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Facts
The assessee, a private salaried employee, reported a net loss from online gaming activities. The Assessing Officer added the gross winnings, treating them as taxable income under Section 115BB. The CIT(A) upheld this decision.
Held
The Tribunal held that Section 115BBJ, introduced by the Finance Act 2023, which taxes net winnings, is prospective and not clarificatory or curative. Therefore, it cannot be applied retrospectively to the assessment year in question. The doctrine of real income, as argued by the assessee, is not applicable here due to specific provisions in the Act.
Key Issues
Whether Section 115BBJ, introduced prospectively, can be applied retrospectively to tax online gaming winnings, and whether the doctrine of real income applies in this case.
Sections Cited
115BB, 58(4), 115BBJ, 2(14)(ix), 143(3), 158BC, 113
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Income Tax Appellate Tribunal, Hyderabad ‘ DB-B ‘ Bench, Hyderabad
Before: Shri Vijay Pal Rao, Vice-Shri Madhusudan Sawdia
Per Vijay Pal Rao, Vice President
This appeal by the assessee is directed against the order dated 06/09/2024 of the learned CIT (A)-NFAC Delhi, for the A.Y.2022-23.
The assessee has raised the following grounds of appeal:
3. The assessee has also filed a petition for admission of additional ground which reads as under: “Without prejudice to the grounds, the learned CIT (A) is not justified in confirming the addition of Rs.1,86,60,850/-
Page 2 of 17 made by learned Assessing Officer being gross receipts from gaming activity u/s 115BB, ignoring the fact that the amendment made vide insertion of section 115BBJ w.e.f. 01/04/2023 is clarificatory in nature and Hence, the net receipts only can be brought to tax”.
The assessee is a private sector salaried employee stated to have an annual income less than five lakh rupees and no other income than salary. The assessee filed his return of income for the year under consideration on 26/07/2022 declaring total income of Rs.4,27,850/-. The Assessing Officer noted that in the return of income, the assessee has not disclosed any income winning from M/s. Gameskraft Technologies (P) Ltd platform. The assessee filed his reply and submitted the statement of transactions with the Gameskraft Technologies (P) Ltd (Rummy Culture) which shows a gross winning amount during the year of Rs.1,86,60,852/- against which the assessee claimed setting of loss from the game to the tune of Rs.2,01,37,400/- and thereby claimed a net loss of Rs.14,94,548/- from online gaming activities. The Assessing Officer denied the setting of the loss against the winning amount while passing the assessment order in view of the provisions of section 58(4) r.w.s. 115BB of the I.T. Act and held that in case of the income from other sources, no deduction in respect of any expenses and allowances is allowable in computing income by way of winning from inter alia card games and other games and gross receipt is taxable @ 30% as per section 115BB of the Act.
The assessee challenged the action of the Assessing Officer before the learned CIT (A) but could not succeed.
Before the Tribunal, the learned Counsel for the assessee has submitted that the assessee produced the profit and loss account statement issued by the Gameskraft Technologies (P) Ltd placed at page 50 & 51 of the paper book which shows the net result of the online gaming activity is loss of Rs.14,94,548/-. Thus, the learned Counsel for the assessee has submitted that only the net result of the gaming activities has to be taken into consideration and therefore, the provisions of section 58(4) of the Act cannot be pressed into service for taking only the gross winning amount to tax @ 30% as per the provisions of section 115BB of the Act. Before the Tribunal, the learned Counsel for the assessee has given much emphasis on the amended provisions of the Act vide the Finance Act, 2023 whereby section 115BBJ has been introduced w.e.f. A.Y 2024-25 and corresponding section 194BA for TDS effective from 01/04/2023. He has submitted that these 2 provisions specifically govern the taxation of the income from online game. This newly introduced regime replaced the earlier arbitrary framework that provide charging of tax on the gross winning amount without recognizing the loss or entire cost. Section 115BBJ introduced the concept of new net winning which more accurately reflects the true economic income accruing to a player. The learned Counsel for the assessee has further submitted that the explanatory memorandum to the Finance Bill 2023 acknowledges that the earlier provisions were inadequate to address the unique transactional nature of online games where the winning and losses occur frequently within a single platform. The amendment aims to align tax incidence with Page 4 of 17 actual net gains rather than isolated gross receipts. Thus, the learned Counsel for the assessee has submitted that the additional ground raised by the assessee may be admitted for adjudication and the amendment vide Finance Act, 2023, inserting new section 115BBJ is a clarificatory in nature and therefore, will have a retrospective effect. He has further submitted that the provisions introduced by Finance Act, 2023 are beneficial in nature and curative in effect and therefore, this amendment was made at correcting an unfair and excessive tax burden under the earlier provisions. Therefore, this provision u/s 115BBJ be construed having retrospective or at least clarificatory application to tax only as net tax winning rather than taxing on gross receipts even when the assessee has incurred the net loss from the activities of online gaming from the same platform. The introduction of section 115BBJ ensures that tax is levied on real income and not on notional gains. It is not an exemption or new relief but rather a procedural framework to remove the anomaly to tax gross income without allowing the corresponding loss. Thus, the learned Counsel for the assessee has submitted that the doctrine of real income should be applied. This newly introduction of provisions of the Income Tax Act ensure only real income is chargeable to tax. He has referred to the judgement of the Hon'ble Supreme Court in case of Godhra Electricity Co. Ltd v. CIT (1997) 225 ITR 746 and submitted that the principle of real income has been upheld by the Hon'ble Supreme Court in the said case. The learned Counsel for the assessee has further submitted that in case of the other assessees, the Assessing Officer while passing the assessment order u/s 143(3) of the Act has accepted the net
Page 5 of 17 income from online gaming and therefore, the Department is bound to follow the rule of consistency when the facts in both the cases are identical. He has relied upon the judgment of the Hon'ble Allahabad High Court in the case of CIT (Exemptions) vs. Swami Omkarananda Saraswati Charitable Trust, reported in 453 ITR 245 as well as the judgment of the Hon'ble Supreme Court in case of PCIT v. MBL Infrastructure Ltd. (2024) 461 ITR 150. Thus, the learned Counsel for the assessee has submitted that the addition made by the Assessing Officer and confirmed by the learned CIT (A) is not sustainable in view of section 115BBJ of the Act which is procedural and curative in nature and applicable retrospectively and the addition is liable to be deleted.
On the other hand, the learned DR has submitted that section 115BB is applicable in the case of the assessee. He has referred to the definition of the income u/s 2(14)(ix) of the Act and submitted that the income from winning lottery, gaming etc., is now assessed as income from other sources and as per the provisions of section 58(4) of the Act, no deduction or allowance is permissible against the said income thereby these provisions con templates the gross income from winning of lottery or games to be taxed at a fixed rate provided u/s 115BB of the Act. He has further contended that section 115BBJ has been introduced vide Finance Act, 2023 applicable for the A.Y 2024-25, therefore, the same is not applicable for the year under consideration as the said provision is neither clarificatory nor curative in nature and further the Legislature has specifically mentioned in the amendment itself that the amendment is applicable w.e.f. A.Y
Page 6 of 17 2024-25. He has relied upon the judgment of the Hon'ble Supreme Court in the case of Krishna Gopal Tiwari vs Union of India reported in 282 Taxman 274(S.C) and submitted that when the amendment provides a specific date of its applicability, then the same cannot be treated as retrospective in nature. He has then relied upon the judgment of the Hon'ble Supreme Court in the case of CIT vs. Vatika Township (P) Ltd reported 367 ITR 466 (S.C) that the Hon'ble Supreme Court has held that one of the established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. Therefore, the law passed today cannot be applied the events of past. The learned DR then relied upon the Pune Bench of the Tribunal dated 25/01/2009 in case of Shri Dinar Umeshkumar More vs. Income Tax Officer in 2015 and submitted that the Tribunal after considering various judgment of the Hon'ble Supreme Court including the judgment in the case of CIT vs. Vatika Township (P) Ltd (Supra) has held that if a legislation is intended to bring an amendment with a specific date and assessment year, then the same cannot be held as retrospective in nature. He has relied upon the orders of the authorities below.
We have considered the rival contentions as well as the relevant material available on record. Since the additional ground raised by the assessee involves a pure question of law which does not require any verification or investigation of any fact for its adjudication, therefore, in view of the judgment of the Hon'ble Supreme Court in the case of NTPC vs. CIT (229 ITR 383), the Page 7 of 17 additional ground raised by the assessee is admitted for adjudication. Apart from the additional ground, the assessee has not pressed the other ground raised in the present appeal except the concept of real income. As regard the concept of real income is concerned, a specific provision is made in the statute u/s 115BB for taxing the income from winning from lottery and gaming etc, to be taxed @ 30%. Further, section 58(4) prohibits any deduction or allowance against the income from lottery, horse race or winning from games. Therefore, once the Legislature intended to tax the gross amount of winning from online game, then the concept of real income as applicable in respect of the income from other than lottery/horse race, betting and gaming cannot be applied to these specified activities generating the income. Therefore, we do not find any substance or merits n the contention of the learned Counsel for the assessee on the point of concept/doctrine of real income to be applied in the facts and circumstances of the present case.
The only substantial issue raised by the assessee under the additional ground is that section 115BBJ inserted vide Finance Bill 2023 w.e.f. A.Y 2024-25 be treated as explanatory and curative in nature and thereby having a retrospective effect of its applicability. In support of his contention, the assessee has relied upon various judgments. However, we find that the settled rule of interpretation as discussed and reiterated by the Hon'ble Supreme Court regarding the retrospectivity of a particular legislation is once again considered by the Constitution Bench in Page 8 of 17 the case of CIT vs. Vatika Township (P) Ltd (Supra) in para 30 to 38 as under: “30. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of 'Interpretation of Statutes'. Vis-à-vis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.
Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit : law looks forward not backward. As was observed in Phillips v. Eyre [1870] LR 6 QB 1, a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
The obvious basis of the principle against retrospectivity is the principle of 'fairness', which must be the basis of every legal rule as was observed in the decision in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. [1994] 1 AC 486. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for Page 9 of 17 purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions, and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.
We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect. This exactly is the justification to treat procedural provisions as retrospective. In Government of India v. Indian Tobacco Association [2005] 7 SCC 396, the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra [2006] 6 SCC 286. It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, we are confronted with any such situation here.
In such cases, retrospectively is attached to benefit the persons in contradistinction to the provision imposing some burden or liability where the presumption attaches towards prospectivity. In the instant case, the proviso added to Section 113 of the Act is not beneficial to the assessee. On the contrary, it is a provision which is onerous to the assessee. Therefore, in a case like this, we have to proceed with the normal rule of presumption against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption and thus could be displaced by out weighing factors.
Let us sharpen the discussion a little more. We may note that under certain circumstances, a particular amendment can be treated as clarificatory or declaratory in nature. Such statutory provisions are labeled as "declaratory statutes".
The circumstances under which a provision can be termed as "declaratory statutes" is explained by Justice G.P. Singh [Principles of Statutory Interpretation, 13th Edition 2012 published by LexisNexis Butterworths Wadhwa, Nagpur] in the following manner: 'Declaratory statutes The presumption against retrospective operation is not applicable to declaratory statutes. As stated in CRAIES and approved by the Supreme Court : "For modern purposes a declaratory Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. But the use of the words 'it is declared' is not conclusive that the Act is declaratory for these words may, at times, be used to introduced new rules of law and the Act in the latter case will only be amending the law and will not necessarily be retrospective. In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form. If a new Act is 'to explain' an earlier Act, it would be without object unless construed retrospective. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amended provision was clear and unambiguous. An amending Act may be purely clarificatory to clear a meaning of a provision of the principal Act which was already implicit. A clarificatory amendment of this nature will have retrospective effect and, therefore, if the principal Act was existing law which the Constitution came into force, the amending Act also will be part of the existing law." The above summing up is factually based on the judgments of this Court as well as English decisions. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas [1968] 3 SCR 623 , while considering the nature of amendment to Section 29(2) of the Page 11 of 17 Bombay Rents, Hotel and Lodging House Rates Control Act as amended by Gujarat Act 18 of 1965, observed as follows: "The amending clause does not seek to explain any pre- existing legislation which was ambiguous or defective. The power of the High Court to entertain a petition for exercising revisional jurisdiction was before the amendment derived from s. 115, Code of Civil Procedure, and the legislature has by the amending Act attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act."' 36. It would also be pertinent to mention that assessment creates a vested right, and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. CED v. M.A. Merchant 1989 Supp (1) SCC 499. We would also like to reproduce hereunder the following observations made by this Court in the case of Govinddas v. ITO [1978] 103 ITR 123, while holding Section 171 (6) of the Income- Tax Act to be prospective and inapplicable for any assessment year prior to 1st April, 1962, the date on which the Income Tax Act came into force: "11. Now it is a well settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospectively and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only."
In the case of CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589, this Court held that as the liability to pay tax is computed according to the law in force at the beginning of the assessment year, i.e., the first day of April, any change in law affecting tax liability after that date though
Page 12 of 17 made during the currency of the assessment year, unless specifically made retrospective, does not apply to the assessment for that year. Answer to the Reference 38. When we examine the insertion of proviso in Section 113 of the Act, keeping in view the aforesaid principles, our irresistible conclusion is that the intention of the legislature was to make it prospective in nature. This proviso cannot be treated as declaratory/statutory or curative in nature. There are various reasons for coming to this conclusion which we enumerate hereinbelow: Reasons in Support 39. (a) The first and foremost poser is as to whether it was possible to make the block assessment with the addition of levy of surcharge, in the absence of proviso to Section 113? In Suresh N. Gupta's case (supra) itself, it was acknowledged and admitted that the position prior to the amendment of Section 113 of the Act whereby the proviso was added, whether surcharge was payable in respect of block assessment or not, was totally ambiguous and unclear. The Court pointed out that some assessing officers had taken the view that no surcharge is leviable. Others were at a loss to apply a particular rate of surcharge as they were not clear as to which Finance Act, prescribing such rates, was applicable. It is a matter of common knowledge and is also pointed out that the surcharge varies from year to year. However, the assessing officers were in-determinative about the date with reference to which rates provided for in the Finance Act were to be made applicable. They had four dates before them viz. (i)Whether surcharge was leviable with reference to the rates provided for in the Finance Act of the year in which the search was initiated; or (ii) the year in which the search was concluded; or (iii) the year in which the block assessment proceedings under Section 158BC of the Act were initiated; or (iv) the year in which block assessment order was passed. The position which prevailed before amending Section 113 of the Act was that some Assessing Officers were not levying any surcharge and others who had a view that surcharge is payable were adopting different dates for the application of a particular Finance Act, which resulted in different rates of Page 13 of 17 surcharge in the assessment orders. In the absence of a specified date, it was not possible to levy surcharge and there could not have been an assessment without a particular rate of surcharge. As stated above, in Suresh N. Gupta's case (supra) itself, the Court has pointed out four different dates which were bothering the assessees as well as the Department. The choice of a particular date would have material bearing on the payment of surcharge. Not only the surcharge is different for different years, it varies according to the category of assessees and for some years, there is no surcharge at all.”
Therefore, unless the terms of statute expressly so provides or necessarily require it retrospective operation should not be given to a statute so as to take way or impair an existing right or create a new obligation or imposing a new liability otherwise than as regards the matter of procedure. The Hon'ble Supreme Court has observed that where a benefit is conferred by a legislation, the rule against retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other persons or on the public generally, and where to confer such benefit appears to have been the legislators objects, then the presumption would be that such legislation, giving it purposive construction, would warrant it to be given a retrospective effect. In the case in hand, the provisions of section 115BBJ is providing only the taxation of certain income with flat rate and therefore, it is not a procedural provision to be treated as having removed the unwanted hardship to certain set of assessees. The Pune Bench of the Tribunal in the case of Dinar Umeshkumar More vs. ITO (Supra) has also analyzed the fundamental rule of interpretation in para 13 and 14 as under: “13. It is a fundamental rule of interpretation that ordinarily, a legislation is presumed to be prospective
Page 14 of 17 unless there appears a contrary intention. Similarly, a statute which impairs vested rights acquired under existing law or which creates new obligations or attaches a new disability, is also prospective. However, a clarificatory amendment or a provision which supplies some omission in an existing provision is declaratory and retrospective. Similarly, a provision which is subsequently introduced for toning down the rigor of an existing provision is also presumed to be retrospective. To put it differently, if a new benefit is sought to be conferred in relation to an existing provision, such an amendment, even though declared as prospective, assumes character of a retrospective nature.
At this juncture, it would be pertinent to note the ratio and the background of facts in the CIT Vs. Vatika Township Pvt. Ltd. (2014) 367 ITR 466 (SC), a Constitution Bench judgment of the Hon'ble Supreme Court. Prior to insertion of section 153A, dealing with assessment in case of a search or requisition w.e.f. 01- 06-2003, there was a special procedure for block assessment in search cases, which was inserted by the Finance Act, 1995 w.e.f. 01-07-1995, through Chapter XIV-B with sections 158B to 158BI. Section 113 deals with special tax rate in case of block assessment of search case. This section provides that the total undisclosed income of the block period, determined u/s.158BC, shall be chargeable to tax @ 60%. This provision was also inserted along with Chapter XIV-B w.e.f. 01-07-1995. Divergent views surfaced on the question as to whether the rate of 60% is exclusive or inclusive of surcharge. To settle the controversy, the Finance Act, 2002 inserted a proviso to the section, w.e.f. 01-06-2002, providing that the tax chargeable under the section shall be increased by surcharge, if any. After insertion of this proviso, again a pandora box opened on the prospective or retrospective operation of this proviso. The Hon'ble Supreme Court in CIT Vs. Suresh N. Gupta (2008) 297 ITR 322 (SC) held that the proviso to section 113 is clarificatory and hence, should be read into block assessment scheme under Chapter XIV-B from retrospective effect. Similar view was reiterated by the Hon'ble Supreme Court in CIT Vs. Rajiv Bhatara (2009) 310 ITR 105 (SC) by holding the proviso u/s.113 to be retrospective in nature. Once again, this Dinar Umeshkumar More issue came up for consideration before the Hon'ble Supreme Court in CIT Vs. Vatika Township (P) Ltd. (2009) 314 ITR 338 (SC). Unable to concur with the earlier view holding such an amendment to be retrospective, their Lordships referred
Page 15 of 17 the matter for consideration by a Larger Bench. It was pursuant to such a reference, that the Constitution Bench in Vatika Township Pvt. Ltd. 367 ITR 466 (SC) came to consider this issue. It has been laid down in this decision that ordinarily legislation is presumed not to be intended to have a retrospective operation as the law passed today cannot apply to the events of the past. Their Lordships of the Constitution bench further observed that a legislation which imposes new obligation should be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect. It was in this backdrop of the principles of statutory interpretation that the Constitution Bench held proviso to section 113 as prospective. After holding so, their Lordships observed that if the legislature is going to confer a benefit, then such an amendment will have a retrospective effect. Discussing this issue in para 33 of the judgment, the Hon'ble Apex Court held that : "We would also like to point out, for the sake of completeness, that where a benefit is conferred by legislation, the rule against a Dinar Umeshkumar More retrospective construction is different. If legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such legislation, giving it a purposive construction, would warrant it to be given a retrospective effect'. The net effect of this judgment is that if a fresh benefit is provided by the Parliament in an existing provision, then such an amendment should be given retrospective effect.”
Therefore, if a fresh benefit is provided by the Legislature in an existing provisions, then such an amendment should be given a retrospective effect. It is not a case of amendment in the existing provisions but there is a new section introduced by this amendment with prospective effect from A.Y 2024-25, therefore, we are of the considered view that these provisions cannot be given a retrospective effect. Accordingly, we do not find any error or illegality in the impugned order of the learned CIT (A) qua this issue.
In the result, appeal filed by the assessee is dismissed.