TaxTMI 
TaxTMI 
2020 (12) TMI 1280
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....r of Income Tax-(Appeals)-1 (`CIT(A)') has erred in confirming the said order. The said order being bad in law is liable to be quashed. 2. Grounds relating to disallowance under section40(a)(ia) 2.1. The learned CIT(A) has erred in confirming the disallowance in respect of payment of stake money amounting to Rs. 34,15,30,436 under section 40(a)(ia) without appreciating the fact that no tax was deductible under section 194BB or 194B of the Act. 2.2. The learned CIT(A) has erred in not appreciating that section 194BB does not cover stake money paid to horse owners; a legal proposition accepted by the Board in Circular No 240 dated 17.05.1978. The disallowance made by the learned AO and confirmed by learned CIT(A) is therefore against the mandate of a binding circular. 2.3. Assuming and without admitting that the disallowance under section 40(a)(ia) is correct, such disallowance must be restricted to 30% as the amendment made by Finance Act (No.2), 2014 with effect from 01.04.2015 is remedial in nature and hence retrospective in its applicability. 3. Grounds relating to applicability of a binding judgment which has been stayed. ....
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....ke money paid to horse owners of Rs. 34,15,30,436/- be deleted b) Interest levied under section 234B amounting to Rs. 3,93,70,932 be deleted. c) Interest levied under section 234C amounting to Rs. 22,440 be deleted. The appellant prays accordingly. Brief facts of the case are as under: 2.1 Assessee is company engaged in the business of conducting horse races. It has been observed by Ld.AO that assessee would collect ticket money from across the counters and disburse the money to winners immediately it is also been observed by Ld.AO that assessee maintains to set of books of accounts viz primary and secondary, and the financials are prepared as per the primary books. 2.2 Ld.AO noted that during the assessment year 2012-13 assessee collected total sum of Rs. 1,354.44 crores through counters and the revenue recognised and declared by assessee was at 12.75% treating them as club, amount amounting to Rs. 173.59 crores which was a part of primary books. 2.3 Ld.AO noted that the balance amount of Rs. 1180.85 crores was disbursed as prise money to the betting individual (partners). Ld.AO also noted that assessee does not maintain the nam....
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....hat withholding tax on the price money paid to winning Horse owner is not applicable. However, the AO has relied on the appeal filed by the department before the division bench of the Hon'ble Karnataka High Court, having not accepted the Judgement of the Hon'ble Single Judge of the Karnataka High Court supra. However, it is observed that the appeal filed by the department against the Judgement of the Hon'ble Single Judge of the Karnataka High Court supra, was disposed by vide interim order WA 60/2015 dated 07-12-2016, wherein, the Hon'ble Karnataka High Court observed that: 7. The observations made by the learned Single Judge in the impugned judgment so far as interpretation of the respective provisions of the Act for TDS, shall remain stayed... The relevant extract is reproduced supra in para 9 of this order. Considering the above, I am of the view that the matter has not reached any finality and the Hon'ble High court has given liberty to the AO to take a decision in the matter based on the facts and circumstances of the case in the proceeding under Section 201 of the Act. These proceedings u/s. 201 have direct bearing on the allowab....
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....e aspects of the amount of TDS to be deducted towards stake money by the club, we find that as up till now in past, deduction has not been made and the question is to be considered on the aspects of deduction by the club while making payment of the stake money. It appears to us that, the payee of the stake money should file an undertaking to this Court that as and when it is so directed by the Court, the amount of TDS shall be deposited with the club for enabling the club to deposit the amount with the Revenue/Income Tax Department." 8. At para 5 of the interim order on Writ Appeal filed by the department (WA 60/2015), the observations of the learned Single Judge in Bangalore Turf Club Ltd v U01 (2014) 228 Taxman 234 on the obligation of the appellant to deduct TDS or whether TDS provisions would be applicable or not was stayed and it was held as under. "5. As the matter may required to be considered denovo by the authority concerned, it would be appropriate to stay the observations made by the learned Single Judge so far as they relate to the obligation of the club to deduct TDS or as to whether the provisions of TDS would be applicable or not. But, of course, ev....
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....TDS not deducted pursuant to this order. 11. It is also clarified that pending present proceedings, it would be open to the person concerned/owner of the horse to show the income of stake money received in their respective returns in accordance with law and the pendency of these proceedings shall not operate as a bar in the assessment proceedings before the respective authority. However, it is observed that, the assessment order if any passed in respect of any owner of the horse/person concerned shall be placed on record which may be considered by the Court at the time when final order is to be passed on the aspects of re-deposit of the amount of TDS or otherwise as observed earlier. 12. Office to place the matter upon a note filed by either side declaring that the order is passed by the appropriate authority pursuant to show cause notice. 13. It is observed and directed that the appropriate authority shall independently consider the matter without being in any manner influenced by any observations made by the learned Single Judge or the earlier order passed by it. The authority shall consider the matter independently in accordance with law. 4.2 Ld.AR ....
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....r: 5. Before us, the first argument put forth by the learned representative for the assessee was that Section 194BB of the Act was brought in the statute by Finance Act, 1978 w.e.f. 01.04.1978, and it applies to a person who has license for horse racing and who is responsible for paying to any person any income by way of winning from horse races. A Circular was issued by the CBDT explaining the provisions of the Finance Act, 1978 i.e. Circular No. 240 dated 17.05.1978. In para 25.1.6 of the said Circular, it is specifically provided that the provisions of TDS shall not apply to income by way of 'Stake Money' as the term 'Stake Money' constitute the prize money received by the owners of the horse on account of the fact that the horse wins the race or comes second or third, as the case may be. It was contended that the CBDT Circulars are binding on the Departmental authorities, as held by the Hon'ble Supreme Court in the cases of K.P. Verghese v. ITO [1981] 7 Taxman 13/131 ITR 597 and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913. In fact, the very same Circular No. 240 dated 17.05.1978 came up for consideration before the Madras High Court in the case of ....
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.... the Legislature to deal specifically with horse races, the Revenue cannot invoke a general section, such as 194B of the Act, to hold the assessee in default. In this regard, reliance was also placed on decision of Hon'ble Supreme Court in the case of U.P. State Electricity Board v. Hari Shankar Jain [1978] 4 SCC 16 and LIC v. D.J. Bahadur [1981] 1 SCC 315. 7. Thereafter, the learned representative for the assessee explained why the provisions of Section 194B of the Act are not applicable. It was pointed out that when Section 194B of the Act was amended in 2001 to insert the words 'card game or other game of any sort', the intention was to cover TV shows and quiz shows. Correspondingly, another amendment was brought in Section 2(24)(ix) of the Act w.e.f. from 01.04.2002 and an Explanation was added explaining that the words 'card game or other game of any sort' shall include any game show, an entertainment program on TV or any electronic mode in which people compete or any other similar game. A combined reading of Sections 194B and 2(24)(ix) Explanation (ii) makes it clear that the said amendment would not apply to winning from horse races. This fact is....
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....amount won by the punter in that horse race reduced by the amount invested by way of bet on the particular horse or horses which won the race, and not by the amount invested on the horse or horses which lost in that race. Hence, where a punter invests Rs. 100 each on two horses - horse "A" and horse "B"- in a particular horse race, and he wins Rs. 500 on the bet placed on horse "A" but loses the bet on horse "B", the winnings of the punter from this horse race would be Rs. 400 (Rs. 500 Rs. 100) and not Rs. 300 (Rs. 500-Rs. 200). 6. 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 horse race, but really constitutes the "prize money" received on a horse race by the owner thereof on account of the fact that the horse wins the race or stands second or in any lower position." (underlined for emphasis by us) It has also been emphasized that even the Legislature accepts the aforesaid understanding of "stake money" inasmuch even Section 74A of the Act explains the meaning of "stake money" as contained in CBDT Circular dated 15.05.1978....
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....er game of any sort' in the instant situation refers to games akin to the games which are specifically mentioned in the text of Section 194B of the Act. The other principle is that of 'noscitur a sociis', which means that a word is to be judged by the company it keeps. In other words, in case of doubt, meaning of a word can be ascertained with reference to the meaning of words associated with it. Reliance in this regard was placed on the decision of Hon'ble Supreme Court in the case of State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610. Thus, when the words 'or other game of any sort' used in Section 194B of the Act are examined with reference to the preceding words and interpreted, it can be concluded that the activity of owning and maintaining horses cannot be equated with lotteries and card games. Moreover, words used in Section 194B of the Act are lottery, crossword-puzzle, and card games, which are essentially 'luck oriented' as opposed to being 'skill oriented' and hence, it would be wrong to equate a horse race, which is skill oriented with luck oriented games. It has also been explained that the Hon'ble Supreme Court in cas....
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....ection 74A of the Act, which provided for set-off of losses with respect to lotteries etc., were omitted, but Sub-section (3), as discussed above, continued. Thus, as per the appellant, the Legislature has always treated lotteries and such other games differently from the activity of maintaining and owning horses. 13. It was further pointed out that identical issue was raised in the case of Bangalore Turf Club Ltd. v. Union of India [2014] 52 taxmann.com 290/[2015] 228 Taxman 234, wherein Single Judge Bench of the Hon'ble Karnataka High Court has ruled this issue in favour of the assesse. It was held that prize money paid by the Race Course to the owners of the horses would not attract the provisions of Section 194B of the Act. Against this Single Bench ruling, the Department moved to the Division Bench, which has sent back the case to the file of the Assessing Officer to adjudicate the issue de novo. Furthermore, it has been mentioned that the Chennai Bench of the Tribunal in the case of Madras Club v. DCIT [IT Appeal No. 646-657 (Mds) of 2015] and Hyderabad Bench of the Tribunal in the case of Hyderabad Race Club [IT Appeal No. 319/323 (Hyd) of 2015] has adjudicated ....
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....laced on the following judgments :- Gujarat Pipavav Port Ltd. v. Dy. CIT [2013] 40 taxmann.com 174/[2014] 149 ITD 23 (Rajkot - Trib.)Radeus Advertising (P.) Ltd. v. Asstt. CIT [2017] 80 taxmann.com 353/164 ITD 384 (Mumbai - Trib.) 16. The Ld. DR, on the other hand has merely placed reliance on the orders of the authorities below, and reiterated the reasoning contained in the respective orders, which we have already noted in the earlier part of the order, and is not being repeated for the sake of brevity. 17. We have carefully considered the rival submissions. The issue before us is limited to the applicability of TDS on the 'stake money' paid by the assessee to the owners of the horses who win the races. In this context, we shall first discuss the type of payments made by the assessee to owners on winning of the horse races. The assessee makes two types of payments. First, is in the nature of amount paid to the person who bets on the horses/jockeys. There is no dispute with regards to applicability of TDS on this type of payment as the same is liable for TDS u/s 194BB of the Act. We are concerned with the second type of payment made by the assesse....
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.... interpreting the section. From the heading of the Section 194B of the Act it is amply clear that there is no whisper that Section 194B of the Act was intended to cover within its purview winnings from horse races. Now coming to the heading of Section 194BB of the Act, which reads as "Winning from horse race". Going by the heading of the two sections, it can be seen that Section 194BB of the Act is a specific section dealing with TDS on the winnings from horse races. Though the CBDT has specifically excluded "stake money" from the ambit of section 194BB of the Act by way of Circular No. 240 dated 19.05.1978, but it cannot be disputed that Section 194BB of the Act is the specific section which deals with TDS on 'Winning from horse races'. 19. Now, coming to the argument raised by the Assessing Officer that the Finance Act, 2001 has inserted the words 'card game or other game of any sort' in Section 194B of the Act which will even cover the "stake money" which is otherwise not covered by Section 194BB of the Act. We find that at the time when the amendment was brought in Section 194B of the Act, Section 194BB of the Act, which specifically dealt with TDS on w....