2019 (8) TMI 402 - AT - Income Tax

Tribunal: 'Stake money' to horse owners not subject to TDS. Assessee not 'assessee in default'.

The Tribunal held that 'stake money' paid to horse owners is not subject to TDS under Section 194B or Section 194BB of the Income Tax Act. The assessee ... TDS u/s 194B - TDS on the ‘stake money’ paid by the assessee to the horse owners on winning of races organized by the assessee - assessee in default in terms of Section 201(1) - Section 194B provide TDS on “Winning from lottery or crossword puzzle” - impact of inserted the words 'card game or other game of any sort’ in Section 194B by FA 2001 - HELD THAT:- It is a well settled principle of interpretation that the heading of a section should also be assigned meaning while interpreting the section. From the heading of the Section 194B it is amply clear that there is no whisper that Section 194B was intended to cover within its purview winnings from horse races. Now coming to the heading of Section 194BB, which reads as “Winning from horse race”. Going by the heading of the two sections, it can be seen that Section 194BB of the Act is a specific section dealing with TDS on the winnings from horse races. Though the CBDT has specifically excluded “stake money” from the ambit of section 194BB by way of Circular No. 240 dated 19.05.1978, but it cannot be disputed that Section 194BB is the specific section which deals with TDS on ‘Winning from horse races’. Impact of inserted the words 'card game or other game of any sort’ in Section 194B by FA 2001 - Coming to the argument raised by the AO that the Finance Act, 2001 has inserted the words 'card game or other game of any sort’ in Section 194B which will even cover the “stake money” which is otherwise not covered by Section 194BB. At the time when the amendment was brought in Section 194B, Section 194BB, which specifically dealt with TDS on winning from horse races, was already on the statute and the Legislature in its wisdom could have made the amendment in Section 194BB itself to include ‘stake money’ within its ambit; that would have obviated any need to make amendment in Section 194B, which is a general provision for TDS, in order to cover ‘stake money’ in its ambit. The learned representative has rightly pointed out to the Budget speech of the Finance Minister wherein it was stated that “television game shows are very popular these days and I propose that income tax at 30 % will be deducted at source from the winnings of these and all similar game shows.' Impact of CBDT has specifically excluded “stake money” from the ambit of section 194BB - Another way of bringing to tax the ‘stake money’ was by way of withdrawal of Circular No. 240 dated 17.05.1978, which clarified that tax was not required to be deducted u/s 194BB with respect to income by way of ‘stake money’ as the same is not regarded as winning from horse races. However, said Circular is still in existence and the DR has not disputed this fact. The entire gamut of the legal position leads to an irresistible conclusion that position of TDS on ‘stake money’ has not changed even after amendment in Section 194B by Finance Act, 2001 and the position prior to amendment continues to prevail, i.e. the stake money is not liable to TDS either u/s 194BB or u/s 194B. It is a well settled proposition of law that the CBDT Circulars are binding on the Department as it clarifies the understating of the provisions of the Act by the Revenue which cannot be disregarded by the income-tax authorities while construing the provisions of the Act. DR was not able to point out why the interpretation given in the CBDT Circular relied upon by the assessee should not prevail. We find that the Department has tried to indirectly tax what cannot be taxed by virtue of Circular issued by the CBDT, a situation which is impermissible in law. Thus, on this aspect also, we hold that ‘stake money’ is not liable to TDS u/s 194B. Assessee in default - horse owners have duly reported the income received from the assessee - HELD THAT:- As per ratio laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola [2007 (8) TMI 12 - SUPREME COURT] and the proviso of Section 201(1), which provides that if the recipient of the income has paid taxes on the income received from the assessee and has filed the return of income, assessee should not be treated as an ‘assessee in default’. We find enough substance in the said stand of the appellant. Thus, respectfully following the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola (supra), we hold that where the assessee has produced the confirmation from the parties that they have duly reported the income received from the assessee in their respective returns of income, the assessee should not be treated as an ‘assessee in default’ in terms of Section 201(1). We hold that the ‘stake money’ received by the horse owners is not liable to TDS u/s 194B or u/s 194BB and thus, assessee should not be treated as an ‘assessee in default’ u/s 201(1). We further hold that if the assessee furnishes confirmation from all horse owners to the effect that they have included the incomes received from assessee in their respective returns of income, irrespective of our earlier decision, assessee ought to be allowed benefit of decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola (supra) and should not be treated as an ‘assessee in default’. Therefore, we set-aside the order of CIT(A) and direct AO to delete the demand - Appeal of the assessee is allowed, as above. Issues Involved:1. Validity of the order passed under Section 201(1)/201(1A) of the Income Tax Act, 1961.2. Applicability of TDS under Section 194B on 'stake money' paid to horse owners.3. Interpretation of CBDT Circular No. 240 dated 17.05.1978.4. Whether the assessee can be treated as 'assessee in default' under Section 201(1) if recipients have paid taxes on the income.Detailed Analysis:1. Validity of the Order Passed under Section 201(1)/201(1A):The appeal challenges the order passed by the Assessing Officer (AO) under Section 201(1)/201(1A) of the Income Tax Act, 1961, which was upheld by the CIT(A). The order pertains to the non-deduction of tax at source (TDS) on 'stake money' paid to horse owners, treating the assessee as 'assessee in default' and levying interest under Section 201(1A).2. Applicability of TDS under Section 194B on 'Stake Money':The core issue is whether 'stake money' paid to horse owners is liable for TDS under Section 194B. The assessee argued that Section 194B, which deals with winnings from lotteries, crossword puzzles, and card games, should not apply to 'stake money'. Instead, Section 194BB, specifically dealing with winnings from horse races, should be considered. The assessee cited CBDT Circular No. 240 dated 17.05.1978, which explicitly states that 'stake money' is not subject to TDS under Section 194BB. The Tribunal agreed with the assessee, emphasizing that specific provisions (Section 194BB) should prevail over general provisions (Section 194B). The Tribunal also noted that the CBDT Circular is binding on the Department and cannot be disregarded.3. Interpretation of CBDT Circular No. 240:The Tribunal extensively discussed the interpretation of CBDT Circular No. 240, which clarifies that 'stake money' is not considered 'winnings' from horse races and thus not subject to TDS under Section 194BB. The Tribunal held that this Circular remains binding and that the amendment to Section 194B in 2001, which included 'card game or other game of any sort', does not override the specific exclusion of 'stake money' from TDS.4. Assessee as 'Assessee in Default' under Section 201(1):The Tribunal also addressed the alternate plea that the assessee should not be treated as 'assessee in default' if the recipients of the 'stake money' have already paid taxes on this income. The Tribunal referenced the Supreme Court decision in Hindustan Coca Cola Beverages (P) Ltd. vs. CIT, which held that if the recipient has paid taxes, the payer should not be treated as an 'assessee in default'. The Tribunal found that the assessee had provided evidence that the horse owners had included the 'stake money' in their returns and paid taxes accordingly. Therefore, the Tribunal directed that the assessee should not be treated as 'assessee in default' under Section 201(1).Conclusion:The Tribunal concluded that 'stake money' paid to horse owners is not liable to TDS under Section 194B or Section 194BB of the Income Tax Act. The assessee should not be treated as 'assessee in default' under Section 201(1) if the recipients have paid taxes on the income. The order of the CIT(A) was set aside, and the demand raised by the AO was directed to be deleted. The assessee's appeal was allowed.