2015 (3) TMI 323 - HC - Income Tax

Set-off of loss sustained in business against betting and gambling income - whether only the net income is to be taxed u/s 115BB? - assessee is a breeder and owner of race horses - Held that - This Court is not inclined to accept the view as propounded by the Tribunal and the Commissioner (Appeals), as Section 115BB of the Act is a standalone special provision, which makes it clear that income of an assessee, not being income from activity of owning and maintaining race horses, would fall under Section 115BB of the Act. 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, therefore, of the considered view that 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 holding that the loss sustained in business can be set off against betting and gambling income and only the net income is to be taxed u/s 115BB, 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. - Decision of the assessee in its own case 2015 (1) TMI 439 - MADRAS HIGH COURT followed - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the Tribunal was right in holding that the loss sustained in business can be set off against betting and gambling income and only the net income is to be taxed under Section 115BB.

Issue-wise Detailed Analysis:

1. Tribunal's Decision on Loss Set-off Against Betting Income:
The Tribunal held that the losses suffered by the assessee under the head 'business' could be adjusted against other heads, including betting income. The Tribunal relied on Section 58(4) and the proviso clause, which does not apply to the assessee's case as the assessee is the owner of horses maintained for running in horse races. The Tribunal also referenced CBDT Circular No. 721 dated 13.09.1995, supporting the case that the assessee was allowed to adjust the losses. The Tribunal concluded that the combined reading of Section 115BB, the proviso to Section 58(4), and the CBDT circular fortified the action of the Commissioner (Appeals), justifying the adjustment of losses against betting income.

2. Revenue's Appeal Against Tribunal's Decision:
The Revenue appealed against the Tribunal's decision, arguing that the Tribunal's interpretation was incorrect. The Revenue contended that Section 115BB envisages taxation at a flat rate of 40% on the total amount of winnings from betting, and losses from other sources cannot be set off against such income.

3. High Court's Analysis and Decision:
The High Court referred to its previous decision in the assessee's own case for the assessment year 1998-1999, where it had analyzed Sections 115BB and 58(4) of the Act. The Court reiterated that Section 115BB is a standalone special provision that mandates a flat rate of tax on the total winnings from betting, and losses from other sources cannot be set off against such income. The Court emphasized that the legislative intent was clear from the amendments and circulars, which aimed to tax winnings from betting at a special rate without allowing deductions or set-offs.

4. Legislative Intent and Circulars:
The Court examined the legislative amendments and CBDT Circulars No. 461 and No. 14 of 2001, which clarified that Section 115BB was introduced to tax winnings from betting at a flat rate of 40%, later reduced to 30% as a measure of rationalization. The amendments also deleted Sections 74A(1) and 74A(2) to prevent the set-off of losses against betting income.

5. Conclusion:
The High Court concluded that the Tribunal's decision was incorrect, as it did not align with the legislative intent and the specific provisions of Section 115BB. The Court held that the total winnings from betting should be taxed at the rate of 40% without allowing any set-off of losses from other sources. Consequently, the High Court set aside the Tribunal's order and ruled in favor of the Revenue, answering the substantial question of law in favor of the Revenue and against the assessee.

Judgment:
The appeal by the Revenue was allowed, and the Tribunal's order was set aside. The Court ruled that the total winnings from betting should be taxed at the rate of 40% as per Section 115BB, without any set-off of losses from other sources. There was no order as to costs.