TaxTMI 
TaxTMI 
2014 (12) TMI 843
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....51-6652/2013 are as under: (1) quash the notices dated 20.01.2012 and 07.01.2013 issued by third respondent for the years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12 (Annexures-B B1, B2, B3) as being unconstitutional and ultra vires the provisions of Income Tax Act, 1961. (2) Quash notices for the years 2006-07, 2007-08, 2008-09, 2009-10 upto 31.12.2009 (3rd quarter) as being barred by limitation (Annexures-B, B1, B2, B3). (3) Declare that the Circulars issued by the 2nd respondent (Annexure-A) is binding on all authorities under the Income Tax Act, 1961 including the 3rd respondent. (4) Declare that the action of the 3rd respondent issuing show cause notices (Annexures-B, B1, B2, B3) is illegal and the same is contrary to the circular (Annexure-A) dated 17.05.1978. (5) Declare that Stake Money paid by the petitioner cannot be construed as winnings from games as per Section 194B of the Act. (6) Declare that the correct provision applicable in the present case is the Board Circular which supersedes the provisions of Section 194BB of the Income Tax Act and is binding. (7) Declare that the petitioner is not liable to be treated as Assessee in default a....
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....nd 6674/203 that as to what constitutes 'stake money' for the purpose of Section 194B came to be examined by the Department itself and as such, a Circular No.467 came to be issued on 21.08.1986 whereunder it is specifically mentioned about distinction between 'winnings from a race horse' and 'earnings of stake money'. Stake money being a prize money given by a Club to the race horse owner, there is no element of a winnings as defined under the Act and it is also not winnings of race horses because when Section 194B was introduced and sought to be amended, the then Finance Minister made a speech on the Floor of Parliament making it explicitly clear and indicating thereunder that by Finance Act , 1986 Section115BB has been inserted to provide gross winnings from lotteries, crossword puzzles, races including horse races (other than income from the activity of owning and maintaining race horses), card games and other games of any sort or from gambling or betting of any nature whatsoever would be chargeable to income tax at a flat rate of 40% on the gross winnings and contends that this charge of taxation does not apply to the owning and maintaining horses. He co....
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....9;profits and gains'. He contends that Section 194B does not use the expression 'profits', and no distinction is made and it only indicates on winnings tax will have to be paid. Thus, question would be : What is winnings? Whether winnings is taxable under other sources or profits and gains? makes no difference. Hence, this provision will not carry the contention of revenue any further. 5.2 He would draw the attention of the Court to sub-section (4) of Section 58 which provision indicates about the amounts not deductable or in other words, restrictions with regard to computation of the income. He contends that in case of an assessee having income chargeable under the head 'income from other sources' no deduction in respect of any allowance expenditure in connection with such income would be allowed like winnings from lotteries, crossword puzzles, races including horse race. He would also contend that under 'income from profession' whatever expenditure is incurred for earning that income is allowed as an expenditure and if an individual is carrying on business expenditure incidental to such business incurred is also allowed but under this head namely, &....
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....ttention of the Court to paragraph 6 of the statement of objections filed by the Revenue. He contends that until and unless provisions of Section 115BB of the Act is applied, provisions of 194B of the Act cannot be applied on the ground that entire income earned by the race horse owner by way of Stake Money is liable to tax under Section 115BB and as such the contentions of both the petitioners as well as the Revenue revolves around Section 115BB of the Act. He submits that plain reading of Section 115BB itself would indicate that, not being income from the activity of owning and maintaining race horses namely, not being income from the activity of earning and losses suffered in effect would indicate that Section 115BB is not applicable to the horse owner who run, own and maintain a race horse. He submits that if the legislative intent is to specifically exclude by paranthesis or bracket or comma, it is very essential that it would have no application or in other words, it would indicate as to how such income being income from the activity of owning and maintaining horse has to be ignored and he would emphasize a plain reading of the Act, the view that can be arrived at should be c....
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....e second, third, etc., which money is received by the owner of the horse. He contends that the income by way of punting, it is by way of earning in participating in the race namely, by betting as a punter for which the specific provision that would be attracted is, Section 115BB and consequently, Section 194BB would be attracted on such income. In this regard, he draws the attention of the Court to the Circular No.467 dated 21.08.1986 issued by the Board and particularly clause (3) whereunder the 'income from activity of owning and maintaining race horse' has been excluded and contends that stake money or the prize money which race horse owner is getting is not subjected to tax under Section 115BB and as such, Section 74A would be applicable read with Section 2(24)(ix) and the taxability is sought to be brought under Section 115BB wherein the 'income from the activity of owning and maintaining race horses' is excluded. He would contend that Section 2(24)(ix) has to be read harmoniously with Section 74A, 58(4), 115BB and 194B, it cannot be said that under Section 194B the petitioner would be liable to deduct tax. 6.3 He submits that the question of TDS on crosswor....
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....ised by Sri S S Naganand for petitioners and contends that for the first time by Finance Act, 1972 the definition of 'income', in Section 2(24) of the Act was amended to include winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature under clause (ix) as a consequent to it, amendment was brought to Section 56(2) by inserting sub-clause (ib) and such winnings were made chargeable to tax under the head 'income from other sources' and contends that from the beginning, the stake or prize money has been subjected to tax under the provisions of the Act from 1972 onwards. He contends that 'winnings' and 'stake money' are totally different from each other and draws the attention of the Court to Explanation (c) of Section 74A which defines as to what amounts to 'income by way of stake money' and distinguishes the income from 'winnings' which he contends is the amount received by people who bet in horse races and the said horse winning in the race would be the amount constituting 'winnings' as defined under Section 194BB. He further....
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....emption granted by Parliament and as such, no tax was deducted on stake monies paid to horse owners till 2013 when the Department raised a demand. 7.3 He would also contend that to prevent unaccounted income, in the Finance Act, 1986 a flat rate of tax on winnings from lotteries, crossword puzzles, races including horse races, etc., was introduced by Section 115BB and for that purposes, the gross winnings from lotteries, crossword puzzles, races including horse races (other than income from the activity of owning and maintaining race horses), card games and other games or gambling or betting of any nature were made liable to tax at a flat rate of 40% on gross winnings and submits that specific exclusion was laid out in respect of income from the activity of owning and maintaining race horses and in this regard, he draws the attention of the Memorandum explaining the provisions of the Finance Bill, 1986 . He submits that revenue's contention that tax to be deducted on stake money on gross basis would be diametrically opposite to the intention of the legislature since it is only the net income from owning and maintaining horses (including income by way of stake money) will hav....
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....e in the race which is defined as stake money or prize money under Section 74A. He contends that Hon'ble Supreme Court in the case of DR.K.R.Lakshmanan v. State of Tamill Nadu reported in [1996] 2 SCC 226 has held that horse racing is a game of skill and in view of the same, it has to be held that participation in the horse race by its owner is with an intention to win prize and as such, horse race would fall within the ambit of other game of any sort. 8.2 He contends that Section 115BB is the charging section and contends that as per the said section, there are two source of income, namely, (1) the owner of the horse earns from a horse and (2) owning and maintaining a race horse is a different activity which also earns income even without participation in the race and they have been excluded and only the maintenance if without participation in the race earn income like from the breeding , then, only income of such nature is excluded under Section 115BB and if it is a stake money, it is included in Section 115BB. He submits that under Section 74A, specific distinction has been made with reference to sources of income namely, one, maintenance of horse and the other being stak....
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....s of any sort' as defined under Section 2(24)(ix) and as such it would not fall within ambit of Section 194-B of the Act? OR Whether winnings of Stake Money by race horse owners would fall under the definition of Section 2(24)(ix) and consequently Payor is liable to deduct tax under Section 194-B of the Income Tax Act, 1961 with effect from 2001 in view of words "or card game and other game of any sort" having been inserted by Finance Act, 2001. OR When winnings from horse race by way of "Stake Money" covered under Section 194BB is not included thereunder for deduction of income tax as classified by the Department under Circular No.240 dated 17.5.1978 and thereby stake money having been excluded from purview of Section 194BB, can such Stake Money be regarded as Income under Section 194B of the Act and thereby petitioners (Race-Clubs) were required to deduct tax at source while paying "prize money" also called as "stake money" to race horse owners? (iii) What order? In order to answer the points formulated herein above, I am of the considered view that it would be necessary to narrate the facts of these writ petitions, findings recorded by the Assessing Officer....
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....rom taxability on a gross basis. This exclusion cannot be ignored and brought within the auspices of Section 194 B. 3. Stake Money cannot be classified as "winnings" according to clause (c) of the Explanation of Section 74A (1) of the Act and therefore the petitioner Club cannot be said to have violated the provisions of Section 194 B of the income tax Act. 4. Circular No.240 issued by the Central Board of Direct Taxes states that the provisions for deduction of tax at source will not apply to income by way of Stake Money as Stake Money is not regarded as "winning from a horse race" but really constitutes prize money received on a horse race by the owner of a horse. As the circular has neither been amended nor withdrawn, the provisions of the same are binding. FACTS IN W.P. Nos.18696-97/2013: 11. Petitioners in W.P.Nos.18696-97/2013 have contended that it is an Association of race horse owners formed with an object of taking care of welfare of the various horse owners and second petitioner is a race horse owner and has been participating in the racing activity conducted by Bangalore Turf Club Limited and in the course of its activities of organizing and carrying on hors....
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....94B had been widened by the insertion of words [or card game and other game of any sort] with effect from 01.06.2001 and horse race is held to be a game and as such it has to be held that petitioner - Bangalore Turf Club to be an assessee in default under Section 201 of the Act for its failure to deduct the tax from the stake money prizes paid to the horse owners. Said show cause notice came to be replied by the petitioner by submitting a detailed reply. The assessing officer without affording personal hearing to the 'assessee in default' though sought for proceeded to examine the reply given and arrived at a conclusion that it should be held as an assessee in default on the following grounds: (a) horse racing is a game as held by the Hon'ble Apex Court in DR.K.R.LAKSHMAN vs STATE OF TAMIL NADU reported in (1996)2 SCC 226; (b) horse racing is a game involving many wealthy stake holders and earn various rewards including stake money; (c) raising horses and running them in races is not a hobby but a regular systematic and organised activity by such race horse owners and they earn income by sale and lease of race horses. While examining as to whether stake mone....
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....eal, petitioners cannot invoke extraordinary jurisdiction of this Court and as such they cannot maintain present writ petitions. In support of his submissions he has relied upon the following judgments: (1) [2013] 215 TAXMAN 664 (AP) Hyderabad Race Club v. Deputy Commissioner of Income-tax, circle (2) Civil Appeal No.5888/2013 disposed of on 18.07.2013 Commissioner of Income Tax, Gujarat v. Vijaybhai N. Chandrani (3) [2013] 36 Taxman 36 (SC) Commissioner of Income-Tax v. Chhabil Dass Agarwal 16. Per contra learned Advocates appearing for the petitioners in W.P.Nos.6565-6568/2013 have contended that at the first instance after issuance of show cause notice by the third respondent they have invoked the extraordinary writ jurisdiction of this court since there is no appeal provisions under the Income Tax Act to challenge the show cause notice and when the matter was under consideration before this Court Assessing Officer has passed the assessment orders without jurisdiction and as such they have contended present writ petitions are maintainable. It is contended by learned Advocates appearing for petitioners that even otherwise, when the action of the respondents is challen....
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....etation of statutory provisions writ petition would be maintainable. In support of his submissions he has relied upon the following Judgment: 1. [2012] 55 VST 89 KARNATAKA Sasken Communication Technologies Ltd., v. Joint Commissioner Of Commercial Taxes, Bangalore And Another . 18. It would emerge from records that at the first instance petitioner in W.P.Nos.6565-6568/2013 and W.P.Nos.6651-6652/2013 had filed these writ petitions challenging the show cause notices issued to them whereunder the jurisdictional assessing officers had called upon the respective petitioners to show cause as to why action should not be taken against them for not having deducted income tax while making payment of stake money (prize money) to the race horse owners. Undisputedly said show cause notices have been replied by the petitioners and certain details called for have also been furnished to the assessing officers by the respective petitioners. 19. Challenging the said show causes notices on various grounds including the jurisdiction of the authority to issue show cause notice and contending that it is a colourable exercise of power writ petitions came to be filed. During pendency of writ peti....
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.... to interfere in a writ petition unless there are good grounds therefor. But it should be remembered that the rule of exhaustion of statutory remedies before a writ is granted is a rule of self-imposed limitation, a rule of policy, and discretion rather than a rule of law and the Court may therefore in exceptional cases issue a writ such as a writ of certiorari notwithstanding the fact that the statutory remedies have not been exhausted. In The State of Uttar Pradesh v. Mohammad Nooh, 1958 SCR 595, 605=(AIR 1958 SC 86, 93), S.R. Das, C.J., speaking for the Court, observed: "In the next place it must be borne in mind that there is no rule, with regard to certiorari as there is with mandamus, that it will lie only where there is no other equally effective remedy. It is well established that, provided the requisite grounds exist, certiorari will lie although a right of appeal has been conferred by statute. (Halsbury's Laws of England, 3rd Ed., Vol. II, p. 130 and the cases cited there). The fact that the aggrieved party has another and adequate remedy may be taken into consideration by the superior court in arriving at a conclusion as to whether it should, in exercise of its di....
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....petition against a show cause notice has held that availability of alternate remedy would not operate as a bar to invoke the extraordinary jurisdiction atleast in three contingencies namely, where writ petition has been filed for enforcement of fundamental rights or where there has been violation of principles of natural justice or where the order or proceedings is wholly without jurisdiction or the vires of an Act is challenged. It has been held as under: "14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for "any other purpose". 15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious r....
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....ourt without availing the alternative remedy provided the High Court should ensure that he has made out a strong case or that there exist good grounds to invoke the extraordinary jurisdiction. 19. Constitution Benches of this Court in K.S. Rashid and Son v. Income-tax Investigation Commission* AIR 1954 SC 207, Sangram Singh v. Election Tribunal, Kotah AIR 1955 SC 425, Union of India v. T.R. Varma AIR 1957 SC 882, State of U.P v. Mohammad Nooh AIR 1958 SC 86 and K.S.Venkataraman and Co. (P) Ltd., v. State of Madras AIR 1966 SC 1089, held that article 226 of the Constitution confers on all the High Courts a very wide power in the matter of issuing writs. However, the remedy of writ is an absolutely discretionary remedy and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere. The Court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of principles of natural justice or procedure required for decision has not been adopted. 20. Another Constitution Bench of this Court in State of Madhya Pradesh and Anr. v. ....
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....f constitutional provisions and when the authorities have already interpreted these provisions in a particular manner, the question of the party approaching the very departmental authorities would make no difference. That apart, these assessment orders are passed after coming into force of the Finance Act, 1994 and when service tax was imposed. The question for consideration is, when once by a parliamentary legislation, service tax is levied on the entire consideration received by the assessee, whether it is open to the State Legislature to levy sales tax on any portion of the said consideration which has already suffered service tax. Even otherwise also, the question for consideration is as discussed above, whether the contract in question is an indivisible contract or a composite contract and even if it is a composite contract, what is the dominant nature of the contract. These are matters which require to be interpreted by this court. It will have an effect not only on the assessee before this court, but to all the assessees who are similarly placed in the State, so that the law is settled and assessment orders to be passed by the authorities would be in accordance with law. The....
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....uld file a return and seek refund and as such, writ petition by the Trade Unions on behalf of the employees would be maintainable or not has held that the employer was acting as the agent of the revenue and was also an instrument of the State and the alleged violations of the Income tax involved the service conditions of the employees and as such, it has been held that Trade Unions were entitled and justified in filing the writ petitions. It has been held in the said judgment as under: "The alternate remedy is for an assessee to apply to the Income-tax Officer for a certificate under section 197 that the amount presumably is not subject to deduction of tax at source or should be subject to deduction at a lower rate. This section may work well in the case of unusual or extraordinary payments. But in the case of an interest subsidy payable to thousands of employees it would be meaningless to suggest that each employee should approach the Income-tax Officer for a certificate under section 197. Some employees may be able to get it in time, some may not be able to get it. Some Income-tax Officers may grant certificates and some as in the present case deny certificates under some misu....
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.... filed by an unrecognized association has held to the following effect: "62. A technical point is taken in the counter-affidavit that petitioner 1 is an unrecognised association and that, therefore, the petitioner to that extent, is not sustainable. It has to be overruled. Whether the petitioners belong to a recognised union or not, the fact remains that a large body of persons with a common grievance exists and they have approached this Court under Article 32. Our current processual jurisprudence is not of individualistic Anglo- Indian mould. It is broad-based and people-oriented, and envisions access to justice through 'class actions', 'public interest litigation', and 'representative proceedings'. Indeed, little Indians in large numbers seeking remedies in courts through collective proceedings, instead of being driven to an expensive plurality of litigations, is an affirmation of participative justice in our democracy. We have no hesitation in holding that the narrow concept of 'cause of action' and 'person aggrieved' and individual litigation is becoming obsolescent in some jurisdictions. It must fairly be stated that the learned Attor....
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.... Court. But it must not be forgotten that procedure is but a handmaiden of justice and the cause of justice can never be allowed to be thwarted by any procedural technicalities. The Court would therefore unhesitatingly and without the slightest qualms of conscience cast aside the technical rules of procedure in the exercise of its dispensing power and treat the letter of the public-minded individual as a writ petition and act upon it. Today a vast revolution is taking place in the judicial process; the theatre of the law is fast changing and the problems of the poor are coming to the forefront. The Court has to innovate new methods and devise new strategies for the purpose of providing access to justice to large masses of people who are denied their basic human rights and to whom freedom and liberty have no meaning. The only way in which this can be done is by entertaining writ petitions and even letters from public spirited individuals seeking judicial redress for the benefit of persons who have suffered a legal wrong or a legal injury or whose constitutional or legal right has been violated but who by reason of their poverty or socially or economically disadvantaged position are ....
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....ain and the public injury must go unredressed? To answer these questions it is first of all necessary to understand what is the true purpose of the Judicial function. This is what Prof. Thio states in his book on Locus Standi and Judicial Review: Is the judicial function primarily aimed at preserving legal order by confining the legislative and executive organs of government within their powers in the interest of the public (Jurisdiction de droit objectif) or is it mainly directed towards the protection of private individuals by preventing illegal encroachments on their individual rights (jurisdiction de droit subjectif)? The first contention rests on the theory that Courts are the final arbiters of what is legal and illegal ....Requirements of locus standi are therefore unnecessary in this case since they merely impede the purpose of the function as conceived here. On the other hand, where the prime aim of the judicial process is to protect individual rights, its concern with the regularity of law and administration is limited to the extent that individual rights are infringed. We would regard the first proposition as correctly setting out the nature and purpose of the judic....
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....ainst the State or a public authority by any citizen will induce the State or such public authority to act with greater responsibility and care thereby improving the administration of justice. Lord Diplock rightly said in Rex v. Inland Revenue Commissioners. [1981] 2 WLR 722,740. It would, in my view, be a grave lacuna in our system of public law if a pressure group, like the federation, or even a single public-spirited taxpayer, were prevented by outdated technical rules of locus standi from bringing the matter to the attention of the Court to vindicate the rule of law and get the unlawful conduct stopped.... It is not, in my view, a sufficient answer to say that judicial review of the actions of officers or departments of Central Government is unnecessary because they are accountable to Parliament for the way in which they carry out their functions. They are accountable to Parliament for what they do so far as regards efficiency and policy, and of that Parliament is the only judge; they are responsible to a Court of Justice for the lawfulness of what they do, and of that the Court is the only judge. This broadening of the rule of locus standi has been largely responsible fo....
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....not maintainable and said contention raised by the revenue is hereby rejected. RE: POINT NO.(2) 34. In view of point No.(1) having been answered in the affirmative, let me examine these writ petitions on merits. 35. The petitioner-clubs (hereinafter referred to as 'Turf Club') in the course of its activities of organising and carrying on horse racing, has been offering and paying price money to the owners of winning horses. Price money is also referred to as 'stake money' which is earned by the horse owners, whose horses win in a race. This money paid to the race horse owners would be in addition to the trophy that is given for some of the races. 36. The statutory provisions having a bearing on the point and its analysis will have to be made by considering the circulars issued by the Department and then record my finding thereon. STATUTORY PROVISIONS OF INCOME TAX ACT, 1961: CHAPTER -I Definitions. 2. In this Act, unless the context otherwise requires, - (24) "income" includes - "(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form o....
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....d- (a) it shall be set off against the income, if any, [from the activity of owning and maintaining race horses] assessable for that assessment year: Provided that the activity of owning and maintaining race horses is carried on by him in the previous year relevant for that assessment year; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on; so, however, that no portion of the loss shall be carried forward for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. Explanation.- For the purposes of this sub- section- (a) "amount of loss incurred by the assessee in the activity of owning and maintaining race horses" means- (i) in a case where the assessee has no income by way of stake money, the amount of expenditure (not being in the nature of capital expenditure) laid out or expended by him wholly and exclusively for the purposes of maintaining race horses; (ii) in a case where the assessee has income by way of stake money, the amount by which such income falls short of the amount of expenditure (not bein....
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....om a licence has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race in an amount exceeding two thousand five hundred rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force. Certificate for deduction at lower rate "197 (1) Subject to rules made under sub-section 2(A), where in the case of any income of any person, or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194-I, 194J, 194K, 194LA and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income tax as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate. (2) where any such certificate is given, t....
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....g such horses. 40. Section 74A was inserted by Finance Act, 1972, with effect from 01.04.1972. Sub-section (3) was inserted by Finance Act, 1974 with effect from 01.04.1975. Sub-section (1) and (2) came to be omitted and sub-section (3) was amended by Finance Act, 1986 with effect from 01.04.1987. Sub-section (3) and its explanation deals with manner of carry forward and set off of income from the activity of owning and maintaining horses. The explanation (a) deals with the manner of computation of losses. Explanation (c) defines stake money. 41. A reading of explanation (c) to sub section (3) of Section 74A would indicate that 'stake money' is an income arising out of the activity of owning and maintaining horses. It would also indicate that in case where the assessee has no income by way of stake money in the relevant year, the whole of the revenue expenditure laid out or expended by him wholly and exclusively for the purposes of maintaining race horses will be regarded as the loss incurred by him in the activity of owning and maintaining horses. However, where the assessee has income by way of stake money in the relevant year the amount of loss incurred by him in t....
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....the maintenance of horses. In fact, the activity of maintaining horses and running them in races is somewhat akin to a business carried on by a tax-payer in an organised manner. Under the existing provisions of law, however, while the losses incurred by a taxpayer in his business or profession are allowed to be carried forward and set off against the profits of the business or profession in subsequent years up to a period of eight assessment years, a race horse owner is not allowed to carry forward and set off the losses attributable to maintenance of such horses in subsequent years. With a view to mitigating the hardship arising from this position, the Bill seeks to provide that owners of race horses will be entitled to carry forward and set off the loss incurred by them on maintenance of race horses against their income from the source "races including horse races" in subsequent years. However, unlike taxpayers engaged in business or profession who are allowed to carry forward business losses up to eight years, the benefit of carry forward in such cases will be allowed only for four assessment years next following the assessment year for which the loss was first computed. Certain....
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....ncome by way of winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any nature whatsoever is chargeable to tax under the head "Income from other sources" along with the other incomes of an assessee. It has been found that in several cases, lotteries have provided a medium to the assessees to camouflage their unaccounted income/wealth. Further, with a view to reducing the liability to tax, very often it has been contended that the winnings belong to several co-owners. Similarly, in the case of winnings from horse races, fictitious losses are set off against the winnings resulting in claims for refund of tax deducted at source. To curb these malpractices, the Finance Bill seeks to insert a new section 115BB to provide that gross winnings from lotteries, crossword puzzles, races including horse races (other than income from the activity of owning and maintaining race horses), card games and other games of any sort or from gambling or betting of any nature whatsoever shall be chargeable to income-tax at a flat rate of 40 per cent on the gross winnings." 45. Consequent to introduction of Sectio....
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.... by Finance Act, 2001. After the words 'cross-word puzzle' the words 'or card game and other game of any sort' was inserted with effect from 01.06.2001. 48. Section 194BB was introduced by Finance Act, 1978, with effect from 01.04.1978 which provides for deduction of tax at source from income by way of winnings from horse races at such rates as prescribed. The Central Board of Direct Taxes by way of explanatory notes on the provisions of the Finance Act, 1978, issued Circular No.240 dated 17.05.1978 which indicates that the provisions of Section 194BB would not apply to stake monies since such stake monies are not regarded as winnings from a horse race or races but constitute prize money which the owner of a race horse receives on account of his horse winning a position in the race. 49. The Circular No.240 issued in this regard would read as under: "25.1 Deduction of tax at source from income by way of winnings from horse races - Section 194BB - The Finance Act has inserted a new section 194BB in the Income Tax Act to provide for deduction of tax at source from income by way of winnings from horse races at such rates as may be prescribed in the Finance Act ....
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....djustment of the losses debited to his individual account may be less than Rs. 2,500/-. (e) The expression "any horse race" occurring in section 194BB would, where the context so requires, include more than one horse race. In view thereof, winnings by way of jackpot and treble pool would fall within the ambit of section 194BB. (f) The provisions for deduction of tax at source will, however, not apply to income by way of stake money. This is because "stake money", in common parlance, is not regarded as winnings from a horse race, but really constitutes the "prize money" received on a horse race by the second or in any lower position. (g) Part II of the Schedule to the Finance Act provides for the deduction of tax at source from such winnings at the rate of 34.5 per cent, (income-tax 30 per cent, plus surcharge 4.5 per cent.) in the case of resident non-corporate tax payers. In the case of non-resident non-corporate tax-payers, tax will be deductible on the same basis as is currently applicable to income other than interest payable on a tax-free security, i.e., at the rate of 34.5 per cent or the higher appropriate rate applicable to the winnings from horse races if such win....
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....o the decision of the Supreme Court in Navnit Lal C.Jeveri v. K.K. Sen [1965] 56 ITR 198 and Ellerman Lines Ltd., v Commissioner of Income tax [1971] 82 ITR 913, wherein it was held that the circular issued by the Board would be binding on all officers and persons employed in the execution of the Income tax Act. Thus, the Income-Tax Officers are bound to follow the instruction issued by the Board." and instructed the ITO's that "while completing the assessments they should keep in mind the assurance given by the Minister of Finance and the provisions of s. 52(2) of the I.T. Act may not be invoked in cases of bona fide transactions". These two circulars of the CBDT are, as we shall presently point out, binding on the tax department in administering or executing the provision enacted in sub-s.(2), but quite apart from their binding character, they are clearly in the nature of contemporanea expositio furnishing legitimate aid in the construction of sub-s. (2). The rule of construction by reference to contemporanea expositio is a well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way wh....
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....same circular No.240 dated 17.05.1978 came up for consideration before the Division Bench of Madras High Court in the case of CIT. v. investment Trust of India Ltd reported in (2003)264 ITR 506 (Madras) and came to be held as binding on the department. 52. It is the contention of Sri K.V.Aravind, learned Standing Counsel for the Income Tax Department that deductor has no right to question the validity of deduction to be made and only after filing the return of income same can be assailed in the assessment proceedings. He has relied upon the following judgment: Commissioner of Income-Tax v. Eli Lilly And Co.(India) P.Ltd.,-[2009] 312 ITR 225 (SC) (i) Whether the TDS provisions which are in the nature of machinery provisions are independent of the charging provisions? At the outset, we wish to clarify that our judgment is confined strictly to the question of deductibility of tax from the "income chargeable under the head 'Salaries' under section 192(1). This introduction is important for the reason that unlike other sections in Chapter XVII-B regulating deduction of tax at source out of other payments, section 192 requires such deduction on "estimated income" char....
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....ned in either of the sub-sections. Further, interest under section 201(1A) is a compensatory measure for withholding the tax which ought to have gone to the exchequer. The levy of interest is mandatory and the absence of liability for tax will not dilute the default. The liability of deducting tax at source is in the nature of a vicarious liability, which pre-supposes existence of primary liability. The said liability is a various liability and the principal liability is of the person who is taxable. A bare reading of section 201(1) shows that interest under section 201(1A) read with section 201(1) can only be levied when a person is declared an assessee-in-default. For computation o interest under section 201(1A), there are three elements. One is the quantum on which interest has to be levied. The second is the rate at which interest has to be charged. The rate of interest is provided in the 1961 Act. The quantum on which interest has to be paid is indicated by section 201(1A) itself. Sub-section (1A) specifies "on the amount of such tax" which is mentioned in sub-section (1) wherein, it is the amount of tax in respect of which the assessee has been declared in default. The object....
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....t of tax deduction along with lotteries and cross-word puzzles. It is relevant to point out that words namely, 'card game and other game of any sort' which came to be inserted in Section 194B was already in existence in the definition clause namely, Section 2(24)(ix) with effect from 01.04.1972 and Section 115BB from the year 01.06.1987 introduced by Finance Act, 1986 itself. By insertion of these words, the Parliament has sought to bring into sweep the TDS to be made by the Payor even for the activity of 'card game and other game of any sort' by adding Explanation (ii) to Section 2(24)(ix). The budget speech of the Finance Minister would indicate the back drop in which amendment to Section 194B was sought to be introduced namely, vast number of people were participating and winning various gifts or prizes in television shows and entertainment programs conducted by Electronic Media in respect of which the element of evasion of tax was found or in other words, such prize money paid to the winner/s was not being taxed. As such, explanation (i) and (ii) also came to be inserted to Section 2 (24) (ix) of the Act by Finance Act, 2001 with effect from 01.06.2001 which und....
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..... 55. Thus, a conspectus reading of the provisions of the Act, circulars and the speech of the Finance Minster would indicate that amendment brought about by Finance Act, 2001 had no bearing over income derived from owning and maintaining horses. 56. The revenue has made an attempt to contend that on account of the words 'or card game and other similar game' introduced by way of insertion to Section 194B by Finance Act, 2001 would encompass the income by way of stake money and thereby an obligation is cast on the Turf Clubs to deduct the tax at source on such stake money paid to the race horse owners requires to be considered with utmost circumspection for reasons more than one. Firstly, the definition clause under the Income Tax Act, is to be construed as inclusive definition and not exhaustive. 57. Further, the words 'or card game and other game of any sort' found in Section 194B is to be read ejusdem generis. It can also be gain said that the doctrine of noscitur a sociis namely the meaning of the word is to be judged by the company it keeps would be applicable. The said principle came up for consideration before the Hon'ble Apex Court in the case of....
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....ppear to me to be so wide in their application that I should have thought it impossible to qualify or cut them down by their being associated with other words on the principle of their being ejusdem generis with the previous words enumerated ". If the object and scope -of the statute are considered there would be no difficulty in holding that the relevant words of wide import have been deliberately used by the Legislature in defining "industry" in s. 2(j). The object of the Act was to make provision for the investigation and settlement of industrial disputes, and the extent and scope of its provisions would be realised if we bear in mind the definition of " industrial dispute " given by S. 2(k), of " wages" by S. 2(rr), "workman " by S. 2(s), and of " employer by s. 2(g). Besides, the definition of public utility service prescribed by s. 2(m) is very significant. One has merely to glance at the six categories of public utility service mentioned by s. 2(m) to realise that the rule of construction on which the appellant relies is inapplicable in interpreting the definition prescribed by s. 2(j)." 58. When the words 'and other game of any sort' used in Section 194B is ex....
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....ich is once again extracted herein below: "Winnings from lotteries, crossword puzzles etc., are currently taxed at 40%. As the marginal personal income-tax rates have now stabilized at 30%, this income will also now be taxed at 30%. Television game shows are very popular these days. I wish the winners well. At the same time, I propose that income-tax at the rate of 30% will be deducted at source from the winnings of these and all similar game shows." Ejusdem generis, principle of construction would mean same kind or nature, whereby wide words associated in the text with more limited words are taken to be restricted by implication to matters of the same limited character. For this principle to apply there should be sufficient indication of a category that can properly be described as a class or genus, even though not specified as such in the enactment. The nature of genus is gathered by implication from the express words which suggests it. 62. Now, turning my attention to the facts on hand and explanation (ii) inserted by Finance Act, 2001 is perused and also read along with Section 194B it can be easily inferred the legislature has intended to bring such income earned by t....