2021 (10) TMI 1135 - AT - Income Tax

TDS u/s 194B or 194BB - disallowance in respect of payment of stake money under section 40(a)(ia) - stake money and cups disbursed to horse owners without deducting TDS - HELD THAT - As decided in own case 2020 (12) TMI 1280 - ITAT BANGALORE CBDT Circulars are binding on the Department as it clarifies the understating of the provisions of the Act by the Revenue which cannot be disregarded by the income-tax authorities while construing the provisions of the Act. The ld. DR was not able to point out why the interpretation given in the CBDT Circular relied upon by the assessee should not prevail. We find that the Department has tried to indirectly tax what cannot be taxed by virtue of Circular issued by the CBDT, a situation which is impermissible in law. Thus, on this aspect also, we hold that 'stake money' is not liable to TDS u/s 194B of the Act. - we also hold that stake money paid by assessee to the horse owners are not liable to TDS under section 194B or section 194 BB of the Act. Consequentially no disallowance could be made under section 40 (a) (ia) of the act in the hands of assessee. Nature of expenditure - Expenditure on modification of TV towers - claim un/s 37 - AR submitted that, during the year six TV towers were modified to fit the technology cameras which could be used during horse races and there is no enduring benefit in the hands of assessee and that, amount paid for purchase of technological camera are capitalised the books of account on which depreciation is claimed in accordance with section 32 - HELD THAT - In present facts assessee incurred expenses on re-modification of TV towers which might, undergo further modification as and when the technologically upgraded camaras are brought in. It is submitted that the towers were remodified to fit in the new camaras purchased. Admittedly, the cameras purchased by assessee were capitalised on which depreciation is claimed. Thus in our view though expenditure do not have the character of enduring benefit, the advantage is not for indefinite future. Accordingly, respectfully applying the principles laid down in EMPIRE JUTE COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX 1980 (5) TMI 1 - SUPREME COURT we hold the expenditure to be revenue in nature. We direct the Ld.AO to delete the disallowance made on expenses towards re-modification of TV towers. Nature of expenditure - expenditure incurred on constructing temporary stables, repairs to existing stables and gun greeting of such stables - HELD THAT - We agree with the argument advanced by the Ld.Sr,DR that the structures are permanently made for outstation horses that come to Bangalore for races and therefore to be catagorised as capital asset. We also note that assessee incurred repair work towards existing stables. We direct the Ld.AO to allow the expenditure incurred is towards repair work as revenue expenditure. Expenditure incurred on upgrading of UPS system u/s 37 - HELD THAT - We note that the server installed in the racecourse premises was originally supported by UPS of 8 KVA. Assessee upgraded it to16 KVA in the year 2012. The upgradation of UPS has brought into effect a new asset for advantage of assessee and therefore has to be treated as capital asset. However, assessee is eligible for depreciation. We direct the Ld.AO to grant depreciation to assessee on the UPS. Expenditure incurred towards maintenance of betting systems and other equipments and asphalting of roads - Revenue or capital expenditure - HELD THAT - We note that both these expenditure are incurred by assessee for maintenance of existing asset. It cannot be ignored that, there would arise ware and tear of machines used and the road on which horse racing takes place. These needs to be maintained on regular basis for the purposes of business. We are therefore convinced with the view of Ld.CIT(A) that they are in the nature of revenue expenditure.

Issues Involved:
1. Disallowance under section 40(a)(ia) for non-deduction of TDS on stake money.
2. Applicability of binding judgment which has been stayed.
3. Disallowance of expenditure on re-modification of TV towers under section 37.
4. Disallowance of expenditure on constructing temporary stables, repairs to existing stables, and concreting of such stables under section 37.
5. Disallowance of expenditure on upgrading UPS systems under section 37.
6. Interest levied under section 234B.

Issue-wise Detailed Analysis:

1. Disallowance under section 40(a)(ia) for non-deduction of TDS on stake money:
The Tribunal addressed the disallowance of ?33,87,11,726/- under section 40(a)(ia) for non-deduction of TDS on stake money paid to horse owners. The assessee argued that TDS was not deductible under sections 194BB or 194B, supported by a Karnataka High Court decision and CBDT Circular No. 240 dated 17/05/1978. The Tribunal noted that the Karnataka High Court's interim order stayed the obligation to deduct TDS on stake money and directed authorities to reconsider the matter. The Tribunal, following the Mumbai Tribunal's decision in Royal Western Turf Club Ltd. vs. ACIT, concluded that stake money is not liable to TDS under sections 194B or 194BB, and thus, no disallowance could be made under section 40(a)(ia).

2. Applicability of binding judgment which has been stayed:
The Tribunal acknowledged the Karnataka High Court's interim order staying the Single Judge's decision, which held that stake money is not subject to TDS under sections 194B or 194BB. The Tribunal emphasized that the stay does not negate the decision's authority as a precedent and directed the AO to delete the disallowance made under section 40(a)(ia).

3. Disallowance of expenditure on re-modification of TV towers under section 37:
The Tribunal examined the disallowance of ?8,40,000/- for re-modification of TV towers. The assessee argued that the expenditure was for adapting to new technology and did not provide an enduring benefit. The Tribunal, referencing the Supreme Court's decision in Empire Co Ltd vs. CIT, held that the expenditure facilitated the assessee's business operations and was revenue in nature. The Tribunal directed the AO to delete the disallowance.

4. Disallowance of expenditure on constructing temporary stables, repairs to existing stables, and concreting of such stables under section 37:
The Tribunal considered the disallowance of ?1,04,79,000/- for constructing temporary stables and repairs. The assessee claimed these were revenue expenditures. The Tribunal agreed that the structures provided an enduring benefit and should be treated as capital assets. However, it directed the AO to allow the expenditure incurred for repair work as revenue expenditure.

5. Disallowance of expenditure on upgrading UPS systems under section 37:
The Tribunal reviewed the disallowance of ?12,20,000/- for upgrading UPS systems. The assessee argued that the expenditure was necessary for business operations and did not provide an enduring benefit. The Tribunal found that upgrading the UPS resulted in a new asset for the assessee's advantage and should be treated as capital expenditure. The Tribunal directed the AO to grant depreciation on the UPS.

6. Interest levied under section 234B:
The Tribunal noted that this issue was consequential and did not require adjudication.

Revenue's Appeal:
The Tribunal addressed the revenue's appeal regarding the treatment of expenditure on maintenance of betting systems and asphalting of roads. The Tribunal upheld the CIT(A)'s decision that these expenditures were revenue in nature, as they were incurred for maintaining existing assets and were intrinsically connected to the assessee's business operations.

Conclusion:
The Tribunal allowed the assessee's appeal partly and dismissed the revenue's appeal. The Tribunal directed the AO to delete the disallowances made under sections 40(a)(ia) and 37 for certain expenditures and to grant depreciation on the UPS. The Tribunal emphasized the importance of adhering to binding precedents and CBDT circulars in determining the tax treatment of expenditures.

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