TaxTMI 
TaxTMI 
2021 (10) TMI 1135
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....hat 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 Bangalore Turf Club v UOI (2014) 228 Taxman 234 wherein it has held that the payment of stake money is neither covered under section 194BB nor under section 194B of the Act. 3.2. The learned AO has erred in not appreciating that a review petition filed by the department does not empower the assessi....
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....such stables claimed as deduction totaling to Rs. 1,04,79,000. 5.2. The learned CIT(A) has erred in concluding that since the appellant had not incurred similar expenditure either in preceding years or in subsequent years, the same failed to prove its nature as temporary structures and consequently were to be treated as capital expenditure. 5.3. On facts and circumstances of the case, the impugned expenditure of Rs. 1,04,79,000/-constitute revenue expenditure and should be allowed as a deduction under section 37(1) of the Act. 6. Grounds relating to disallowance of expenditure incurred on upgradation of UPS systems under section 37 6.1. The learned CIT(A) has erred in confirming the disallowance of revenue expenditure incurred on upgrading UPS systems claimed as deduction amounting to Rs. 12,20,000. 6.2. The learned CIT(A) has erred in not appreciating the fact that the reason for upgrading the existing UPS was that the old UPS was not able to handle much load and the same was not repairable. The expenditure was incurred in respect of the existing system to facilitate day to day carrying on of the business and thus was revenue in nature.....
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....87,11,726/- disbursed to horse owners without deducting TDS and claimed as expenditure in P&L account should not be disallowed in terms of provisions of section 40(a)(i) of the Act. Assessee in response submitted that, Hon'ble Karnataka High Court in a Writ petition filed by assessee along with others by judgment dated 26/09/2014 observed that Circular No.240 dated 17/05/1978 issued by CBDT in respect of section 194 BB would not apply to stake money is and such stake monies are not regarded as winning from horse races or races, but constitute prize-money which the owner of a race horse is proceeds on account of his horse winning a position in the race. It was also submitted that Hon'ble Karnataka High Court, with regard to applicability of provisions of section 194B held that the stake money or prize money paid by race clubs to horse owners would not attract provisions of the section. 4. Ld.AO however disallowed the sum of Rs. 33,87,11,726/- under section 40(a)(i) for the reason that revenue sought review petition before Hon'ble Karnataka High Court against the decision dated 26/09/2014. 5. The Ld.AO further observed that assessee debited following expenses amounting to Rs....
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....on. 9. Ground No.2 is relating to disallowance under section 40(a)(ia) amounting to Rs. 33,87,11,726/-. 9.1 The Ld.AR submitted that the, said amount was disallowed without appreciating the fact that TDS was not deductible under section 194BB or 194B of the Act. The Ld.AR submitted that identical issue arose the immediately preceding assessment year wherein this coordinate bench of this Tribunal in assessee's own case in ITA Nos. 1848 & 1850/Bang/2019 by order dated 18.12.2020 for A.Ys. 2012-13 and 2014-15 on identical facts held as under: "Ld.AR submitted that against the order passed by Ld.Single Judge of Hon'ble Karnataka High Court by decision dated 26/09/2014, revenue preferred writ appeal being WA-60/2015, before a division bench filed on 07/01/2015. Hon'ble court passed an interim order by observing as under: "4. On the aspects of the amounts 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 state money. It appears to us that, the payee of the stake money should file an undertak....
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.... 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 interim order: The matter shall stand restored to the authority at the stage of show cause notice. The club-original respective petitioner shall be at liberty to file a reply/ additional reply if it so desires.... 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. 8. It is also observed and directed that the concerned authority or the appropriate officer after the reply/ additional reply is submitted by the original petitioner, club or the private respondent/ original petitioner as the case may be shall give opportunity of hearing to the respective parties and shall pass a fresh order in accordance with law and shall decide as to whether the requirement of TDS is applicable to the stake money being paid by the club to the person concerned who are owners of the horse par....
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....ed 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 TDS are applicable to stake money being paid to the club to the person concerned who are owners of horse participating in the race. On merits Ld.AR placed reliance on following decisions and CBDT circulars: • Extract from CBDT circular No. 240 dated 17/05/1978 • Extract from Finance Minister's speech, memorandum explaining provisions of finance bill 2001 dated 28/02/2001 proposing amendments to section 194B w.e.f. 01/06/2001 • Circular issued by CBDT No. 14/2001 dated 09/11/2011 explaining provisions of Finance Bill 2001 • Decision of Hydrabad Tribunal in case of ACIT vs Hydrabad race club in ITA No. 319-323/HYD/2015 for assessment year 2009-10 to 2013-14 by order dated 04/09/2015 • Decision of Chennai Tribunal in case of Madras Race Club vs DCIT in ITA No. 646-657/MDS/2015 f....
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....nvestment 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 of Sec. 201(1) of the Act. It was further pointed out that what cannot be done directly, cannot be done indirectly. The Assessing Officer, being bound by the CBDT Circular, cannot hold the assessee liable to TDS by bringing the assessee within the domain of Section 194B of the Act, which is not permitted in law. In V.M. Salgaocar & Bros. (P.) Ltd. v. CIT [2000] 110 Taxman 57/243 ITR 383 (SC), the Hon'ble Supreme Court has held that the Circulars of the CBDT provide as to how the Revenue itself understands the enactment/amendment. Hence, the language of the Circular is very clear that Revenue accepts that "stake money" is outside the purview of TDS. 6. The next argument put-forth by the learned representative was that specific provisions p....
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....ear 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 from the winnings of these and all similar game shows." Hence, it is submitted that it would be incorrect to say that the aforestated amendment in Section 194B of the Act brings within its fold the 'Stake Money' received by the owners of the winning horses; and, that in any case, Section 194BB of the Act is the relevant section, which anyway excludes the aforesaid receipts from its purview. Thus, a subsequent amendment in a general enactment cannot be said to override earlier special enactment. It has also been asserted that the amendment to Section 194B of the Act came in 2001 and, it was an admitted position that in all earlier years, this provision was never made applicable on the assessee. 8. The learned representative....
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....5.1978 (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 Legislative intent was never to include horse races within the domain of Section 194B of the Act. As per the learned representative, the Government could have amended Section 194B of the Act itself and introduced the words "income from horse races"; however, the legislature was conscious of the fact that Section 194B of the Act operates in an altogether different domain and largely refers to "luck based games" as opposed to "skill based games" and hence, did not include horse races within Section 194B of the Act. 10. It was further submitted that Section 194B of the Act was amended in 2001 and the words 'card game or other game of any sort' were inserted. An amendment was also brought a....
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....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 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 or nature, whatsoever. However, the proviso thereof clearly distinguishes the case of the horse owners. It states that "Provided that nothing contained in this sub-section shall apply in computing the income of an assessee, being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses." 12. Section 74A of the Act is a specific section stating that loss arising to horse owners from the activity of maintaining and owning race horses shall not be set-off agains....
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....icated 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. Elaborating further, it is contended that the purpose of Chapter XVII of the Act is to provide for a mechanism of withholding tax. Explanation to Section 191 of the Act clearly states that a person can be held as an 'assessee in default' only when the recipient of income has also failed to pay such tax directly. In present case, however, the owners of the horses have declared such income in their tax returns. Hence, as per the provisions of Section 201 of the Act, the assessee cannot be treated as an 'assessee in default'. Reliance was placed on decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. v.....
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....e 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, 2001, the scope of Section 194B of the Act has been widened to cover within its ambit winning from games of any sort even though Circular No. 240 dated 17.05.1978 (supra) issued in the context of Section 194BB of the Act excluded from its ambit 'stake money'; as per the Assessing Officer, due to the amendment assessee was very much liable to deduct tax at source u/s 194B of the Act. On the other hand, the appellant vehemently contends that the expression "card game and other game of any sort" derives its meaning from the words accompanying it and cannot be read to mean all games of any sort. It was further pointed out tha....
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....lt 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 propose that income tax at 30 % will be deducted at source from the winnings of these and all similar game shows." Another way of bringing to tax the 'stake money' was by way of withdrawal of Circular No. 240 dated 17.05.1978, which clarified that tax was not required to be deducted u/s 194BB of the Act with respect to income by way of 'stake money' as the same is not regarded as winning from horse races. However, said Circular is still in existence and the ld. DR has not disputed this fact. The entire gamut of the legal position leads to an irresistible conclusion that position of TDS on 'stake money&#....
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....2 The Ld.AR submitted that, assessee modified the designs as per the technology and therefore the replacement/re-modification of TV towers cannot be treated as an enduring benefit. He placed reliance on decision of Hon'ble Delhi High Court in case of CIT vs. Denso India Pvt.Ltd., reported in (2010) 195 taxman 434. It has been submitted that necessary modifications needs to be done as per change in the technology and it is recurring expenditure. On the contrary, the Ld.Sr.DR submitted that upgrading of technology gives enduring benefit to assessee and therefore cannot be revenue in nature. He placed reliance on orders passed by authorities below. We have reduced submitted advance by both sides in light of records placed before us. 10.3 It is necessary to understand the circumstances in which assessee incurred these expenditure. The assessee is in the business of horseracing. It is necessary to have display televisions on towers when the race takes place. These televisions are used to display the race. Thus the televisions and television towers are an integral part of the business activity carried on by assessee. Further it is also a fact that assessee has to be technology u....
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....AR submitted that, this expenditure have been incurred to accommodate outstation horses that come to Bangalore to take part in races. It is submitted that assessee has deducted tax before making payment to the contractors. He submitted that these structures are temporary in nature and therefore has to be treated as revenue. 11.2 On the contrary, the Ld.Sr.DR submitted that, these structures are to be provided to outstation horses whenever the races take place. The structure is permanently made and therefore gives enduring benefit to assessee and has rightly treated as capital in nature. We have perused submissions advanced by both sides in light of records placed before us. 11.3 We agree with the argument advanced by the Ld.Sr,DR that the structures are permanently made for outstation horses that come to Bangalore for races and therefore to be catagorised as capital asset. 11.4 We also note that assessee incurred repair work towards existing stables. We direct the Ld.AO to allow the expenditure incurred is towards repair work as revenue expenditure. Accordingly this ground raised by assessee stands partly allowed. 12. Ground NO.6 is in respect of expenditure incur....