Net online gaming winnings determine taxability, while skill-based card-game prizes remain taxable income for tax purposes.
Skill-based online card-game winnings fall within taxable income and remain subject to the special tax treatment for winnings; the online mode and the game's skill-based character do not alter that treatment. Taxability, however, requires identification of real net winnings rather than aggregation of gross credits entering an online gaming wallet. Repeated wallet credits, debits and redeployment do not themselves establish taxable income. The restriction on deducting expenditure does not displace the prior requirement to determine whether an actual gain arose. Verified buy-in amounts must therefore be considered in determining net accretion, and a net loss does not create taxable winnings.
Issues: (i) Whether winnings from skill-based online card games constitute income under section 2(24)(ix) and are taxable under section 115BB for AY 2022-23; (ii) Whether gross gaming-wallet credits, rather than real net winnings after buy-in amounts, could be assessed under section 115BB.
Issue (i): Whether winnings from skill-based online card games constitute income under section 2(24)(ix) and are taxable under section 115BB for AY 2022-23.
Analysis: Section 2(24)(ix) includes winnings from card games and other games of any sort. The governing interpretation does not confine "winnings" to chance-based receipts and recognises prize money from skill-based competitions as taxable income. The online mode of playing a card game does not alter its essential character for the purpose of section 115BB.
Conclusion: Winnings from skill-based online card games are income within section 2(24)(ix) and taxable under section 115BB. This issue is against the assessee.
Issue (ii): Whether gross gaming-wallet credits, rather than real net winnings after buy-in amounts, could be assessed under section 115BB.
Analysis: The expression "income by way of winnings" in section 115BB requires identification of real income and not gross transactional movements arising from repeated credits, debits and redeployment of funds in an online gaming wallet. The bar on deduction of expenditure under section 58(4) does not remove the prior requirement of determining whether any real winnings arose. The later net-winnings framework under sections 194BA and 115BBJ, Rule 133 and the relevant CBDT circular was treated as clarificatory of this principle. The verified buy-in amounts exceeded the gross winnings, resulting in a net loss.
Conclusion: Only real net winnings, and not gross gaming-wallet credits, are taxable under section 115BB. As the gaming activity resulted in a net loss, the addition was deleted. This issue is in favour of the assessee.
Final Conclusion: Gross online-gaming receipts cannot be assessed as winnings where verified buy-in amounts establish that no real net gain accrued, notwithstanding that skill-based game winnings are in principle taxable.
Ratio Decidendi: Taxability of online-gaming winnings under section 115BB is confined to actual net accretion after accounting for buy-in amounts, not gross wallet credits; the skill-based character of the game does not exclude winnings from taxable income.