TaxTMI 
TaxTMI 
2026 (7) TMI 1887
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....come from house property, business income and income from other sources. 4. Subsequently, the case was selected for scrutiny assessment for verification of information received from CRIU through the Insight Portal that the assessee had earned winnings of Rs. 2,33,52,271/- from M/s Gameskraft Technologies Pvt. Ltd. during F.Y. 2021-22, which had not been disclosed in the return of income. The information available on the Insight Portal showed that the assessee had participated in online gaming activities conducted through the portals "Rummyculture" and "Gamezy" operated by M/s Gameskraft Technologies Pvt. Ltd. 4.1 The AO further observed that search and seizure action u/s 132 of the Act was conducted in the case of M/s Gameskraft Technologies Pvt. Ltd. on 15.03.2022. During the course of search and post-search proceedings, information was gathered regarding winnings earned by players using the online gaming portals operated by the said company. The dissemination note reproduced in the assessment order explained that Gameskraft Technologies Pvt. Ltd. operated gaming portals namely "Rummyculture" and "Gamezy" wherein games such as deal, pool, points, tournaments, fantasy games, ....
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....s winnings amounting to Rs. 2,33,52,271/-. The AO therefore concluded that the assessee had earned gross winnings of Rs. 2,33,52,271/- during the relevant financial year and the same had not been offered to tax in the return of income filed by him. 4.5 The AO further observed that notices u/s 142(1) of the Act were issued calling upon the assessee to explain the gaming transactions and furnish supporting details. However, according to the AO, despite sufficient opportunities, the assessee failed to furnish proper explanation or supporting evidence. The AO noted that the assessee merely furnished bank statements and stated that the increase in receipts was due to online games and that return was filed u/s 44AD of the Act. The AO observed that the assessee failed to rebut the information available with the department and by remaining non-compliant did not deny the veracity of the information received from the investigation wing. Accordingly, the AO held that the amount of Rs. 2,33,52,271/- represented income by way of winnings from online games and liable to be assessed under the head "Income from Other Sources". The AO further held that no deduction, expenditure or set off of los....
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....le of taxation that only real income can be taxed. The Income-tax Act taxes income and not gross movement of funds or turnover. The gross amount of Rs. 2,33,52,271/- was only a movement of money within the gaming wallet and did not represent any real gain in the hands of the assessee. The assessee therefore argued that the addition was made on a hypothetical basis by treating recycled funds and repeated wallet entries as taxable income. 6.4 The assessee also contended that the AO misapplied section 58(4) of the Act. According to the assessee, section 58(4) restricts deduction of expenditure or allowance only after an amount is first established as "income". It does not authorise the AO to treat gross turnover, gross wallet credits or gross gaming entries as income. The assessee argued that the AO first had to determine the real income or net winnings, if any, and only thereafter section 58(4) could be applied. Since the assessee had no net winnings and had in fact suffered a loss, there was no income on which section 58(4) could operate. 6.5 The assessee further submitted that the provisions relating to taxation of online games also support taxation only of net winnings. It w....
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....my involves knowledge, skill, memory, calculation, observation, strategy and decision-making. The assessee however submitted that even assuming that online gaming winnings are covered under section 2(24)(ix) and section 115BB of the Act, only the real net winnings, if any, could be considered for taxation. The gross figure cannot be taxed merely because it appears in platform records. 6.10 The assessee therefore submitted that the addition of Rs. 2,33,52,271/- made by the AO is unsustainable. The figure represents gross wallet credits or gross winnings before adjusting the buy-in amount of Rs. 2,61,51,624/-. Since the net result was a loss of Rs. 27,99,353/-, there was no taxable income in the hands of the assessee from online gaming. Accordingly, the assessee prayed that the entire addition made by the AO be deleted and the appeal be allowed. However, the learned CIT(A) dismissed the assessee's grounds of appeal and confirmed the finding of the AO by observing as under: 6.3 Ground Nos. 3.1, 3.2 and 3.3: The learned Assessing Officer has erred in treating the gross winnings of Rs. 2,33,52,271 from online games i.e. Rummy Culture as income of the appellant and adding the....
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....e shall be allowed under any provision of the Act. The legislative intent is thus clear that the gross winnings constitute the taxable base and no allowance can be claimed against such winnings. The assessee's plea that there was no real income or that there were losses cannot be accepted in the absence of strong and specific evidence. There is nothing on record to show that the assessee has computed any net result of his gaming activity or that he has any certified net loss figure from the portal. In fact, the assessee has not even produced any computation legally prepared by himself. In these circumstances, the only ascertainable and legally relevant figure is the gross winnings certified by the portal. The Assessing Officer has rightly treated this figure as income of the assessee under section 2(24)(ix) of the Act. 6.3.3 The contention that the provisions of section 115BB do not apply is also without merit. Once it is established that the assessee has income by way of winnings from games as referred to in section 2(24)(ix), section 115BB squarely applies. The argument that there were no winnings is contrary to the material on record. The portal has affirmed that there ....
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.... authority is expected to see the substance rather than the form. Here, the substance is that the Assessing Officer has taxed winnings from games under the correct head and with reference to the correct provision, namely section 115BB. 6.4.2 It is also important to note that the assessee has not shown that any prejudice has been caused in the sense of being subjected to a higher rate of tax which is not permissible in law. The correct legal position, as clarified above, is that section 115BB applies to such winnings and the applicable rate is that prescribed under that section. To the extent there is any discrepancy in the rate actually applied in the computation sheet, the same is only an arithmetical or clerical matter which can be corrected in the giving effect stage and does not require annulment or deletion of the addition itself. The existence of such a typographical mistake does not render the assessment invalid. I therefore hold that the reference to section 115BBE in the computation sheet is only a clerical error. The substantive addition on account of winnings remains valid and is to be taxed under section 115BB. This ground does not warrant any relief and is dis....
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.... and the Delhi Bench in the case of Delhi Race Club to contend that even under the earlier provisions relating to horse race winnings, only real net winnings after adjusting participation cost were considered for taxation and TDS purposes. Accordingly, it was prayed that since the assessee had not earned any net winnings during the year, the addition made by the AO deserved to be deleted. 13. The learned DR on the other hand strongly supported the orders of the AO and the learned CIT(A). It was submitted that the information received through CRIU and the reply furnished by M/s Gameskraft Technologies Pvt. Ltd. u/s 133(6) of the Act clearly established that the assessee had gross winnings of Rs. 2,33,52,271/- from online gaming activities. The learned DR submitted that the assessee failed to produce any authenticated ledger, gameplay statement or certified computation from the gaming portal disproving the said figure. It wa further contended that section 2(24)(ix) read with section 115BB of the Act specifically taxes winnings from card games and other games of any sort and section 58(4) of the Act prohibits allowance of any deduction or loss against such winnings. The learned DR ....
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.... 194B also contemplated deduction of tax from "income by way of winnings". Thus, even under the pre-amended scheme, the legislature always intended to tax only the real winnings component and not the gross turnover or gross circulation of money during gameplay. We further note new section being section 115BBJ and section 194BA was inserted vide Finance Act 2023 with respect to wining from online game. These provision uses the phrase "net wining" rather income by way of "wining". At this junction it is relevant to reproduce the memorandum explaining the provisions of Finance Act, 2023 introducing section 194BA and section 115BBJ which reads as under: TDS and taxability on net winnings from online games Section 194B of the Act provides that 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 in an amount exceeding ten thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force. 2. Section 194BB of the Act provides for similar provisions for deduction of tax at source for horse racing in any race course or for arra....
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....whole of the net winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the net winnings; (vi) to provide that if any difficulty arises in giving effect to the provisions of new section 194BA, the Board may, with the prior approval of the Central Government, issue Board shall be laid before each House of Parliament, and shall be binding on the income tax authorities and on the person responsible for deduction of income-tax on any income by way of winnings from online game; (vii) to provide the definition of "computer resource", "internet", "online game", "online gaming intermediary", "user", "user account" in the proposed section 194BA; (viii) to amend section 115BB of the Act to exclude income from winnings from online games from the purview of the said section from the assessment year 2024-25, since it is proposed to introduce section 115BBJ to tax winnings from online games from that assessment year; (ix) to insert a new section 115BBJ in the Act with regard to tax on winnings from online games to provide that where the total income of an assessee includes any income by way....
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.... It is a settled principle of law that a subsequent amendment introduced to remove ambiguity and explain the true legislative intent is clarificatory in nature. In the present case, the newly inserted framework only explains how winnings from online games are to be computed and taxed. Therefore, in our considered view, the principles embedded in section 115BBJ, section 194BA and Rule 133 are clarificatory and declaratory in nature and therefore throw considerable light on the correct interpretation of section 115BB even for the year under consideration i.e. A.Y. 2022-23. 14.9 We further notice that similar principles have already been recognised by the coordinate benches of the Tribunal in the context of horse race winnings while interpreting section 194BB and the expression "winnings". In the case of Royal Calcutta Turf Club reported in 114 taxman 82, the Kolkata Bench of the Tribunal held that only net winnings after adjusting the investments made by the punter can be considered for the purposes of deduction of tax at source. The Tribunal specifically recognised that "winnings" in common parlance means the amount received in excess of the amount invested by the punter. The rel....
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....gular machinery with the Turf Club authorities to take into consideration all the tickets purchased in connection with one horse race, then the entire amount of investment on all the horses irrespective of whether the horse won or lost in that race, should be treated as investment made by the punter in that horse race. However, a note of caution is being recorded in this connection. A claim made by the punter that he had purchased a large number of tickets separately in respect of the same horse race should not be accepted unless such claim can be verified by a process existing in the procedural mechanism of the Turf Club. 14.10 Similarly, the Delhi Bench of the Tribunal in the case of Delhi Race Club reported in 17 SOT 39 also followed the above principle and held that the amount invested by the punter in horse races is required to be reduced while computing winnings for TDS purposes u/s 194BB of the Act. The relevant observations of the Delhi Bench are reproduced as under: 11. With regard to the second contention of the learned Authorised Representative regarding deduction of investment made by punters in the horse races, we found that issue stands squarely covered by....
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.... passed by the co-ordinate Bench should not be lightly disregarded. In taking this view, we are supported by the decision of Hon'ble Supreme Court in the case of Union of India v. Paras Laminates (P.) Ltd. [1990] 186 ITR 722 wherein Hon'ble Supreme Court has observed that it is true that a Bench of two Members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. The rationale of this rule is the. need of continuity, certainty and predictability in the administration of justice. As the facts and circumstances of the instant case are in pari materia, respectfully following the proposition laid down by the co- ordinate Bench, the Assessing Officer is directed to reduce the amount of tickets purchased by the punter relating to such horse race. 14.11 Although the above decisions were rendered in the context of horse race winnings, the underlying principle equally applies to online gaming transactions. The common thread running through section 194BB, section 194B, section 194BA, section 115BB and section 115BBJ is that only the real winnings component is intended to be taxed and not the gross circulation of funds. 14.12 The authori....