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2015 (1) TMI 439 - HC - Income TaxIncome on betting - Set off of business losses against betting and gambling income - Tribunal observed that only the net income is to be taxed under Section 115BB of the Income Tax Act - Held that - A bare reading of the circular No.461, dated 9.7.1986 and the provisions makes it clear that Section 115BB of the Act envisages taxation at the flat rate of 40% on the total amount of winnings from betting etc. In view of the specific provision contained in Section 115BB of the Act under Chapter XII of the Act, which provides for determination of tax in certain special cases, the special rate of tax is applicable for the entire income of winnings from horse racing and should be subject to tax at the special rate provided therein. It is not the case of the assessee that the income being brought to tax is earned from owning and maintaining the horses. Therefore, in our considered opinion, the provisions of Section 58(4) of the Act will not come into play. We are at a loss to understand as to how the Tribunal concurred with the decision of the Commissioner of Income Tax (Appeals), while making a diametrically opposite observation that Section 58(4) of the Act is not applicable. - total winnings from betting of the assessee should be brought to tax at the rate of 40% as contemplated under Section 115BB of the Act. The order passed by the Tribunal, which affirmed the order of the Commissioner of Income Tax (Appeals), is liable to be set aside. Accordingly, the order passed by the Tribunal is set aside.- Decided in favour of Revenue.
Issues Involved:
1. Whether the loss sustained in business can be set off against betting and gambling income. 2. Whether only the net income is to be taxed under Section 115BB of the Income Tax Act. Detailed Analysis: 1. Set-off of Business Losses Against Betting and Gambling Income: The assessee, a breeder and owner of race horses, filed a return for the assessment year 1998-99, declaring a total income of Rs. 28,01,55,597/-. The return was processed, and the assessee adjusted business losses against betting income of Rs. 31,24,28,980/-, bringing the net betting income of Rs. 28,52,18,347/- to tax at the flat rate of 40% under Section 115BB of the Income Tax Act. The Assessing Officer rejected this computation, stating that the total winnings should be taxed without setting off any losses. The Commissioner of Income Tax (Appeals) and the Tribunal, however, upheld the assessee's method, allowing the set-off of business losses against betting income. 2. Taxation of Net Income Under Section 115BB: The core legal question was whether the net income from betting, after setting off business losses, should be taxed at the rate of 40% under Section 115BB. The Revenue contended that Section 115BB mandates taxation of the total winnings without any set-off, while the assessee argued that the total income should be computed after considering set-offs as per Sections 70 to 80 of the Act. Court's Analysis and Conclusion: The Court examined the provisions of Sections 58(4) and 115BB of the Income Tax Act. Section 58(4) disallows any deduction in respect of expenditure or allowance in computing income from betting, gambling, etc., except for owners of horses maintained for racing. Section 115BB imposes a flat tax rate on winnings from betting and gambling, excluding income from owning and maintaining race horses. The Court referred to the legislative intent and Board Circulars No. 461 and No. 14 of 2001, which clarified that winnings from betting should be taxed at a flat rate without any deductions. The Court noted that the Tribunal had erroneously relied on the proviso to Section 58(4) and CBDT Circular No. 721, which was not applicable to the assessee's case. The Court concluded that Section 115BB is a standalone provision that mandates taxation of the total winnings from betting at a special rate of 40%, without allowing any set-off of business losses. The Tribunal's order, which affirmed the Commissioner of Income Tax (Appeals)'s decision, was set aside. Final Judgment: The appeal was allowed, answering the question of law in favor of the Revenue and against the assessee. The total winnings from betting should be taxed at the rate of 40% as per Section 115BB, without any set-off of business losses.
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