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Facts
The Assessee, Royal Western India Turf Club Limited, did not deduct TDS on 'Stake Money' paid to horse owners for winning races. The Assessing Officer treated the Assessee as an 'assessee in default' and raised demands for tax and interest, which were upheld by the CIT(A).
Held
The Tribunal held that 'stake money' paid to horse owners is not liable for TDS under Section 194B or 194BB. Following previous decisions and the ruling in Hindustan Coca Cola, the Assessee cannot be treated as an 'assessee in default' if the recipients have already paid taxes on the income.
Key Issues
Applicability of TDS on 'stake money' paid to horse owners and whether the Assessee is an 'assessee in default' for non-deduction, considering previous judicial precedents and the fact that recipients may have paid taxes.
Sections Cited
201(1), 201(1A), 194B, 194BB, 191
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, D BENCH, MUMBAI
Per Rahul Chaudhary, Judicial Member:
The Assessee has preferred appeal against the order, dated 22/09/2025, passed by the Additional/Joint Commissioner of Income Tax (Appeals) – 2, Noida [hereinafter referred to as the `CIT(A)'], under Section 250 of the Income Tax Act, 1961 [hereinafter referred to as `the Act'], whereby the Ld. CIT(A) had dismissed the appeal against the Assessment Order, dated 17/03/2025, passed under Section 201(1)/201(1A) of the Act, for the Assessment Year 2018-2019. 2. The Assessee has raised following grounds of appeal:
That the order dated 17.03.2023 passed under Section 201(1)/201(1A) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') by the Income Tax Officer (TDS), TDS Ward 2(1)(3), Mumbai (hereinafter referred to as 'the Assessing Officer') for the Assessment Year ('A.Y.") 2018- 19 as well as the order dated 22.09.2025 passed by the Commissioner Of Income Tax (Appeal)-2 NOIDA (hereinafter referred to as 'the CIT(A)') and the demand raised thereunder are illegal, bad in law and without juri iction.
That the order passed by the Assessing Officer under Section 201(1)/201(1A) of the Act raising demand of Rs. 12,92,82,401/- and as upheld by the CIT(A) is illegal, bad in law, unjust, arbitrary and without juri iction and barred by time limitation.
That the CIT(A) too has erred in upholding the order passed by the Assessing Officer under section 201(1)/201(1A) of the Act in regard to the demand of Rs. 12,92,82,401/-including interest under Section 201 (1A) of Rs. 6,33,09,105/-
That the Assessing Officer has further erred in levying interest under Section 201(1A) of the Act amounting to Rs. 26,312/- on non-deduction of TDS on expenses and the CIT(A) too has erred in upholding the same.
That the Assessing Officer has further erred in levying interest under section 201(1) of the Act amounting to Rs. 6,59,46,984/- on short deduction of TDS and the CIT(A) too has erred in upholding the same.
That in view of the facts and circumstances of the case and in law, the Assessing Officer has erred in treating the Appellant as 'Assessee in default' in view of the provisions of section 201(1) read with Section 191 of Act in view of the incorrect finding by the Assessing Officer as to the failure of deductor appellant to pay the tax liability.
That in view of the facts and circumstances of the case and in law, CIT(A) has grossly erred in upholding that the payment made to owners of race horse (i.e.. stake money) is subject to TDS under the provisions of the Income Tax Act, 1961. 8. That in view of the facts and circumstances of the case and in law, the Assessing Officer has grossly erred in holding that the payment made to owners of race horse (i.e., stake money) is subject to TDS under Section 194B of the Act and the CIT(A) has erred in upholding the same.
That in view of the facts and circumstances of the case and in law, CIT(A) has grossly erred in not accepting that the payment made to owners of race horse is winning from horse race in view of Circular No. 240 dated 17th May, 1978 and such payments are not subjected to TDS under the provisions of the Act.
That without prejudice, in view of the first proviso to Sec 201(1) of the Act, the Assessing Officer has erred on facts and in law in holding that the appellant is assessee in default and the CIT(A) has erred in not deleting the illegal demand raised by the Assessing Officer.
That without prejudice, the Assessing Officer as well as the CIT(A) have erred in law and on facts in not considering the fact that the owners of horses who received the stake money have included/considered in their respective Income Tax Returns and as such the appellant has been wrongly and illegal treated as assessee in default under Section 201 of the Act.
That without prejudice, the Assessing Officer as well as the CIT(A) have erred in law and on facts in not considering the fact that the respective horse owners have already included the stake money in their respective returns. Not allowing the benefit of the same and the treatment done by the Assessing Officer has resulted in double taxation on the same income.
That in view of the facts and circumstances of the case and in law, the Assessing Officer as well as the CIT(A) have grossly erred in not following the binding J judicial precedent as has been held in exactly similar facts and circumstances in assessee's own case for Assessment Year 2012-13 in Income Tax Appeal bearing ITA No. 6625/MUM/2017. 14. That in view of the facts and circumstances of the case and in law, the submissions and evidences placed on record by the appellant have not been properly considered and judiciously interpreted, while treating the appellant as an assessee in default.
The information filed and available on record has not been properly considered and judicially interpreted. The demand raised by AO is unjust, illegal, and arbitrary and are against the facts of the case and are not justified by any material on record.
That the interest under section 201(1A) of the Act has been wrongly and illegally charged and the same is highly excessive.
That without prejudice, the interest charged by Assessing Officer is illegal, bad in law and highly excessive and the same could be charged till the date taxes are paid by the deductees.
The Assessee is, inter alia, engaged in the conducting of horse races at Mumbai and Pune. The owners of the horse are given prize money on account of the fact that the horse had won a position in the race which is called 'Stake Money'. For the Financial Year 2017-2018, the Assessee did not deduct tax on the Stake Money of INR.21,98,23,281/- debited from your Profit and Loss account for the Financial Year 2017-2018. According to the Assessing Officer the Assessee was required to deduct tax from the same under Section 194B of the Act. Therefore, the Assessee was treated as an 'assessee in default' and a demand of INR.6,59,46,984/- [in respect of tax that was not deducted a source] under Section 201(1) of the Act along with a demand of INR.6,33,09,105/- [in respect of interest on the aforesaid amount] under Section 201(1A) of the Act was raised upon the Assessee vide Order, dated 17/03/2025. The appeal preferred by the Assessee before the Learned CIT(A) challenging the aforesaid order was dismissed by the Learned CIT(A) vide Order, dated 22/09/2025, which has been impugned by way of present appeal on the grounds reproduced in paragraph 2 above.
The core issue that raises for consideration in the present appeal is whether the Assessee as an 'assessee in default' within the meaning of Section 201(1) of the Act since the Assessee did not deduct tax at source under Section 194B/194BB of the Act on the 'Stake Money' paid by the Assessee to the horse owners on winning of races organized by the Assessee.
On hearing both the sides, it emerges that the said issue stands decided in favour of the Assessee and against the Revenue in the case of the Assessee by way of the following decisions in the case of the Assessee: (a) ITA No. 6625/Mum/2017, Dated 28/06/2019, Assessment Year 2012-2013 (b) ITA No. 915/Mum/2025, Dated 22/05/2025, Assessment Year 2016-2017
Perusal of Paragraph 5.3 of the order passed by the Learned CIT(A) it becomes clear that the Learned CIT(A) has taken note of the decision of the Tribunal in the case of the Assessee for the Assessment Year 2012-2013 [ITA No. 6625/Mum/2017, Dated 28/06/2019]. However, since the Revenue had preferred appeal against the said decision which was pending adjudication before the Hon'ble Bombay High Court, the Learned CIT(A) did not follow the same for keeping the issue alive observing that on account of pendency of aforesaid appeal preferred by the Revenue the issue had not attained finality. On perusal of the decision of the Tribunal in the case of the Assessee for the Assessment Year 2012-2013 [ITA No. 6625/Mum/2017, Dated 28/06/2019], we note that Tribunal has held that the Assessee was not liable to deduct tax at source from the Stake Money either under Section 194 of the Act or under Section 194BB of the Act and has concluded as under:
“17. We have carefully considered the rival submissions. The issue before us is limited to the applicability of TDS on the 'stake money' paid by the assessee to the owners of the horses who win the races. In this context, we shall first discuss the type of payments made by the assessee to owners on winning of the horse races. The assessee makes two types of payments. First, is in the nature of amount paid to the person who bets on the horses/jockeys. There is no dispute with regards to applicability of TDS on this type of payment as the same is liable for TDS u/s 194BB of the Act. We are concerned with the second type of payment made by the assessee, which are in the nature of prize money paid by the assessee to the owner of horses on account of the horse winning the race or standing second or in any lower position, which is termed as 'stake money'. The Assessing Officer has not disputed the fact that the payment made by the assessee is in the nature of 'stake money', thus there is no dispute with respect to the fact as to what constitutes 'stake money'. The Assessing Officer is of the view that by virtue of amendment in Section 194B of the Act by Finance Act, 2001, the scope of Section 194B of the Act has been widened to cover within its ambit winning from games of any sort even though Circular No. 240 dated 17.05.1978 (supra) issued in the context of Section 194BB of the Act excluded from its ambit 'stake money'; 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 default" in view of the decision of Hon'ble Supreme Court in the case of Hindustan Coca Cola (supra) and provisions of Section 201(1) of the Act.
At the outset, we find that heading of Section 194B of the Act is "Winning from lottery or crossword puzzle". It is a well settled principle of interpretation that the heading of a section should also be assigned meaning while interpreting the section. From the heading of the Section 194B of the Act it is amply clear that there is no whisper that Section 194B of the Act was intended to cover within its purview winnings from horse races. Now coming to the heading of Section 194BB of the Act, which reads as "Winning from horse race". Going by the heading of the two sections, it can be seen that Section 194BB of the Act is a specific section dealing with TDS on the winnings from horse races. Though the CBDT has specifically excluded "stake money" from the ambit of section 194BB of the Act by way of Circular No. 240 dated 19.05.1978, but it cannot be disputed that Section 194BB of the Act is the specific section which deals with TDS on 'Winning from horse races'.
Now, coming to the argument raised by the Assessing Officer that the Finance Act, 2001 has inserted the words 'card game or other game of any sort' in Section 194B of the Act which will even cover the "stake money" which is otherwise not covered by Section 194BB of the Act. We find that at the time when the amendment was brought in Section 194B of the Act, Section 194BB of the Act, which specifically dealt with TDS on winning from horse races, was already on the statute and the Legislature in its wi om could have made the amendment in Section 194BB of the Act itself to include 'stake money' within its ambit; that would have obviated any need to make amendment in Section 194B of the Act, which is a general provision for TDS, in order to cover 'stake money' in its ambit. The learned representative has rightly pointed out to the Budget speech of the Finance Minister wherein it was stated that "television game shows are very popular these days and I propose that income tax at 30 % will be deducted at source from the winnings of these and all similar game shows." Another way of bringing to tax the 'stake money' was by way of withdrawal of Circular No. 240 dated 17.05.1978, which clarified that tax was not required 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 Id. 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.
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 Id. 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.
The next contention of the learned representative for the assessee was that the horse owners have duly reported the income received from the assessee and evidence in this regard was filed by the assessee before the Assessing Officer. Thus, following the ratio laid down by the Hon'ble Supreme Court in the case of Hindustan Coca Cola (supra) and as per the proviso of Section 201(1) of the Act, which provides that if the recipient of the income has paid taxes on the income received from the assessee and has filed the return of income, assessee should not be treated as an 'assessee in default'. We find enough substance in the said stand of the appellant. The TDS provisions are in place to keep track on the payment of taxes on the income received by the recipient and recover part of the tax in advance at the time of receipt of income by the recipient. In case the payer fails to deduct the TDS and the recipient has directly paid the taxes on the said income, the assessee-deductor cannot be compelled to pay TDS again on the same income because it would lead to double taxation on the same income. Thus, respectfully following the decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola (supra), we hold that where the assessee has produced the confirmation from the parties that they have duly reported the income received from the assessee in their respective returns of income, the assessee should not be treated as an 'assessee in default' in terms of Section 201(1) of the Act.
In light of our above discussion, we hold that the 'stake money' received by the horse owners is not liable to TDS under Section 194B of the Act or under Section 194BB of the Act and thus, assessee should not be treated as an 'assessee in default' u/s 201(1) of the Act. We further hold that if the assessee furnishes confirmation from all horse owners to the effect that they have included the incomes received from assessee in their respective returns of income, irrespective of our earlier decision, assessee ought to be allowed benefit of decision of the Hon'ble Supreme Court in the case of Hindustan Coca Cola (supra) and should not be treated as an 'assessee in default'. Therefore, we set-aside the order of CIT(A) and direct Assessing Officer to delete the demand raised on account of non- deduction of tax at source under Section 201(1) of the Act as well as interest u/s 201(1A) of the Act on 'stake money' and the assessee is not liable to be treated as an 'assessee in default'.
In the result, appeal of the assessee is allowed, as above.” (Emphasis Supplied)
The above decision was followed by the Tribunal in the case of the Assessee for the Assessment Year 2016-2017 [ITA No. 915/Mum/2025, Dated 22/05/2025].
During the course of hearing the Learned Authorised Representative for the Assessee had also placed on record, the judgment, 26/09/2014, passed by the Hon'ble Karnataka High Court in Writ Petition No. 6565-6568 of 2013 and 6651-6652 of 2013 filed by the Bangalore Turf Club Limited. We find that in Paragraph 63 & 64, it was held by the Hon'ble High Court that Stake Money paid to the horse owners would not attract the provisions of Section 194B of the Act even after introduction of amendment to Section 2(24) and Section 194B of the Act brought about by the Finance Act, 2021. The Hon'ble High Court held that the assessee could not be treated as assessee in default under Section 201 of the Act and therefore, demand raised upon the assessee in that case for the financial years 2006-07 to 2009-2010 was quashed.
The Revenue has failed to bring on record any material to distinguish the above judicial precedents either on facts or in law. Accordingly, respectfully following the same we hold that in the facts and circumstances of the present case, the Assessee cannot be treated as 'assessee in default' as the Assessee was not under obligation to deduct tax at source from Stake Money. Therefore, demand of INR.6,59,46,984/- and INR.6,33,09,105/- raised in terms of Section 201(1) and 201(1A) of the Act by way of Order, dated 17/03/2025, is deleted.
As regards interest of INR.26,312/- levied under Section 201(1A) of the Act for delay in deposit of tax deducted at source is concerned, keeping in view finding returned by the Learned CIT(A) in Paragraph 5.5. of the order, we confirm the order passed by the Learned CIT(A).
In terms of the above, Ground No.1, 2, 3, 6 & 16 raised by the Assessee are partly allowed, Ground No.5, 7, 8, 9 & 13 raised by the Assessee are allowed and Ground No.4 raised by the Assessee is dismissed and Ground No.10, 11, 12, 14, 15 and 17 raised by the Assessee are dismissed as having rendered infructuous.
In result, the appeal preferred by the Assessee is partly allowed. Order pronounced on 19.01.2026. (Vikram Singh Yadav) Accountant Member मुंबई Mumbai; दिनांकDated : 19.01.2026 Milan, LDC (Rahul Chaudhary) Judicial Member आदेशकीप्रतिलिपिअग्रेषित/Copy of the Order forwarded to : 1. 2. 3. 4. 5. 6. अपीलार्थी/ The Appellant प्रत्यर्थी / The Respondent. आयकर आयुक्त/ The CIT प्रधान आयकर आयुक्त/ Pr.CIT विभागीयप्रतिनिधि, आयकर अपीलीयअधिकरण, मुंबई/ DR, ITAT, Mumbai गार्डफाईल / Guard file. आदेशानुसार / BY ORDER, सत्यापितप्रति //// उप/सहायकपंजीकार /(Dy./Asstt.