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TMI Blog2021 (10) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned CIT(A) has erred in not appreciating that section 194BB does not cover stake money paid to horse owners; a legal proposition accepted by the Board in Circular No 240 dated 17.05.1978. The disallowance made by the learned AO and confirmed by learned CIT(A) is therefore against the mandate of a binding circular. 2.3. Assuming and without admitting that the disallowance under section 40(a)(ia) is correct, such disallowance must be restricted to 30% as the amendment made by Finance Act (No.2), 2014 with effect from 01.04.2015 is remedial in nature and hence retrospective in its applicability. 3. Grounds relating to applicability of a binding judgment which has been stayed 3.1. The learned AO has erred in not following the decision of the Jurisdictional High Court in Bangalore Turf Club v UOI (2014) 228 Taxman 234 wherein it has held that the payment of stake money is neither covered under section 194BB nor under section 194B of the Act. 3.2. The learned AO has erred in not appreciating that a review petition filed by the department does not empower the assessing officer to disregard a binding jurisdictional high court decision. 3.3. On facts and in the circumstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther in preceding years or in subsequent years, the same failed to prove its nature as temporary structures and consequently were to be treated as capital expenditure. 5.3. On facts and circumstances of the case, the impugned expenditure of Rs. 1,04,79,000/-constitute revenue expenditure and should be allowed as a deduction under section 37(1) of the Act. 6. Grounds relating to disallowance of expenditure incurred on upgradation of UPS systems under section 37 6.1. The learned CIT(A) has erred in confirming the disallowance of revenue expenditure incurred on upgrading UPS systems claimed as deduction amounting to Rs. 12,20,000. 6.2. The learned CIT(A) has erred in not appreciating the fact that the reason for upgrading the existing UPS was that the old UPS was not able to handle much load and the same was not repairable. The expenditure was incurred in respect of the existing system to facilitate day to day carrying on of the business and thus was revenue in nature. 6.3. On facts and circumstances of the case, the impugned expenditure of Rs. 12,20,000/-constitute revenue expenditure and should be allowed as a deduction under section 37(1) of the Act. 7. Interest levied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 26/09/2014 observed that Circular No.240 dated 17/05/1978 issued by CBDT in respect of section 194 BB would not apply to stake money is and such stake monies are not regarded as winning from horse races or races, but constitute prize-money which the owner of a race horse is proceeds on account of his horse winning a position in the race. It was also submitted that Hon'ble Karnataka High Court, with regard to applicability of provisions of section 194B held that the stake money or prize money paid by race clubs to horse owners would not attract provisions of the section. 4. Ld.AO however disallowed the sum of Rs. 33,87,11,726/- under section 40(a)(i) for the reason that revenue sought review petition before Hon'ble Karnataka High Court against the decision dated 26/09/2014. 5. The Ld.AO further observed that assessee debited following expenses amounting to Rs. 3,08,74,000/- in P&L account as revenue expenditure: S.No Item--Head of expense Amount (Rs.) 1. Betting terminals and other equipment 64,35,000 2. TV Towers 8,40,000 3. Asphalting of roads 1,19,00,000 4. Repairs to stables 88,01,000 5. Galvalume sheets 11,38,000 6. Concreting in stable area 5,40,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1850/Bang/2019 by order dated 18.12.2020 for A.Ys. 2012-13 and 2014-15 on identical facts held as under: "Ld.AR submitted that against the order passed by Ld.Single Judge of Hon'ble Karnataka High Court by decision dated 26/09/2014, revenue preferred writ appeal being WA-60/2015, before a division bench filed on 07/01/2015. Hon'ble court passed an interim order by observing as under: "4. On the aspects of the amounts of TDS to be deducted towards stake money by the club, we find that as up till now in past, deduction has not been made and the /question is to be considered on the aspects of deduction by the club while making payment of the state money. It appears to us that, the payee of the stake money should file an undertaking to this court that as and when it is to be directed by the court, the amount of TDS shall be deposited with the club for enabling the club to deposit the amount with the Revenue/Income Tax Department. 5. As a matter may required to be considered de novo by the authority concerned, it would be appropriate to stay the observations made by the Ld.Single Judge so far as they relate to the obligations of the club to deduct TDS or as to whether the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned Single Judge in the impugned judgment so far as interpretation of the respective provisions of the Act for TDS, shall remain stayed. 8. It is also observed and directed that the concerned authority or the appropriate officer after the reply/ additional reply is submitted by the original petitioner, club or the private respondent/ original petitioner as the case may be shall give opportunity of hearing to the respective parties and shall pass a fresh order in accordance with law and shall decide as to whether the requirement of TDS is applicable to the stake money being paid by the club to the person concerned who are owners of the horse participating in the race or not. 9. The aforesaid exercise shall be completed preferably within a period of three months from the receipt of certified copy of the order of this Court. However, it is observed that, the order which may he passed by the authority or the appropriate officer shall not be implemented without express leave of this Court" 10. Until further orders, at the time when stake money is to be paid by the original petitioner-club to the person concerned, the deduction shall not be made under the head of TDS if the owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 dated 17/05/1978 * Extract from Finance Minister's speech, memorandum explaining provisions of finance bill 2001 dated 28/02/2001 proposing amendments to section 194B w.e.f. 01/06/2001 * Circular issued by CBDT No. 14/2001 dated 09/11/2011 explaining provisions of Finance Bill 2001 * Decision of Hydrabad Tribunal in case of ACIT vs Hydrabad race club in ITA No. 319-323/HYD/2015 for assessment year 2009-10 to 2013-14 by order dated 04/09/2015 * Decision of Chennai Tribunal in case of Madras Race Club vs DCIT in ITA No. 646-657/MDS/2015 for assessment years 2007-08 to 2012-13 by order dated 28/10/2015 * Decision of Mumbai Tribunal in case of Royal Western Turf Club Ltd vs ACIT reported in (2019) 108 Taxmann.com 91 for assessment year 2012-13 Ld.AR submitted that, Mumbai Tribunal in case of Royal Western Turf Club Ltd vs ACIT (supra) in recent a judgment followed the view taken by Ld.Single Judge of Hon'ble Karnataka High Court (supra) held that, stake monies are not liable to TDS under section 194B of the Act. On the contrary, Ld.CIT DR placing reliance on orders passed by authorities below submitted that, steak monies forms part of the words card games and other game ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 194B of the Act, which is not permitted in law. In V.M. Salgaocar & Bros. (P.) Ltd. v. CIT [2000] 110 Taxman 57/243 ITR 383 (SC), the Hon'ble Supreme Court has held that the Circulars of the CBDT provide as to how the Revenue itself understands the enactment/amendment. Hence, the language of the Circular is very clear that Revenue accepts that "stake money" is outside the purview of TDS. 6. The next argument put-forth by the learned representative was that specific provisions prevail over general provisions. As per the learned representative, Section 194BB of the Act is a specific provision applicable in case of winnings from horse races. It is contended that a specific provision overrules a general provision, provided both the provisions operate in the same field. In this regard, reliance was placed on the decision of CIT v. Shahzada Nand & Sons[1966] 60 ITR 392 (SC) and Kirloskar Pneumatic Co. Ltd. v. Commissioner of Surtax [1994] 74 Taxman 615/210 ITR 485 (Bom.) and Forbes Forbes Compbell & Co. Ltd. v. CIT [1994] 74 Taxman 268/206 ITR 495 (Bom.). Thus, as per him, the Assessing Officer erred in applying Section 194B of the Act, which is a general provision appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horses; and, that in any case, Section 194BB of the Act is the relevant section, which anyway excludes the aforesaid receipts from its purview. Thus, a subsequent amendment in a general enactment cannot be said to override earlier special enactment. It has also been asserted that the amendment to Section 194B of the Act came in 2001 and, it was an admitted position that in all earlier years, this provision was never made applicable on the assessee. 8. The learned representative thereafter explained the difference between the term "winnings" and "stake money". "Winnings" is the amount received by people who bet in horse races. Income by way of "stake money" is the gross amount received by the owner on account of horse securing a position in the race. Hence, income from "stake money" is different from income from "winnings" and Section 194B of the Act only applies to income from "winnings". It is because of this difference that the CBDT issued a Circular in 1978 (supra) wherein it was held that Section 194BB applies to "winnings", and because "stake money" is different from "winnings"; and since Section 194BB uses the word "winnings from horse races", hence it will not apply to "s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature was conscious of the fact that Section 194B of the Act operates in an altogether different domain and largely refers to "luck based games" as opposed to "skill based games" and hence, did not include horse races within Section 194B of the Act. 10. It was further submitted that Section 194B of the Act was amended in 2001 and the words 'card game or other game of any sort' were inserted. An amendment was also brought about in Section 2(24)(ix) of the Act whereby it has been stated that "card game or other game of any sort" includes any game show, any entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game. Hence, "card game or other game of any sort" is to be read and understood in this background and a 'horse race' cannot be put in this category since this definition talks about other games on television or electronic mode, in which people compete to win prizes. It refers to a platform wherein people compete and participate, which cannot be equated with a horse race. Thus, the Legislative intent at the time of introducing the amendment in Section 194B of the Act was to bring within its scope, m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tates that "Provided that nothing contained in this sub-section shall apply in computing the income of an assessee, being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses." 12. Section 74A of the Act is a specific section stating that loss arising to horse owners from the activity of maintaining and owning race horses shall not be set-off against other income. Even there are restrictions on carry forward. Hence, this restriction of no set-off against income from other 'winnings' and allowing certain benefits of carry forward of loss arising from the activity of maintaining and owning race horses, and not other 'winnings', makes it evident that the intention of the Legislature from the very beginning has been to treat 'Income by way of stake money' as different from 'Income from winnings'. Further, Section 115BB of the Act, which was introduced via Finance Act, 1986, prescribed a flat rate of tax on Winnings from such games and states that income from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient of income has also failed to pay such tax directly. In present case, however, the owners of the horses have declared such income in their tax returns. Hence, as per the provisions of Section 201 of the Act, the assessee cannot be treated as an 'assessee in default'. Reliance was placed on decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverages (P) Ltd. v. CIT [2007] 163 Taxman 355/293 ITR 226 (SC). Before us, it was explained that complete details of the horse owners were filed before the Assessing Officer showing that taxes have been duly paid by them. Thus, as the horse owners who have earned the stake money are liable for payment of taxes, any additional demand on the assessee would amount to double recovery, which is impermissible. 15. It has also been submitted that in the present case, full list of recipients of the 'stake money', alongwith their details/documents and confirmations stating that this amount has been included by them in their respective Returns of income were filed before the lower authorities, a copy of the said list has also been submitted in the Paper Book filed before us. Countering the allegation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;; as per the Assessing Officer, due to the amendment assessee was very much liable to deduct tax at source u/s 194B of the Act. On the other hand, the appellant vehemently contends that the expression "card game and other game of any sort" derives its meaning from the words accompanying it and cannot be read to mean all games of any sort. It was further pointed out that specific provision shall prevail over general provision and Section 194BB of the Act being a special provision dealing with TDS on income arising from horse races and Circular no. 240 dated 17.05.1978 (supra) specifically excluding 'stake money' from the ambit of TDS, it was further argued that the amendment in general provision cannot bring back to tax what has been specifically excluded from its ambit by the special provision. Thus, it was submitted that provisions of Section 194B of the Act were not applicable on 'stake money' even after the amendment. The learned representative had also raised an alternate plea that the recipients of 'stake money' have already paid the taxes on the 'stake money' received from the assessee and thus, assessee should not be treated as "assessee in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be deducted u/s 194BB of the Act with respect to income by way of 'stake money' as the same is not regarded as winning from horse races. However, said Circular is still in existence and the ld. DR has not disputed this fact. The entire gamut of the legal position leads to an irresistible conclusion that position of TDS on 'stake money' has not changed even after amendment in Section 194B of the Act by Finance Act, 2001 and the position prior to amendment continues to prevail, i.e. the stake money is not liable to TDS either under Section 194BB or under Section 194B of the Act. 20. Further, it is a well settled proposition of law that the 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rseracing. It is necessary to have display televisions on towers when the race takes place. These televisions are used to display the race. Thus the televisions and television towers are an integral part of the business activity carried on by assessee. Further it is also a fact that assessee has to be technology upgraded to facilitate better performance. As technology keeps changing, assessee has to upgrade itself to benefit its business. Further it cannot be ignored that usual wear and tear of the televisions and the television towers needs replacement at regular intervals. Under such circumstances expenditure incurred by assessee for re-modification of TV towers cannot be considered to be an enduring benefit. 10.4 We refer to the decision of Hon'ble Supreme Court in case of Empire Co Ltd vs. CIT reported in 124 ITA 1. Hon'ble Court held that, where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, nonetheless, be on revenue account, and the test of enduring benefit may break down. It is not that every advantage of enduring nature that brings the case within the principle laid down in this test, namely, whether the assessee obtained any asset of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Accordingly this ground raised by assessee stands partly allowed. 12. Ground NO.6 is in respect of expenditure incurred on upgrading of UPS system under section 37 of the Act. 12.1 The Ld.AR submitted that, assessee incurred expenditure towards upgrading of existing UPS to support server installed during April 2012. He submitted that these are revenue in nature as it doesn't amount to an enduring benefit to assessee. 12.2 On the contrary, the Ld.Sr.DR submitted that, UPS is a support system that helps to keep the server running during power failures. From the description assessee upgraded to increased its capacity. The Ld.Sr.DR submitted that, this benefited assessee enduringly and therefore has to be treated as capital expenditure. We have perused submissions advanced by both sides in light of records placed before us. 12.3 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 brou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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