2016 (1) TMI 638 - AT - Income Tax

TDS u/s 194B - failure to deduct tax from stake money prizes paid to horse owners - Held that - The lower authorities has applied the provisions of section 194B to the payments made to horse owners as stake money on the ground that by insertion of words or card game and other game of any sort w.e.f. 1.6.2001 the horse racing income comes under the ambit of other game of any sort we find that this issue had arisen in the case of Bangalore Turf Club Ltd. Vs. Union of India and others (2014 (12) TMI 843 - KARNATAKA HIGH COURT) wherein held that the amended provision of section 194B do not apply to horse racing. The term any other similar game found in Explanation (ii) to section 2(24)(ix) has to be held as inclusive definition and has to be read ejusdem generis and as such activity of owning and maintaining horses cannot by any stretch of imagination fall in the definition of card game or other game of any sort found in section 194B. - Decided in favour of assessee

Issues involved:
1. Applicability of penalty under section 201(1) & (1A) of the Income Tax Act on stake money from horse racings.
2. Validity of the proceedings and limitation period.
3. Interpretation of Section 194B versus Section 194BB in relation to horse racing.
4. Relevance of CBDT Circular No. 240 dated 17.5.1978.
5. Distinction of judgment of Karnataka High Court in the case of Bangalore Turf Club Ltd Vs. Union of India.
6. Interpretation of case law supporting the Assessee's stand.
7. Tax deduction on stake money paid in horse races.

Analysis:
1. The case involved appeals by the assessee against the order of the Commissioner of Income-tax (Appeals) confirming the penalty under section 201(1) & (1A) of the Income Tax Act on stake money from horse racings. The assessee argued that the penalty was erroneous, contrary to law and facts, and should be reversed. The Assessing Officer held that the stake money from horse races is liable for TDS under section 194B of the Act, and thus, the assessee was in default for not deducting tax at source. The AO also rejected the contention that tax cannot be recovered from the deductor if the deductee has already paid tax on the income.

2. The issue of validity of the proceedings and the limitation period was raised by the assessee, arguing that the proceedings were bad in law and barred by limitation. However, the AO found the assessee to be in default for not deducting tax on stake money paid to horse owners. The AO relied on the amended provision of section 194B by Finance Act, 2001, and rejected the assessee's reliance on Circular No. 240 dated 17.05.1978.

3. The interpretation of Section 194B versus Section 194BB in relation to horse racing was a crucial aspect of the case. The AO applied Section 194B to the payments made to horse owners as "stake money," considering horse racing income as falling under the ambit of "other game of any sort." However, the Karnataka High Court in the case of Bangalore Turf Club Ltd Vs. Union of India held that the amended provision of Section 194B does not apply to horse racing. The High Court's judgment emphasized that owning and maintaining horses cannot be considered falling within the definition of "other game of any sort."

4. The relevance of CBDT Circular No. 240 dated 17.5.1978 was raised by the assessee, arguing that the circular clarified the position regarding tax deducted at source from income by way of winnings on horse racing. However, the AO did not apply the circular and held that the amended provision of Section 194B prevails over Section 194BB.

5. The judgment of the Karnataka High Court in the case of Bangalore Turf Club Ltd Vs. Union of India was distinguished by the Commissioner of Income Tax (Appeals). However, the Appellate Tribunal reversed the order of the Commissioner and decided the issue in favor of the assessee, stating that the issue was squarely covered by the High Court's judgment.

6. The case law supporting the Assessee's stand was interpreted by the Appellate Tribunal, which found that the lower authorities had misinterpreted the case law. The Tribunal reversed the order of the Commissioner of Income Tax (Appeals) based on the interpretation of the relevant legal provisions and judgments.

7. The final decision of the Appellate Tribunal was to allow the appeals of the assessee, holding that the issue in dispute regarding tax deduction on stake money paid in horse races was covered by the judgment of the Karnataka High Court. The Tribunal decided the issue in favor of the assessee, reversing the order of the Commissioner of Income Tax (Appeals).

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