TaxTMI 
TaxTMI 
2026 (9) TMI 1951
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.... same has not been included as income in the ITR. The AO called on the assessee to furnish details pertaining to the same. The assessee submitted before the AO that he has actually incurred loss of Rs. 30,56,491/- from playing online games and hence the same is not declared in the return of income. The A.O however held that the is not entitled to claim any expenditure against the winning from playing online games and accordingly made an addition under the head "income from other sources" towards the gross winning of Rs. 2,44,50,134/-. On further appeal, the CIT(A) confirmed the addition by holding that: "5.2 During the appellate proceedings, the appellant's primary contention was that online gaming is not covered by Section 2(24)(ix) and therefore Section 115BB should not apply. He argued that the term "other game of any sort" must be interpreted ejusdem generis with "card games" and "television shows" as per Explanation (ii) to Section 2(24)(ix), and that online games are technologically different from the games contemplated when the provision was originally enacted. He submitted that the subsequent introduction of Section 115BBJ through Finance Act 2023, which specifical....
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....arned by the sweat of their brow had to pay the tax levied under the Act. This was an anomaly especially in an egalitarian society. This is also inconsistent with the cardinal doctrine of taxation based on ability to pay. Bearing these aspects in mind, Parliament has brought in the relevant provisions so as to tax receipts by chance winnings or windfalls. In doing so, Parliament virtually introduced a statutory fiction so as to enlarge the concept of taxable income by including the winnings in races, etc., which are not ordinarily regarded as income. In the context of this legislative intent and in the light of the meaning given in the dictionary to the word "winnings", it would be clear that what was intended to be taxed was only a windfall that reached persons without any effort on their part, without any skill being exhibited by them. This is a case, as we have already seen, where there was an exhibition of skill and there was an element of effort in getting the prize and, therefore, there is no scope for such receipt being considered as falling under the above provision. Thus considered in the light of the above background, we are satisfied that the word "winnings" should be as....
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....he view that the Ld. AR's primary submission cannot be accepted. We will now proceed to decide the without prejudice submission raised by the Ld. AR, that only the real net winnings, and not the gross wallet credits, are exigible to tax u/s. 115BB of the Act. In this regard we notice that an identical has been considered by the Bengaluru Bench of the Tribunal in the case of Arakere Chennappa Vishwanath (supra), where it is held that: 14.1 At the outset, we note that the entire addition made by the AO proceeds on the assumption that every amount credited in the gaming wallet during the course of gameplay constitutes taxable income in the hands of the assessee. The AO has proceeded to tax the cumulative gross winnings figure furnished by M/s Gameskraft Technologies Pvt. Ltd. without examining the corresponding buy-in amounts, repeated circulation of funds, redeployment of w innings in subsequent games and the ultimate net result of the gaming activity. From the materials placed on record, it is evident that the assessee had total buy-in amounts aggregating to Rs. 2,61,51,624/- as against gross winnings of Rs. 2,33,52,271/- resulting into a net loss of Rs. 27,99,353/-only....
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....ces including horse races, card games and other games of any sort or gambling or betting of any form or nature. 4. It is seen that deductors are deducting tax under section 194B and 194BB of the Act by applying the threshold of Rs 10,000/- per transaction and avoiding tax deduction by splitting a winning into multiple transactions each below Rs 10,000/-. This is against the intention of legislature. 5. It is also seen that in recent times, there has been a rise in the users of online games. There is a need to bring in specific provisions regarding TDS and taxability of online games due to its different nature, being easily accessible vide the Internet and computer resources with a variety of playing options and payment options. 6. Accordingly, it is proposed to:-- (i) amend section 194B and 194BB of the Act to provide that deduction of tax under these sections shall be on the amount or aggregate of the amounts exceeding ten thousand rupees during the financial year; (ii) amend section 194B of the Act to include "gambling or betting of any form or nature whatsoever" within its scope; (iii) amend section 194B of the Act to exclude....
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.... games during the previous year, computed in the prescribed manner, at the rate of thirty per cent; and * the amount of income-tax with which the assessee would have been chargeable had his total income been reduced by the net winnings referred to above; (x) to provide the definition of "computer resource", "internet", "online game" in the proposed section 115BBJ. 14.4 A careful reading of the above memorandum clearly shows that the legislature itself noticed practical difficulties in taxing online gaming transactions under the old framework. The memorandum specifically recognised the distinct nature of online gaming and therefore introduced a special mechanism for taxation and TDS on "net winnings" from online games. The newly inserted provisions expressly provide that tax is to be deducted and levied only on "net winnings" computed in the prescribed manner. 14.5 Further, Rule 133 framed pursuant to section 194BA provides a complete computational mechanism for determination of net winnings by considering opening balance, deposits, withdrawals and closing balance in the user account. The CBDT Circular No. 05/2023 dated 22.05.2023 also elaborately....
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....this purpose, we shall extract the provisions of section 194BB as below : "194BB. Any person, being a bookmaker or a person to whom a licence has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race in an amount exceeding five thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force :" It is firstly required to be noted in this connection that the expression used in this section is "income by way of winnings". The connotation of "income" necessarily implies the net income after deducting the expense incurred for earning the gross income. There cannot to any doubt about the fact that the cost of purchasing tickets for race which fetches the prize money, must necessarily be deducted to arrive at the net income. Further- more, the legislation has also used the expression "from any horse race" and not "horse races" in plural. It thus means that the income by way of winnings from any particular horse race is required to be taken into ....
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....e by way of winnings. The connotation of income necessarily implies the net income after deducting the expenses incurred for earning the gross income. There could not be any doubt about the fact that the cost of purchasing tickets for race which fetched the prize money, must necessarily be deducted to arrive at the net income. Furthermore, the legislation has also used the expression 'from any horse race' and not 'horse races' in plural. It, thus, meant that the income by way of winnings, from any particular horse race is required to be taken, into consideration. So, one horse race is required to be taken as a unit and the entire money received by way of winnings from the said horse race is first to be considered as the gross income from that horse race. Therefrom one is required to deduct the investment made by the punter towards acquiring the tickets, may be more than one, but pertaining to the same horse race. Therefore, tax is required to be deducted only from the net income arising out of the horse race to the punter; from any particular race after deducting the investment made by the punter in purchasing all the tickets relating to such horse race. The CBDT has also accepted ....
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....ng whether the assessee had any real net winnings at all. Once the very information received from Gameskraft itself disclosed that the assessee's buy-in amounts exceeded the gross winnings, the addition made by the AO becomes wholly unsustainable. We also find considerable force in the assessee's argument that had there been actual net winnings of Rs. 2,33,52,271/-, the online gaming intermediary itself would have deducted tax at source on such winnings. The absence of TDS itself probabilises the assessee's contention that there were no net winnings chargeable to tax. 14.13 The reliance placed by the learned CIT(A) on section 58(4) is also misplaced. Section 58(4) merely prohibits deduction of expenditure or allowance while computing income from winnings. However, before invoking section 58(4) of the Act, the authorities must first determine whether there exists any real "income by way of winnings". The provision does not authorise the department to artificially treat gross transactional entries or recycled gaming funds as income. Accordingly, considering the totality of facts and circumstances of the case, the legislative framework introduced by Finance Act 2023, Rule 133....