2018 (11) TMI 329 - HC - Income Tax

Loss sustained in business set off against betting and gambling income - whether only the net income is to be taxed under Section 115BB? - Held that - Identical question was decided in the assessee s own case against the assessee as held a combined reading of Section 115BB and the proviso to section 58(4) along with the CBDT circular no.721 dated 13.09.1995 fortify the action of the Commissioner (Appeals) and we see no justification to interfere with the orders of the Commissioner (Appeals) on this issue . 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. The 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. - Decided in favour of revenue.

Issues:
- Appeal by Revenue under Section 260A of the Income Tax Act against the order passed by the Income Tax Appellate Tribunal for the assessment year 2003-04.
- Substantial question of law regarding setting off loss sustained in business against betting and gambling income under Section 115BB.

Analysis:
1. The judgment involves an appeal by the Revenue under Section 260A of the Income Tax Act against the order of the Income Tax Appellate Tribunal for the assessment year 2003-04. The substantial question of law raised in this appeal pertains to whether the loss sustained in business can be set off against betting and gambling income, with only the net income being taxed under Section 115BB.

2. The learned counsel for the Revenue pointed out that a similar question was decided against the assessee in previous cases, specifically in TCA.No.649 of 2006 and T.C.No.407 of 2008. In these cases, the Division Bench allowed the appeals filed by the Revenue, answering the substantial question of law in favor of the Revenue and against the assessee.

3. The judgment referred to the legislative intent behind Section 115BB of the Income Tax Act, emphasizing that the special provision mandates the application of a special tax rate for income from certain activities, such as winnings from horse racing. It was highlighted that the intent of the legislature was to levy tax at a specific rate for such income, and any attempt to deviate from this provision would undermine the legislative purpose.

4. The judgment also discussed the methodology of computing tax on Long Term Capital Gain and emphasized that when tax is levied based on special provisions under the Act, the calculation method must strictly adhere to those provisions. The reliance on circulars or interpretations that do not align with the statutory provisions was deemed misconceived and not legally sustainable.

5. The Court further noted discrepancies in the Tribunal's decision regarding the applicability of Section 58(4) of the Act and the contradictory observations made in the order. Ultimately, the Court held that the total winnings from betting should be taxed at the rate of 40% as specified under Section 115BB, setting aside the Tribunal's order that affirmed the decision of the Commissioner of Income Tax.

6. Based on the above analysis and the precedents cited, the High Court allowed the appeal filed by the Revenue, answering the substantial question of law in favor of the Revenue and against the assessee. No costs were awarded in this matter.

This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the reasoning behind the Court's decision in this tax matter.

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