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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 16/03/2023 passed under section 263 of the Income Tax Act, 1961 (“the Act”) by the learned Principal Commissioner of Income Tax-5, Mumbai (“learned PCIT”), for the assessment year 2015-16.
Vide letter dated 30/11/2023, the assessee filed the following concise grounds of appeal:-
“On the facts and in the circumstances of the case as well as in law, the learned Pr. CIT has erred in:
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 In relation to taxes to be withheld on payments made to players on winnings from lotteries/crossword puzzles
I. concluding that inadequate inquiries were made by the learned AO on payments made to players on winnings from lotteries/crossword puzzles and taxes to be withheld thereon without appreciating the fact that appropriate inquiries and verifications in this relation were made by the learned AO during the course of assessment proceedings.
II. directing the learned AO to examine the issues (despite himself admitting that submissions have been made during the assessment proceedings) merely on account of the discussion on the subject not forming part of the assessment order, without appreciating the fact that mere non-mentioning of specific reasons for accepting explanation of Appellant by the learned AO in assessment order cannot lead to assumption that the learned AO did not apply his mind or that he has not made inquiry on the subject.
III. directing him to re-verify and examine the issue on hand without considering the fact that the power of revision for the said year could have been exercised only where no inquiry as required under the law was undertaken and that his goodself has no power to restart the inquiries when the learned AO had made the inquiries and considered all aspects of the matter.
IV. directing the AO to re-examine the matter on payments made to players on winnings from lotteries/crossword puzzles and taxes to be withheld thereon without concluding that earlier finding of the AD was erroneous and pre- judicial to the interest of the revenue.
V. issuing directions to re-examine the issue without considering the fact that the learned Pr. CIT's opinion about the AO's findings should be based on his objective satisfaction (not subjective satisfaction) from the assessment order and he himself should form a prima-facie opinion/should himself have a categorical finding that the order passed by the learned AO is erroneous in so far it is prejudicial to the interest of the revenue.
In relation to taxes to be withheld on payments made to players on account of Online Promotional Games
VI. directing the learned AO to examine the issue on the payments made towards winning of lotteries/Crossword Puzzles on account of Online Promotional Games during the year and further to verify the applicability of withholding provisions.
VII. directing the learned AO to examine the said issue by placing incorrect references of absolute numbers pertaining to TDS on winnings and not TDS on online promotional expense, thereby inferring that there was absolutely no application of mind and the order under Section 263 of the Act was passed in haste.
VIII. directing the learned AO to examine the issues (despite himself admitting that submissions have been made during the assessment proceedings) merely on account of the discussion on the subject not forming part of the assessment order, without appreciating the fact that mere non-mentioning of specific reasons for accepting explanation of Appellant by the learned AO in Page | 2
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 assessment order cannot lead to assumption that the learned AO did not apply his mind or that he has not made inquiry on the subject.
IX. directing him to re-verify and examine the issue on hand without considering the fact that the power of revision for the said year could have been exercised only where no inquiry as required under the law was undertaken and that his goodself has no power to restart the inquiries when the learned AO had made the inquiries and considered all aspects of the matter.
X. in directing the AO to re-examine the matter on payments made to players towards online promotional expenses and taxes to be withheld thereon without concluding that earlier finding of the AO was erroneous and pre-judicial to the interest of the revenue.
XI. issuing directions to re-examine the issue without considering the fact that the learned Pr. CIT' s opinion about the AO's findings should be based on his objective satisfaction (not subjective satisfaction) from the assessment order and he himself should form a prima-facie opinion/should himself have a categorical finding that the order passed by the learned AO is erroneous insofar it is prejudicial to the interest of the revenue.”
In the present appeal, the assessee is aggrieved against the invocation of revisionary proceedings under section 263 of the Act by the learned PCIT.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is engaged in the business of providing online games service. For the year under consideration, the assessee e-filed its return of income on 29/09/2015 declaring a total income of Rs. 22,19,08,470.
The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. Vide order dated 29/12/2017 passed under section 143(3) of the Act, the Assessing Officer (“AO”) assessed the total income of the assessee at Rs. 33,07,89,084, inter-alia, after making disallowance of Rs. 10,46,35,355 under section 40(a)(ia) of the Act in respect of payment made to Facebook, disallowance of Rs. 24,20,753 on account of Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 travelling and conveyance expenses, and disallowance of Rs. 18,24,506 on account of miscellaneous expenses.
Subsequently, vide notice dated 14/03/2018 issued under section 263 of the Act revisionary proceedings were initiated. Vide order dated 31/03/2019 passed under section 263 of the Act, the learned PCIT came to the conclusion that the assessment order is erroneous and prejudicial to the interest of the Revenue on the basis that the AO failed to conduct enquiries and verification as to why the payments made for winning from lotteries/crossword puzzles were not rooted through P&L account and as to why TDS was not deducted on the full amount of payment made. Accordingly, the learned PCIT set aside the assessment order with the directions to the AO to pass the assessment order after examining whether the assessee has made any payment towards winning of lotteries or crossword puzzles and on account of online promotional games during the year and, if so, verify whether the assessee has complied with the provisions of Chapter XVII B of the Act.
The assessee challenged the aforesaid order passed under section 263 of the Act on the basis that the provisions of section 263 of the Act were invoked on a different ground and the order of revision was passed on an altogether different ground without providing the opportunity for hearing to the assessee. In appeal, the coordinate bench of the Tribunal vide order dated 05/01/2021 passed in Play Games 24x7 Private Ltd v/s PCIT, in ITA No. 3910/Mum./2019 set aside the aforesaid order passed under section 263 of Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 the Act and directed the learned PCIT to examine the issue afresh after giving a proper opportunity of being heard to the assessee.
Pursuant to the aforesaid order, the learned PCIT issued a notice directing the assessee to make its submission regarding the short deduction of TDS to the tune of Rs. 271,84,13,907, while making the payment towards winning from lotteries/crossword puzzles. In response thereto, the assessee, inter-alia, submitted that the requisite details pertaining to withholding of taxes on payment towards winning and online promotion expenses were already filed before the AO during the assessment proceedings.
The learned PCIT, vide impugned order, held that inadequate enquiries were made by the AO on payments made by the assessee to players on winning from lotteries/crossword puzzles and taxes to be withheld thereon. It was further held that there is no mention in the assessment order about the enquiry made by the AO on payments made to the players. It was further held that the AO has not examined the details furnished by the assessee and since no enquiry has been made by the AO, the assessment order is incomplete and needs enquiry on the issue of deduction of TDS. Accordingly, the learned PCIT set aside the assessment order dated 29/12/2017 passed under section 143(3) of the Act and directed the AO to examine the issue of non-deduction of TDS on the full amount of payments made for winning from lotteries/crossword puzzles. The AO was further directed to examine the issue of payment towards winning of lotteries or crossword puzzles on account of online promotional games during the year. Further, the AO was directed to verify whether the assessee has complied with the provisions of Chapter XVII-
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 B of the Act. With the above directions, the AO is directed to reframe the assessment after conducting all necessary enquiries and verifications as warranted in the facts of the case. Being aggrieved, the assessee is in appeal before us.
During the hearing, the learned Authorised Representative (“learned AR”) submitted that the assessee filed detailed submissions before the AO regarding withholding taxes on the winning amount paid to the players as well as withholding tax on online promotional expenses, during the assessment proceedings. The learned AR further submitted that in support of its submission, the assessee also furnished the TDS payment challans under section 194B of the Act, during the assessment proceedings. It was submitted that the assessee deducted TDS @ 30% under section 194B of the Act only when the winning amount exceeds Rs. 10,000 and therefore the winning amount has been paid after withholding tax as per the provisions of the Act wherever applicable. It was further submitted that all the details and submissions were filed by the assessee pursuant to directions of the AO, which were duly considered while passing the assessment order.
On the contrary, the learned Departmental Representative (“learned DR”) after perusal of the assessment record submitted that all the submissions as furnished by the assessee, which form part of the paper book, are available on record except the submission dated 18/11/2017. The learned DR by vehemently relying upon the impugned order submitted that it is not evident from the assessment order whether the AO has made any verification
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 of the details furnished by the assessee and whether the AO was satisfied with assessee’s submissions filed from time to time.
We have considered the submissions of both sides and perused the material available on record. The assessee is a private limited company engaged in the business of providing a platform for playing games (primarily the skill game of Rummy) online. In the present case, it is not disputed that the tax is required to be withheld under section 194B of the Act on the amount paid to the player for winning the game. As per the assessee, the law prescribes that the tax is required to be withheld at the time of payment to any person towards winning from lottery or crossword puzzle, when the amount payable, on a per-game basis, exceeds Rs. 10,000. Accordingly, as
per the assessee, it has deducted the TDS while making the payment to the winner of the game, when the prize money paid was more than Rs. 10,000.
However, the learned PCIT alleged that TDS was not deducted on the full amount of payment made and this aspect was not examined by the AO during the assessment proceedings. The learned PCIT further alleged that the AO has not conducted an adequate enquiry. It was also alleged that the AO has not examined the details as furnished by the assessee and therefore needs enquiry on the issue of deduction of TDS.
As per the assessee, during the assessment proceedings, the AO directed the assessee to furnish the details of withholding taxes on the winning amount paid to the players with supporting evidence. We find that the entry dated 06/11/2017 in the order sheet of the assessment proceedings, furnished by the learned DR during the hearing before us, fully
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 corroborates this fact. In response thereto, the assessee filed its written submission dated 18/11/2017 before the AO providing the details of different forms of games available on its website and the mechanism of payout to the winners. From the perusal of the aforesaid submission, forming part of the paper book from pages 4-15, we find that the assessee submitted that for each game the participant is required to pay a certain amount of fixed entry fee in the cash account. Out of the entry fee received, the assessee collects 5% to 20% of the total entry fees as its service charge. It is further submitted that the assessee collects its service charge only when the game is completed, i.e. when the final winner is known. It is further submitted that the net amount payable to the winner is after reducing the service charge and withholding tax from the total winning amount. The assessee submitted that it deducted tax at source @30% under section 194B of the Act. We find that vide aforesaid written submission, the assessee also made its submissions regarding withholding tax on payments made to Facebook. We further find that the assessee also filed its written submissions on 08/12/2017, 15/12/2070, and 26/12/2017, which forms part of the paper book, providing details pertaining to the winning amount and applicable TDS deduction under section 194B as well as TDS payment challan under section 194B of the Act in cases where the net winnings exceed Rs. 10,000. It is pertinent to note that all these submissions, i.e. dated 08/12/2017, 15/12/2070, and 26/12/2017 were duly received by the office of the AO and the learned DR also confirms that these submissions are available in the assessment record.
The AO, vide assessment order dated 29/12/2017, only made disallowance of Rs. 10,46,35,355 under section 40(a)(ia) of the Act in respect Page | 8
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 of payment made to Facebook, disallowance of Rs. 24,20,753 on account of travelling and conveyance expenses, and disallowance of Rs. 18,24,506 on account of miscellaneous expenses. At this stage, it is pertinent to note that the query regarding non-deduction of tax on payment made to Facebook was also raised by the AO vide order sheet entry dated 06/11/2017, i.e. the date on which the assessee was asked to furnish the details of withholding taxes on winning amount paid to the players with supporting evidence. It is also worth noting that vide written submission dated 18/11/2017, the assessee made its submissions on both aspects. Further, from the perusal of the assessment order dated 29/12/2017, it is clearly discernible that the AO considered the response of the assessee regarding tax withholding on payment made to Facebook, which was made vide aforesaid written submission dated 18/11/2017. For ready reference, the relevant portion of the assessee’s submission, as noted in para 4.2 of the assessment order, is reproduced as under:-
“4.2 In response to same, the assessee vide letter dated 15.12.2017 has submitted the following details which are reproduced as under: i. The Company has incurred certain advertisement cost amounting to INR 24,91,45,374 during AY 2015-16. The break-up of the total advertisement cost is provided in Annexure4. ii. Your goodself will note that out of the same, the Company has paid advertisement cost amounting to INR 10,46,35,355 to Facebook, Ireland for banner advertising on Facebook. iii. For the purpose of uploading the banner advertisement on Facebook, the Company submits the advertisement related information on the interface provided by Facebook in the required format. iv. Facebook, after due verification of the advertisements, uploads the advertisement on its server: v. The Company does not withhold taxes on payment made to Facebook, given that such payments do not fall under the definition of 'Royalty' both under the Act and the tax Treaty between India Ireland.” Page | 9
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 14. We find that the AO has correctly quoted the submissions of the assessee made vide submission dated 18/11/2017, however wrongly mentioned the date of this submission as 15/12/2017 instead of 18/11/2017, since vide submission dated 15/12/2017, forming part of the paper book on page 17, only TDS payment challans under section 194B of the Act were furnished by the assessee. Therefore, in view of the above, we are of the considered view that the written submission dated 18/11/2017 filed by the assessee was part of the assessment record while passing the assessment order, even though, as submitted by the learned DR, now the copy of same is not available on record. Since the order sheet entries after 06/11/2017 are not available in the assessment record, it is difficult to comment on the exact details sought by the AO during the assessment proceedings. However, the learned DR confirmed that the written submissions dated 08/12/2017, 15/12/2070, and 26/12/2017 form part of the assessment record, whereby the assessee filed the details pertaining to the winning amount and applicable TDS under section 194B of the Act.
Now the issue arises as to whether these details were examined by the AO while passing the assessment order. This issue also becomes relevant as the learned PCIT alleged that the TDS was not deducted from the full amount of payment made by the assessee. On the contrary, as per the assessee, it has deducted the TDS while making the payment to the winners of the game of Rummy, when the prize money paid was more than Rs. 10,000 as per the provisions of section 194B of the Act.
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 16. Before proceeding further, it is relevant to note the provisions of section 194B of the Act, as it stood during the relevant year, and the same reads as under:-
“Winnings from lottery or crossword puzzle.
194B. The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle or card game and other game of any sort in an amount exceeding ten thousand rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force :
Provided that in a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings.”
Therefore, as per the provisions of section 194B of the Act, tax is required to be withheld on the winning amount from any lottery or crossword puzzle or card game and other game of any sort, at the time of payment, when the winning amount exceeds Rs. 10,000. Accordingly, we are of the considered view that under section 194B of the Act, as it stood during the relevant year, there was no requirement to withhold tax on the entire payment made by the assessee and therefore we find no merits in the allegation of the learned PCIT that the assessee failed to deduct tax on the entire payment made towards winning from lottery/crossword puzzle.
During the hearing, the learned AR referred to the submission dated 18/11/2017, wherein the mechanism of payout to the winners and deduction of TDS under section 194B of the Act has been explained. As per the assessee, the players play on the online platform among themselves by paying an entry fee for participation in the game. Further, out of the entry fees received, the assessee collects 5% to 20% of the total entry fee as its Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 service charge only when the game is completed, i.e. when the final winner is known. As per the assessee, the said service charge is its income, and the same is credited to its profit and loss account. Further, the net payout was after reducing service charges and withholding tax from the total winnings. In the aforesaid submission dated 18/11/2017, the assessee has explained the mechanism of payout in various forms of the game of Rummy available on its website. By way of an example, in the aforesaid submission, the assessee submitted that if 4 players participate in a game and each of them pays Rs. 25 as the entry fees, then the deduction of TDS @30% and the actual payout to the winner is by way of the following computation:-
Sl. No. Particulars Amount (in Rs.) 1. Gross Prize Money 100 2. Service Charge 5 (@ 5% on Total Entry Fees) 3. Entry Fees 25 4. Net Prize Money 70 (1-2-3) 5. TDS @30% 21 6. Net amount after withholding 49 (4-5) 7. Actual Payout (6+3) 74
Therefore, in the aforesaid example, as per the assessee, it deducted tax @30% under section 194B of the Act on net prize money of Rs. 70, while the actual payout was Rs. 74. Further, where the whole or part of prize money is sponsored by the assessee, i.e. promotional tournaments, and the prize exceeds Rs. 10,000, as per the assessee tax has been deducted. From the perusal of submissions filed by the assessee, as noted above, we find that the AO though initiated the enquiry on tax withholding on payments made by the assessee to players on winning from games available on its website,
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 however, it is not evident whether the AO examined/verified the details so filed by the assessee. It is also not evident that the AO examined/verified whether the deduction of tax by the assessee is as per the provisions of Chapter XVII-B, particularly section 194B of the Act, which requires tax to be withheld on the winning amount from any lottery or crossword puzzle, at the time of payment, when the winning amount exceeds Rs. 10,000. Therefore, to this extent, we agree with the findings of the learned PCIT, vide impugned order, that the AO has not examined the details furnished by the assessee, and the assessment order needs enquiry on the issue of deduction of TDS under section 194B of the Act. Accordingly, only to this extent, the impugned order passed under section 263 of the Act is upheld.
During the hearing, the learned AR placed reliance upon the following observations of the Hon’ble jurisdictional High Court in CIT v/s Reliance Communication Ltd., [2017] 396 ITR 217 (Bom.):-
“10. …..The mere fact that the Assessing Officer did not make any reference to these three issues in the assessment order cannot make the order erroneous when the issues were indeed looked into. The entire details were filed and the order itself indicates that it can be inferred that the Assessing Officer not only made enquiries, but satisfied himself with the assessee's replies furnished from time to time in support of its stand…..”
However, in the present case, from the assessment order, it is difficult to infer whether the AO was satisfied with the assessee’s replies furnished from time to time or not. Further, the assessment order also does not indicate that the AO examined/verified the details furnished by the assessee with respect to the deduction of tax as per provisions of section 194B of the Act.
Therefore, we are of the considered view the aforementioned observations do not support the plea of the assessee in the facts and circumstances of the Page | 13
Play Games24x7 Pvt. Ltd. ITA no.1631/Mum./2023 present case. Accordingly, the impugned order passed under section 263 of the Act is upheld to a limited extent as noted above. As a result, the grounds raised by the assessee are dismissed.
In the result, the appeal by the assessee is dismissed.
Order pronounced in the open Court on 17/01/2024.