2018 (9) TMI 969 - HC - Income Tax

Setoff of busniss loss - whether loss sustained in business can be set off against betting and gambling income; and only the net income is to be taxed under Section 115-BB? - Held that - Identical question of law, for the assessment year 1998-99, was considered by the Division Bench of this Court in Commissioner of Income Tax vs. Dr. M.A.M.Ramaswamy 2015 (1) TMI 439 - MADRAS HIGH COURT wherein appeal filed by the revenue was allowed and the substantial question of law was answered in favour of the Revenue and against the assessee by holding 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.

Summary

Issues:
Appeal against order passed by Income-tax Appellate Tribunal for assessment year 2004-05. Substantial question of law regarding set off of loss against betting and gambling income under Section 115-BB.

Analysis:
The judgment pertains to an appeal by the Revenue against the Income-tax Appellate Tribunal's order for the assessment year 2004-05. The substantial question of law raised was whether the loss sustained in business can be set off against betting and gambling income, and only the net income taxed under Section 115-BB. The Court referred to a similar case for the assessment year 1998-99, where the appeal by the Revenue was allowed. The Court emphasized the legislative intent to rationalize tax rates on winnings from betting and gambling, reducing it from 40% to 30%. It was noted that Section 115BB of the Act is a standalone special provision for taxing income from activities other than owning and maintaining racehorses. The Court rejected the application of Circular No.721 dated 13.9.95 for calculating tax on Long Term Capital Gain, emphasizing strict adherence to special provisions under the Act.

The Court found it perplexing that the Tribunal's order seemed contradictory, stating that Section 58(4) does not apply to the assessee's case, yet affirming the Commissioner of Income Tax (Appeals) decision. The Court concluded that the total winnings from betting should be taxed at 40% under Section 115BB, setting aside the Tribunal's order. The judgment cited subsequent decisions where the Division Bench upheld similar rulings in favor of the Revenue. Therefore, based on consistent precedents and legal principles, the Court allowed the Revenue's appeal, answering the substantial question of law in favor of the Revenue and against the assessee. No costs were awarded in this matter.