Per-payment withholding threshold for gaming winnings prevailed, while unclaimed payouts and standard online advertising escaped disallowance.

For the relevant assessment year, the note explains that the withholding threshold for gaming winnings applied to each payment when made, rather than to cumulative wallet balances, because the then-applicable provision contained no aggregation requirement. It further states that withholding-related disallowance could not apply to player payouts not debited to the profit and loss account or claimed as deductible expenditure. Payments for Facebook banner advertising were treated as consideration for a standard facility, not royalty or fees for technical services, because no server rights, dedicated equipment, or managerial, technical, or consultancy services were provided. The discussed tribunal outcome sustained relief for the assessee on all issues.

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Issues: (i) Whether for A.Y. 2017-18 the threshold under Section 194B of the Income-tax Act, 1961 for winnings from card games and other games had to be applied to each individual payment at the time of payment, or by aggregating winnings accumulated in a player's wallet during the financial year; (ii) Whether disallowance under Section 40(a)(ia) of the Income-tax Act, 1961 could be made in respect of player winnings that were not routed through the profit and loss account and were not claimed as deductible expenditure; (iii) Whether disallowance in respect of payments made to Facebook Ireland for online banner advertisements was sustainable on the footing that the payment attracted withholding tax as royalty or fees for technical services.

Issue (i): Whether for A.Y. 2017-18 the threshold under Section 194B of the Income-tax Act, 1961 for winnings from card games and other games had to be applied to each individual payment at the time of payment, or by aggregating winnings accumulated in a player's wallet during the financial year.

Analysis: Section 194B, as applicable for the relevant year, required deduction where winnings were paid in an amount exceeding Rs. 10,000 at the time of payment. The provision did not use the expression aggregate amount or otherwise require clubbing of multiple payments during the financial year. The statutory contrast with Section 194C and Section 194J, which expressly incorporate aggregation language, showed that aggregation could not be imported into Section 194B by implication. The later amendments introduced by the Finance Act, 2023 and the Finance Act, 2025 were treated as showing that Parliament expressly legislates when it intends an aggregate basis or a single-transaction basis. The wallet mechanism was held to be only a technological mode for holding balances and not a basis to deem multiple winnings across dates as one payment. The circulars and authorities relied upon supported a per-payment construction of the unamended provision.

Conclusion: The threshold under Section 194B of the Income-tax Act, 1961 for the relevant year had to be tested with reference to each individual payment made to the winner at the time of payment and not by aggregating wallet balances or cumulative winnings; this issue was decided in favour of the assessee.

Issue (ii): Whether disallowance under Section 40(a)(ia) of the Income-tax Act, 1961 could be made in respect of player winnings that were not routed through the profit and loss account and were not claimed as deductible expenditure.

Analysis: Section 40(a)(ia) operates as a disallowance provision in respect of expenditure otherwise allowable in computing business income where tax deductible at source has not been deducted or paid. The record showed that the impugned payouts to players were not debited to the profit and loss account and were never claimed as deductible expenditure. They were reflected as liabilities and not as business outgoings claimed against taxable income. In such a situation, the disallowance machinery under Section 40(a)(ia) could not be invoked. The Tribunal accepted the alternative contention on this independent ground as well.

Conclusion: Section 40(a)(ia) of the Income-tax Act, 1961 was not attracted because the winnings paid to players were not claimed as expenditure; this issue was decided in favour of the assessee.

Issue (iii): Whether disallowance in respect of payments made to Facebook Ireland for online banner advertisements was sustainable on the footing that the payment attracted withholding tax as royalty or fees for technical services.

Analysis: The Tribunal followed the coordinate bench decisions in the assessee's own cases for earlier years. Those decisions treated the payment for banner advertisement on Facebook's platform as consideration for use of a standard facility, without any possessory or economic rights in the server, without any dedicated equipment being placed at the assessee's disposal, and without any element of managerial, technical, or consultancy service. The payment was therefore not characterised as royalty or fees for technical services, and the relief granted by the first appellate authority was upheld.

Conclusion: The deletion of disallowance relating to payments made to Facebook Ireland was upheld, and this issue was decided against the Revenue and in favour of the assessee.

Final Conclusion: The principal disallowance relating to alleged non-compliance with withholding on gaming winnings was deleted because Section 194B of the Income-tax Act, 1961, in its then form, operated on a per-payment basis and, independently, Section 40(a)(ia) could not be applied where the payouts were not claimed as expenditure. The relief granted on the Facebook Ireland issue was also sustained, resulting in complete substantive success for the assessee in the cross-appeals.

Ratio Decidendi: Where Section 194B of the Income-tax Act, 1961, as applicable to the relevant year, does not expressly provide for aggregation, the TDS threshold must be applied to each payment at the time of payment, and Section 40(a)(ia) cannot disallow sums that were never claimed as deductible expenditure in computing income.

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