2018 (10) TMI 1505 - HC - Income Tax

Income on betting - Set-off of busniss loss against betting and gambling income - whether 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 CIT Vs. Dr. M.A.M.Ramaswamy 2015 (1) TMI 439 - MADRAS HIGH COURT as held 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. 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 against assessee.

Summary

Issues:
1. Appeal against the order passed by the Income-tax Appellate Tribunal for the assessment year 2002-03.
2. Impleadment of legal heir of the deceased assessee.
3. Substantial question of law regarding setting off loss sustained in business against betting and gambling income.
4. Interpretation of Section 115BB of the Income Tax Act.
5. Application of special provisions for determining tax in certain special cases.
6. Calculation of tax based on special provisions versus general provisions.
7. Consistency in judicial decisions on similar substantial questions of law.

1. Appeal against Tribunal's Order:
The High Court of Madras heard an appeal by the Revenue challenging the order of the Income-tax Appellate Tribunal for the assessment year 2002-03. The appeal was admitted based on the substantial question of law regarding the set off of business loss against betting and gambling income.

2. Impleadment of Legal Heir:
The Revenue filed a memo reporting the demise of the sole respondent/assessee and sought to implead the deceased's son as the necessary contesting respondent. The legal heir was impleaded as the second respondent in the appeal.

3. Substantial Question of Law:
The key question revolved around whether the loss sustained in business could be set off against betting and gambling income, with only the net income being taxed under Section 115BB of the Income Tax Act. The High Court referred to a previous decision where a similar question was answered in favor of the Revenue.

4. Interpretation of Section 115BB:
The Court analyzed the intent of the legislature behind Section 115BB, emphasizing the special provision's applicability to income from activities other than owning and maintaining racehorses. It was held that the special rate of tax under Section 115BB applied to the entire income of winnings from horse racing.

5. Application of Special Provisions:
The Court underscored the importance of strictly adhering to the method of calculating tax when special provisions under the Act are invoked. It rejected the reliance on a circular for determining tax on Long Term Capital Gain, emphasizing that the calculation must align with the statutory provisions.

6. Calculation of Tax:
The Court highlighted the necessity of calculating tax in accordance with special provisions, rather than deviating based on circulars or interpretations that contradict legislative intent. Any deviation would render the special provisions ineffective and defeat the purpose intended by the Parliament.

7. Consistency in Judicial Decisions:
The High Court noted that previous decisions on identical substantial questions of law in the same assessee's case had favored the Revenue. Citing consistency in judicial decisions, the appeal was allowed, answering the question of law in favor of the Revenue and against the assessee, without imposing any costs.

In conclusion, the High Court's judgment upheld the applicability of Section 115BB for taxing winnings from betting and gambling, emphasizing the need to follow special provisions strictly and maintain consistency in interpreting tax laws across judicial decisions.