PLAY GAMES24X7 PRIVATE LIMITED,MUMBAI vs. COMMISSIONER OF INCOME TAX-5, MUMBAI

PER SANDEEP SINGH KARHAIL, J.M.

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.

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.”

of revisionary proceedings under section 263 of the Act by the learned PCIT.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.”

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.

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

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.

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…..”

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.

Order pronounced in the open Court on 17/01/2024.

Sd/- Sd/- OM PRAKASH KANT SANDEEP SINGH KARHAIL ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 17/01/2024

Copy of the order forwarded to:

(1) The Assessee; (2) The Revenue; (3) The PCIT / CIT (Judicial); (4) The DR, ITAT, Mumbai; and (5) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

Assistant Registrar ITAT, Mumbai