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 cannot be deemed as 'assessee in default' under Section 201(1) if recipients have already paid taxes on the income. The Tribunal set aside the CIT(A)'s order, directed deletion of the demand raised by the AO, and allowed the assessee's appeal.

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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.

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