TaxTMI 
TaxTMI 
2026 (9) TMI 379
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....AO issued a notice u/s 133(6) of the Act dated 05.10.2023 to M/s Gamescraft (P) Ltd (hereinafter referred to as M/s GPL) and the details of winning of the assessee during the F.Y. 2021-22 was sought. The AO noted that vide reply dated 15.11.2023 the company provided complete details which according to the AO showed that the total winning of the assessee during the financial year was Rs. 1,25,97,040/-. The AO took note of the fact for the assessee had shown income of Rs. 4,44,717/- from M/s GPL under the head 'income from other sources' and issued a show cause notice dated 20.11.2023 proposing addition of Rs. 1,21,53,323/- (1,25,97,040/- - 4,44,717/-) under the 'head income from other sources'. The AO noted that the assessee stated that he had enclosed ledger copy for income from other sources (gross winning from M/s GPL) also but on perusal of the attachment of the reply by the assessee, it was found by the AO that the assessee had not uploaded ledger copy for income from other sources. On the basis of this fact, the AO noted that it was clear that the assessee had nothing to produce in his favour. Accordingly, the AO added the sum of Rs. 1,21,53,323/- as 'income from other sources....
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....ion 115BB of the Income Tax Act deals with 'tax on winnings from lottery, crossword puzzles, races, including horse races, card games, and other games of any sort or game, gambling, or betting of any form or nature whatsoever'. Income from winnings from online games would fall under the income covered in section 115BB and accordingly are to be taxed at the rate prescribed in the said section. 6.6 As contained in the provisions of section 115BB, the above mentioned winnings would be taxable at a flat rate of 30% which means that where the total income of a person includes winnings under this section, the income tax payable would be the aggregate of Winnings taxed @ 30% and other income taxed as per normal slab rates or relevant special rates as the case may be 6.7 There is no provision for setting off losses against winnings since the Finance Act, 1986, specifically deleted Section 74A and introduced Section 58(4) thereby prohibiting deduction of expenses that were related to such winnings. Amounts not deductible. 58. (1) Notwithstanding anything to the contrary contained in section 57, the following amounts shall not be deductible in computing th....
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....ds to the facts and circumstances of the case, the Ld. AO erred in making addition on the mases of response received against the notice u/s 133(6) of the Income Tax Act, 1961 as the amount of winning itself is debatable. 4. That having regards to the facts and circumstances of the case, the Ld. CIT(A) as well as AO erred in making addition without taking cognizance of the provision of section 115BBJ r.w. rule 133 of the Income Tax Rules, 1962, that the law maker has clarified the position of taxation of online gaming, which should be treated as retrospective in nature. 5. That having regards to the facts and circumstances of the case, the Ld. CIT(A) as well as AO erred in making addition by stating that no expenses u/s 58(4) of the Act is allowed ignoring the fact that appellant has not claimed any expense rather than it claimed that positive and negative betting, from same gaming portal, both should be set off. 6. That the appellant craves leave to add, amend, modify, rescind, supplement or alter any of the grounds of appeal before the appeal is finally adjudicated upon." 5. At the time of hearing the Ld. AR filed a written submission and relied upon ....
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....ort or gambling or betting of any form or nature whatsoever' are taxable under the head of 'Income from other sources'. The Ld. CIT (A) further observed that Section 115BB of the Income Tax Act deals with 'tax on winnings from lottery, crossword puzzles, races, including horse races, card games, and other games of any sort or game, gambling, or betting of any form or nature whatsoever' and income from winnings from online games would fall under the income covered in section 115BB and accordingly are to be taxed at the rate prescribed in the said section i.e. winnings would be taxable at a flat rate of 30% which means that where the total income of a person includes winnings under this section, the income tax payable would be the aggregate of winnings taxed @ 30% and other income taxed as per normal slab rates or relevant special rates as the case may be. Further, the Ld. CIT (A) observed that there is no provision for setting off losses against winnings since the Finance Act, 1986, specifically deleted Section 74A and introduced Section 58(4) thereby prohibiting deduction of expenses that were related to such winnings. The Ld. CIT (A) also noted that with effect from 01.04.2024, a ....
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...., it is abundantly clear that the assessee has incurred loss of Rs. 30,43,537/- for the year under consideration. Although, the information is very clear that the assessee has incurred loss but the AO has considered the gross winnings reported by the company for Rs. 3,54,44,447/- without considering the amount of BuyIn at Rs. 3,84,87,984/- and the net loss of Rs. 30,43,537/-. In our considered view, the AO is completely erred in making additions, because, difference between the initial amount paid by the assessee or invested in the game and the gross winning represents the amount of money won by the assessee. The winnings from any games referred to u/s. 115BB of the Act should be understood in the context of net winnings from any game by the assessee which is nothing but total amount paid by the assessee minus gross winnings and the result of which is positive, then it means that the assessee has gross winnings and difference of which is negative, the assessee has incurred loss. In the present case, the details submitted by the company clearly show that the assessee has incurred loss of Rs. 30,43,537/-. This is further fortified from the fact that, if at all the assessee has any wi....
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....ctions, is contrary to Section 15 and results in artificial and excessive valuation detached from the actual revenue retained by the Casinos. 81.1. The Casinos further contend that no workable statutory machinery exists for determination of the "face value of the bet" in live casino environments involving continuous circulation of chips, repeated wagering transactions and multiple gaming tables. According to the assessee's, Rule 31A(3) is inapplicable to casino transactions and the subsequent insertion of Rule 31C demonstrates that no prior statutory mechanism existed for valuation of casino gaming activities. The assessee's additionally challenge the Department's resort to Rule 31 and indirect reconstruction of GBV through extrapolation and house advantage methodologies. The Casinos also reiterate certain submissions urged in the context of online gaming regarding the existence of actionable claims. 81.2. Per contra, the Revenue contends that every bet placed by a player upon an uncertain outcome forms part of the taxable betting and gambling transaction undertaken within the casino ecosystem and that the amount staked by the player constitutes consideration ....
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....s as taxable gambling transactions and discharged GST at the applicable rate, albeit upon a valuation methodology restricted to net retained revenue. The real dispute therefore concerns the determination of taxable value and the methodology adopted for its computation rather than the existence of taxable supply itself. GST is a tax on supply and not on profits 82.4. At the first instance, the entire foundation of the GGR methodology proceeds on an erroneous understanding of the taxable event under the GST regime. GST is attracted upon a taxable supply and not upon the profitability of the supplier. The levy does not fluctuate depending upon whether the supplier ultimately earns profits or suffers losses in the course of business operations. Consideration arises the moment a player places a bet upon an uncertain outcome for participation in the gambling activity conducted by the Casino. The taxable event crystallises when the player is permitted to participate in the gambling activity upon placing bets through chips or tokens. 82.5. As already mentioned earlier, the subsequent distribution of winnings cannot alter the character of the original payment cons....