TaxTMI 
TaxTMI 
2026 (7) TMI 956
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....s of Section 40(a)(ia) of the Act, in respect of winnings paid to players, which were not debited to P&L account but were reflected as a liability in the books of account and maintained in a designated bank account. It is submitted that such amounts do not constitute "expenditure" within the meaning of Section 40(a)(ia), and therefore, the disallowance made on this basis is unjustified and liable to be deleted. 1.2. The CIT(A) has erred in concluding that prize payouts or payments towards winnings, even if not routed through P&L, amount to expenses claimed by the Appellant and consequently attract disallowance for non-deduction of TDS under Section 194B and the Appellant respectfully submits that the payments made towards winnings represent a liability of the Appellant to the winners and do not constitute business expenses or costs. Therefore, the contention that these amounts are expenses is misplaced and legally untenable. 1.3. The CIT(A) has erred in invoking disallowance under Section 40(a)(ia) for short deduction of tax and thus, the disallowance is, therefore, unwarranted and liable to be deleted. 2. Ground No. 2: concluding that the Appellant has n....
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....ons such as 194C or 194J of the Act which expressly require aggregation, Section 194B does not contain any such aggregation language and therefore, Section 194B must be applied as per its plain and specific terms without importing aggregation concepts, rendering the AO's and CIT(A)'s approach incorrect and liable to be set aside. 2.6.3 The Appellant had duly deducted TDS wherever net winnings per game exceeded Rs. 10,000/- per game and the interpretation adopted by the CIT(A) and the AO is contrary to the language of Section 194B, CBDT circulars and judicial precedents. 2.6.4 Had TDS indeed been computed on an aggregate basis, the resultant tax withheld would have been lower than the amount actually deducted by the Appellant, thereby ensuring no prejudice or loss to the exchequer. 2.6.5 The findings that Appellant failed to provide "player-wise data" is factually incorrect as requisite details and data files were furnished. 2.6.6 The CIT(A) erred in selectively relying on an isolated example from the excel files of winnings below Rs. 10,000 to hold that aggregate winnings for that user exceeded Rs. 10,000 and TDS was required, without considering....
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....he settled law that whilst the Circular is binding on a Tax Officer, a Circular is always capable of challenge by an assessee, on the ground that the Circular is contrary to the applicable statutory provisions. 2.6.13 The CIT(A) has erred in failing to appreciate that Circulars contrary to the settled law as declared by the Hon'ble Supreme Court are non-est in law. 2.6.14 That there is disparity at the department level with respect to the withholding on winnings on per day/per game/aggregate basis considering the AO focuses on single day the CIT(A) has focused on aggregation. 2.6.15 The CIT(A) erred in drawing adverse inference merely based on a statistical comparison with industry revenues, which has no relevance under Section 194B merely on the basis of assumptions, industry statistics, and conjecture without any corroborating material. 2.6.16 The CIT(A) applied the amendments introduced by the Finance Act 2023, to the subject AY without appreciating the fact that these amendments are prospective in nature and consequently, such amendments are not applicable to the AY under consideration and cannot be relied upon to justify the tax deduction de....
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....order. The Appellant craves leave to add, to amend, to alter, to withdraw, to modify and/or to substitute any or all of the foregoing grounds of appeal and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 2. Brief facts of the case are as under:- Assessee is a company and filed its return of income for year under consideration on 31/10/2017 declaring total income of Rs. 103,90,26,560/- under normal provision of the Act and book profit of Rs. 101,78,22,530/- under Section 115JB of the Act. The case was processed u/s 143(1) of the Act and was selected for scrutiny under Cass. As a consequence, notices u/s 142(1) and 143(2) of the Act was issued to the assessee calling for various details. In response, assessee filed replies and explanations which were examined by the Ld.AO. 2.1. The Ld.AO noted that the assessee is engaged in the business of online and mobile games of Rummy Circle, Teen Patti, and other card games, etc. The Ld.AO noted that assessee has paid to the participants towards the winning which were not routed through profit and loss account. It was noted that the assessee had only charg....
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.... once a player wins the game, the player has discretion either to withdraw the winnings or use the winnings to play another game. It was thus submitted that the bank statement would therefore only show the withdrawals made by the player during the year. The Ld.AO after considering the submissions of the assessee, was of the opinion that the assessee did not disclose the total quantum of winnings paid below Rs. 10,000 and, instead, only explained/payments above Rs. 10,000 where TDS had already been deducted (Rs.25.19 crore approx.). According to the Ld.AO, the assessee merely referred to the data supplied in the pen drive and did not furnish a clear explanation or reasons regarding payouts below Rs. 10,000 or why section 194B TDS was not applicable to such payments. 2.4.1. Ld.AO observed that the assessee's explanation and data for non-deduction of TDS on winnings below Rs.10,000 were not acceptable because the material furnished did not establish player wise and transaction-wise linkage of winnings above and below Rs.10,000, nor did it show how many games a player played on a day, whether single or multiple, and whether the threshold was crossed on a per-game/per-day basis. The ....
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.... players in the wallet are used by the player to play games on the platform or withdraw money from the wallet as per the terms of policy. The assessee submitted that it earns a service fee ranging from 5% to 20% on the money brought from the wallet to the table account by the players on conclusion of each game. 3.1. It was also submitted that the assessee withholds taxes on the payments made to the winners at the end of each game that is when the funds are transferred to the wallet or in the game table account. In case of points, Rummy format and crediting the bank a/c of the players happens subsequently. The assessee further submitted that taxes are withheld only when the net payments towards wining exceeds Rs. 10,000/- per game and the same is duly deposited with the Government on time. The assessee explained the said pattern by way of a flow chart of how the money is received in the wallet and its utilization:- 3.2. The assessee further submitted that, the players play on online platform among themselves by depositing required sum for participating in a game. It was submitted that the assessee do not have any right to claim such amount. It was further submitted that the as....
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.... of points form and most importantly the net winning must exceed Rs. 10,000/- per game. 3.6. The assessee placed reliance on the conditions of Section 194B of the Act as applicable for the year under consideration wherein the taxes were required to be withheld only on the net income after allowing for the entire investment made by way of purchasing tickets i.e., in the instant case, participation amount of a particular game and service charge. It was submitted that the threshold of the amount payable exceeding Rs. 10,000/- as provided in the Act for the relevant period for withholding of taxes needs to be determined at each time for each game when the winnings are declared. It was submitted that it is irrespective of losses in other games or different games played over a period of time, whether daily or weekly or in any other time-frame. 3.7. The assessee placed reliance on CBDT Circular No. 240 dated 17/05/1978 which was issued in respect of winnings of horse races regarding deduction of tax u/s 194BB of the Act in order to substantiate the submission. It also placed reliance on following decision which emphasised the which emphasised that the threshold limit for withholding....
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....ollowing example: Let say if a person wins a game, he will get 100 Rs. in his wallet after deducting necessary fee. Now the person wants to play another game and win another Rs. 100 and the winning goes on and his wallet shows 11000 Rs. One day he wants to transfer his wallet money to his bank account. Then, as per the provisions of section 194B of the Act, the appellant is liable to deduct TDS on the same at the time of payment as it fulfills the following condition of section 194B of the Act: a. any income by way of winnings - YES b. amount exceeding ten thousand rupees-YES 5.5.5 On the contrary, the appellant company has stated that it had deducted TDS on winnings which are exceeding Rs. 10000 but as shown above, the appellant is liable to deduct TDS while making payment of winnings which is cumulatively exceeds rupees ten thousand. ....................................... ...................................... 5.5.6 As from the above, the AO has clearly mentioned that the appellant did not furnish player wise data to ascertain that how many games were played by a particular player in a financial year and how many times it pai....
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.... 1597448 NAGENDRA NAIDU MADENE NI 60939300 303539008 1 0 180 10 180 AIUPN0532E 0 10- 022017 1597448 NAGENDRA NAIDU MADENE NI 103035587 491526101 1 0 2584.4 51.12 2584.4 AIUPN0532E 0 From the above table, it is clear that one user named Nagendra Naidu Madeneni having PAN AIUPN0532E won total amount of Rs. 23028.60/- from playing game type one. However, no TDS was deducted upon on such winning. 5.5.8 In the Income Tax Act, 1961 the provisions relating to Tax Deduction at Source (TDS) play a significant role in tax collection as a substantial part of tax revenue is collected through TDS. It may be usefully noticed that the various provisions relating to TDS, placed in Chapter XVII 'Collection and Recovery of Tax' of the Act, also contain provisions to ensure that the requirements of various TDS provisions are met and complied with, while also providing for the consequences of default. 5.5.9 The liability to deduct tax at source under the provisions of Chapter XVII is mandatory. All the sections in Chapter XVII-B req....
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....AT SOURCE FROM WINNINGS FROM LOTTERY OR CROSSWORD PUZZLE OR HORSE RACE DURING FINANCIAL YEAR 1987-88 AT THE RATES SPECIFIED IN PART II OF FIRST SCHEDULE TO FINANCE ACT, 1987 CIRCULAR NO. 485 [F.NO. 275/42/87-IT(B)], DATED 27-5-1987 CLARIFICATION 1 1. I am directed to invite a reference to this Department's Circular No. 467 [F.No. 275/69/86-IT(B)], dated 21-8-1986 and Circular No. 478 [F. No. 275/106/86-IT(B)], dated 14-1-1987 on the above subject, wherein the rates at which deduction of tax under sections 194B and 194BB to be made during the financial year 1986-87 from winnings from lotteries or crossword puzzles or horse races were communicated. 2. According to the provisions of section 115BB any income of a casual and non-recurring nature of the type of winnings from lotteries, crossword puzzles, races including horse races, etc., will be charged to Income-tax at a flat rate of 40 per cent. According to the provisions of sections 194B and 194BB, every person responsible for paying to any person, whether resident or non-resident, any income by way of winnings from lotteries or crossword puzzles or horse races in any amount exceeding Rs. 5,000 is required to deduc....
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....by the Hon'ble Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 5971, the Finance Minister's Budget Speech could be relied upon to throw light on the object and purpose of particular provisions introduced in the Finance Bill. In the case of K.P. Varghese (supra), the Apex Court has held as follows: "The speech made by the mover of the Bill explaining the reason for its introduction can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is in accord with the recent trend in juristic thought not only in western countries but also in India, that the interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant should be admissible." Thus the intention of the Legislature for introducing this section into the statute can be ascertained from the Budget Speech of the Finance Minister. In the Budget Speech of the Minister of Finance for 1986-87 (on 28-2-1986) at para No. 102, the purpose of introducing this section has been mentioned. The relevant portion of the Budget Spee....
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....ntion of legislature for safeguard of citizen's financial condition. Hence, the intention of government is very clear on this issue. Here, in this case, the appellant has failed to match the legislative intention by not deducting TDS on aggregate income exceeding Rs. 10,000. Hence, in view of the above discussion and facts of the circumstances, it is held that the AO has rightly made of Rs. 817,37,28,723/- and the same is hereby confirmed. Accordingly, Ground No. 1 is dismissed." 3.10. In respect of the disallowance of expenditure made to Facebook Ireland, the Ld.CIT(A) deleted the disallowance by following the decision of the co-ordinate Bench of this Tribunal in assessee's own case for A.Y. 15-16 vide order dated 23.03.2022. Aggrieved by the order of Ld.CIT(A) assessee is in appeal before this Tribunal. 4. The Ld.Sr.Counsel at the outset, submitted that against the impugned order dated 28/08/2025 assessee filed Writ Petition before Hon'ble Bombay High Court in W.P. (L) no. 35188 of 2025, challenging the order passed by Ld.CIT(A) to be ultra vires the provision of section 194B and Section 40(a)(ia) of the Act. It was contended that the said impugned order was passed witho....
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....winnings from any lottery or crossword puzzle 1[or card game and other game of any sort] in an amount exceeding 2[ten thousand rupees] shall, at the time of payment thereof, deduct income-tax thereon at the rates in force: [*]]** [Provided [*] that in a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings.]** 5.1.1. He also drew our attention to the amendment that was subsequently introduced to Section 194B vide Finance Act, 2023 that reads as under:- "Section - 194B, Income-tax Act, 1961 - FA, 2023 [Winnings from lottery or crossword puzzle 93a[, etc.]. 194B. The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle [or card game and other game of any sort] [or from gambling or betting of any form or nature whatsoever, being the amount or the aggregate of amounts exceeding ten thousand rupees during the finan....
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....guage of Section 194B as it stood for the relevant year under consideration, as per Finance Act, 2016 makes it clear that, the threshold limit of Rs. 10,000/- under the Section is to be monitored and applied in respect of each individual payment at the time of payment thereof. The Ld.Sr.Counsel thus submitted that provisions of Section 194B of the Act as amended by Finance Act, 2016 mandates that the compliance with the TDS obligation would occur "at the time of payment" of the relevant amount. He submitted that, Section 194B thus attaches an obligation to deduct TDS on each payment only when it crosses the threshold limit of Rs. 10,000/-. In support, he placed reliance on the following:- S. No. Particulars 1. Circular No 240 dated 17-05-1978 issued by the Central Board of Direct Taxes 2. Royal Calcutta Club vs DCIT [(2001) 114 Taxmann 82] 3. Delhi Race Club (1940) Ltd vs DCIT [(2007) 17 SOT 39 (DELHI)(URO)] 5.3. The Ld.Sr.Counsel submitted that, the taxation provisions must be strictly interpreted as per the plain language used by the legislature. He submitted that, on comparison of the amendments subsequently brought in by the legislature to Section ....
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....s dates over a period of preceding 2-3 FY. He submitted that, the withdrawal from the players account is never under the control of assessee as it is specific to each player and can be accessed only by the respective players. Further in respect of applicability of Section 40(a)(ia) of the Act it is not admitted position by the authorities below that assessee has not claimed the payouts to the players as expenditure in the P&L Account and thus referring to the decisions relied b him in the preceding paras, he submitted that provisions of Section 40(a)(ia) is not applicable. We have perused the submissions advanced by both sides in light of the records placed before us. 6. We have heard the rival submissions, perused the orders of the authorities below and carefully examined the material placed before us. The controversy before us lies in a narrow compass, namely, whether for the assessment year under consideration, the assessee was under an obligation to deduct tax at source under section 194B by aggregating the winnings credited to a player's account or whether the threshold prescribed under the said section was required to be examined with reference to each individual pa....
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....added or substituted by implication. We also find substance in the argument of the assessee that wherever the legislature intended aggregation for the purposes of TDS, it has expressly incorporated such language in the statute itself. Sections 194C and 194J, as they existed during the relevant assessment year, specifically referred to the aggregate amount credited or paid or likely to be credited or paid during the financial year. The conspicuous absence of any such expression in section 194B cannot be treated as accidental nor can the Tribunal rewrite the provision by reading into it an aggregation mechanism which the legislature consciously omitted. 6.5. The interpretation canvassed by the assessee also finds support from CBDT Circular No.240 dated 17.05.1978, as well as the decisions in Royal Calcutta Club v. DCIT and Delhi Race Club (1940) Ltd. v. DCIT, wherein the provisions of section 194B have been understood with reference to each payment of winnings and not on the basis of cumulative winnings over a period. The Revenue has not brought to our notice any binding judicial precedent taking a contrary view in the context of the unamended provisions applicable to the year und....
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.... for the assessment year under consideration, section 194B, as it then stood, required the threshold of Rs.10,000 to be examined with reference to each individual payment made to the winner at the time of payment and not on the basis of aggregate winnings accumulated in the player's wallet. Consequently, the foundation on which the Assessing Officer proceeded to invoke section 40(a)(ia) fails. Furthermore, since the impugned payouts were admittedly not claimed as expenditure by the assessee, the provisions of section 40(a)(ia) were, in any event, not attracted. 6.9. We, therefore, hold that the disallowance made by the Assessing Officer and sustained by the Ld.CIT(A) is unsustainable in law. The same is directed to be deleted. Accordingly, the grounds raised by the assessee stand allowed. Accordingly, the Ground Nos.2-3 raised by the assessee stands allowed. 6.10. Ground No.4, raised by the assessee is challenging the assessment order to be non-est and that it is liable to be quashed. As we have decided the issue on merits in favour of the assessee this issue is left open to be contested in appropriate circumstance. accordingly, Ground no. 4 raised by the assessee is d....
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.... Facebook, Ireland. There is no dedicated equipment/installation/any portion of equipment/installation is earmarked/provided by the Facebook, Ireland by the assessee company. As per the payment agreement between the Assessee company and Facebook, Ireland, the assessee company does not have any economic or possessory right with regard to the server of the Facebook and the server is not at the disposal of the assessee company. The assessee company does not get any right to modify/deal with the server in any manner. The server through which the advertisement is uploaded is not at all located in India. Further, there is no role played by the Facebook India Online Pvt. Ltd. in assessee's case and thus there is no element of permanent establishment of Facebook, Ireland in India. The assessee company during the assessment proceedings has provided the tax resident certificate of Facebook, Ireland and as well as copy of remittance of the certificate (form 15CB) to the Assessing Officer. The Assessing Officer has proceeded on the basis that as per the provisions of Section 195 of the Act any amount paid to non-resident will attract this provision and the assessee is liable to make TDS except....