2021 (10) TMI 1135 - AT - Income Tax

Tribunal Decision: Assessee's Appeal Partly Allowed, Revenue's Appeal Dismissed

M/s. Bangalore Turf Club Ltd. Versus The Deputy Commissioner of Income Tax, Circle-1 (1) (2), Bangalore. And (Vice-Versa)

M/s. Bangalore Turf Club Ltd. Versus The Deputy Commissioner of Income Tax, Circle-1 (1) (2), Bangalore. And (Vice-Versa) - TMI Issues Involved:1. Disallowance under section 40(a)(ia) for non-deduction of TDS on stake money.2. Applicability of binding judgment which has been stayed.3. Disallowance of expenditure on re-modification of TV towers under section 37.4. Disallowance of expenditure on constructing temporary stables, repairs to existing stables, and concreting of such stables under section 37.5. Disallowance of expenditure on upgrading UPS systems under section 37.6. Interest levied under section 234B.Issue-wise Detailed Analysis:1. Disallowance under section 40(a)(ia) for non-deduction of TDS on stake money:The Tribunal addressed the disallowance of Rs. 33,87,11,726/- under section 40(a)(ia) for non-deduction of TDS on stake money paid to horse owners. The assessee argued that TDS was not deductible under sections 194BB or 194B, supported by a Karnataka High Court decision and CBDT Circular No. 240 dated 17/05/1978. The Tribunal noted that the Karnataka High Court's interim order stayed the obligation to deduct TDS on stake money and directed authorities to reconsider the matter. The Tribunal, following the Mumbai Tribunal's decision in Royal Western Turf Club Ltd. vs. ACIT, concluded that stake money is not liable to TDS under sections 194B or 194BB, and thus, no disallowance could be made under section 40(a)(ia).2. Applicability of binding judgment which has been stayed:The Tribunal acknowledged the Karnataka High Court's interim order staying the Single Judge's decision, which held that stake money is not subject to TDS under sections 194B or 194BB. The Tribunal emphasized that the stay does not negate the decision's authority as a precedent and directed the AO to delete the disallowance made under section 40(a)(ia).3. Disallowance of expenditure on re-modification of TV towers under section 37:The Tribunal examined the disallowance of Rs. 8,40,000/- for re-modification of TV towers. The assessee argued that the expenditure was for adapting to new technology and did not provide an enduring benefit. The Tribunal, referencing the Supreme Court's decision in Empire Co Ltd vs. CIT, held that the expenditure facilitated the assessee's business operations and was revenue in nature. The Tribunal directed the AO to delete the disallowance.4. Disallowance of expenditure on constructing temporary stables, repairs to existing stables, and concreting of such stables under section 37:The Tribunal considered the disallowance of Rs. 1,04,79,000/- for constructing temporary stables and repairs. The assessee claimed these were revenue expenditures. The Tribunal agreed that the structures provided an enduring benefit and should be treated as capital assets. However, it directed the AO to allow the expenditure incurred for repair work as revenue expenditure.5. Disallowance of expenditure on upgrading UPS systems under section 37:The Tribunal reviewed the disallowance of Rs. 12,20,000/- for upgrading UPS systems. The assessee argued that the expenditure was necessary for business operations and did not provide an enduring benefit. The Tribunal found that upgrading the UPS resulted in a new asset for the assessee's advantage and should be treated as capital expenditure. The Tribunal directed the AO to grant depreciation on the UPS.6. Interest levied under section 234B:The Tribunal noted that this issue was consequential and did not require adjudication.Revenue's Appeal:The Tribunal addressed the revenue's appeal regarding the treatment of expenditure on maintenance of betting systems and asphalting of roads. The Tribunal upheld the CIT(A)'s decision that these expenditures were revenue in nature, as they were incurred for maintaining existing assets and were intrinsically connected to the assessee's business operations.Conclusion:The Tribunal allowed the assessee's appeal partly and dismissed the revenue's appeal. The Tribunal directed the AO to delete the disallowances made under sections 40(a)(ia) and 37 for certain expenditures and to grant depreciation on the UPS. The Tribunal emphasized the importance of adhering to binding precedents and CBDT circulars in determining the tax treatment of expenditures.