab, Nagaland, West Bengal, and Sikkim
• Online gambling and land-based casinos are legalized in Goa, Sikkim, Nagaland, and Daman under the Public Gambling Act, of 1976.

Maharashtra has prohibited gambling and considers gambling as illegal under the Bombay Prevention of Gambling Act, 1887.

• E-gaming (games of chance) has been legalized in many states.
• Telangana and Arunachal Pradesh consider the game of skill as illegal as per the Telangana State Gaming Act, 1974
• All India Gaming Federation, The Rummy Federation, and Federation of Indian Fantasy Sports have adopted a self-regulation code for all their advertisements.

Dr. K.R. Lakshmanan v. State of Tamil Nadu (1996)

• Supreme Court held that horse racing is neither to be considered as ‘gambling’ nor ‘gaming’, but a game of ‘mere skill’ and that the expression ‘mere skill’ would mean a substantial degree or prevalence of skill.

Gurdeep Singh Sachar Vs. Union of India and Ors. (2019)

• Bombay High Court stated that the success in Dream 11 fantasy sports depends upon the user’s ability to exercise his skill based on superior knowledge, judgment, and attention.