TaxTMI 
TaxTMI 
2020 (12) TMI 1280
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....firming 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. 3.1 The learned AO has erred in not following the decision of the Jurisdictional High Court in Banga....
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....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 name address and pan of winning persons to whom the prize money were disbursed owing to its volume. The details such as ticket No., ticket amount and prize money disbursed are maintained in the secondary book wh....
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....ment 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 allowability of expenditure by the Assessing Officer u/s. 40(a)(ia) of the Act. considering the reasoning of the AO in the impugned order I am of the view that the amount paid as prize money / stake money to the horse owners upon his Horse winning the race, is nothing but....
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....ey 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, even if the authority after hearing the parties passes the appropriate order, the same should not be implemented without leave of this Court." 9. Subsequently, the Karnataka High Court, by vide interim order WA 60/2015 dated 07-12-2016 held as under: 6. "In view of the aforesaid, we are inclined to pass thv following inte....
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....ctive 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 submitted that Hon'ble Karnataka High Court stayed the operation of order dated 26/09/2014 and directed authorities below not to recover any demand under section 201(1) and 201(1A), for relevant assessment years which also included assessment year 2012-13 in assessee's case, without the leave of Hon'ble Court. Hon'ble Court vide para 8 also directed to decide whether the provisions of TD....
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.... 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 CIT v. Investment Trust of India Ltd. [2003] 127 Taxman 168/264 ITR 506 and it was held to be binding on the Departmental authorities. Accordingly, it has been explained that in view of the Circular of CBDT dated 17.05.1978 (supra), which specifically provides that no TDS is required to be made in respect of payment of stake money, the Assessing Officer is not right in treating the assessee as an 'assessee in default' for the purposes ....
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....s 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 also clear from the Memorandum explaining the provisions of Finance Bill, 2001 which makes it clear that the intention of the Legislature was to cover various kinds of quiz shows which are launched on TV and shows of similar kind. Our attention was also drawn to the Budget speech of the Finance Minister on 28.02.2001 wherein he stated that "television game shows are very popular these days and I propose that income tax at 30 % will be deducted at source ....
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....e 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 (supra). 9. The next argument advanced by the learned representative was that there is an inherent difference between Sections 194B and 194BB of the Act; that Section 194B of the Act was introduced in 1972 and Section 194BB of the Act was introduced in 1978. Had the Government been of the view that horse races are covered in Section 194B of the Act, there would have been no need to specially introduce a new Section altogether in 1978. This clearly shows that even the Legislati....
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....e 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 case of Dr. K.R. Lakshmanan v. State of Tamil Nadu [1997] 223 ITR 601 held that horse racing is a game of skill. 11. It has also been explained that the Act itself distinguishes between income earned from lottery and such games vis-à-vis income of horse owners. Elaborating further, it is explained that Section 58 of the Act refers to amounts not deductible and sub-section (4) states that no deduction in respect of any expenditure shall be allowed while computing the income by way of an....
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.... 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 similar issue in favor of the assessee. 14. An alternate plea has been raised to the effect that the Assessing Officer has not recorded a finding that the recipients of the stake money have not paid income-tax on the said income, and in the absence of such a finding, the assessee cannot be treated as an "assessee in default", and reliance was placed on the judgment of the Hon'ble Allahabad High Court in the case of Jagran Prakashan Ltd. v. Dy. CIT [2012] 21 taxmann.com 489/209 Taxman 92/345 ITR 288. Ela....
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....ve 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 assessee, which are in the nature of prize money paid by the assessee to the owner of horses on account of the horse winning the race or standing second or in any lower position, which is termed as 'stake money'. The Assessing Officer has not disputed the fact that the payment made by the assessee is in the nature of 'stake money', thus there is no dispute with respect to the fact as to what constitutes 'stake money'. The Assessing Officer is of the view that by virtue of amendment in Section 194B of the Act by Finance Act,....
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....n 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 winning from horse races, was already on the statute and the Legislature in its wisdom could have made the amendment in Section 194BB of the Act itself to include 'stake money' within its ambit; that would have obviated any need to make amendment in Section 194B of the Act, which is a general provision for TDS, in order to cover 'stake money' in its ambit. The learned representative has rightly pointed out to the Budget speech of the Finance Minister wherein it was stated that "television game shows are very popular these days and I prop....