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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI CHANDRA POOJARI]
आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER These appeals by the assessee are directed against the common order of the Commissioner of Income-tax (Appeals)-17, Chennai dated 31.12.2014 for the above assessment years.
ITA No.646 to 657/2015 :- 2 -:
The assessee has raised the followings grounds. 2.
The Order of the Commissioner of Income Tax (Appeals) confirming the order levying penalty u/s 201 (1) & (1A) of the Act on stake money form horse racings is erroneous, contrary to law and facts. The same is liable to be reversed in full.
The Authorities erred in not noting that the proceedings were bad in law and barred by limitation. 3. The Commissioner of Income Tax (Appeals) errs in applying the provision of Sec.194 B of the Act in contradiction to Sec.194 BB that specifically deals with horse racing . 4. The authorities ought to have noted that the CBDT Circular No.240 dated 17.5.1978 has clarified the position with regard to tax deducted at source from income by way of winnings on horse racing and erred in not applying the same. 5. The Commissioner of Income Tax (Appeals) erred in distinguishing the Judgment of the Karnataka High Court in the case of Bangalore Turf Club Ltd Vs. Union of India on wholly untenable grounds. 6. The available case law supports the stand of the Assessee in full and has been wholly mis-interpreted by the authorities. 7. The authorities erred in not noting that the recipients have offered the amount to tax and the judgment of the Supreme Court in the case of Hindustan Coca Cola Beverages Pvt.Ltd. vs CIT (2007) 293 ITR 226 applies on all fours.
The facts of the case are that the assessee is a company 3. with limited Liability registered u/s 25 of the Companies Act. The assessee has been conducting Horse Races in Chennai and the hill station of Ootacamund and collecting the entry fee and betting money from punters and keeps certain portion of the ITA No.646 to 657/2015 :- 3 -: betting amount collected from punters and the same is utilized for payment of stake money to horse owners, administrative cost and other expenses The TDS inspection was carried out in the office premises of the assessee on 14.02.2013. It was found that tax was not deducted on payments of stake money disbursed among the winning horse owners. According to the AO, horse racing is a game and covered by sec.194B of the Act and hence he issued a show cause notice to the assessee to explain why it should not be held to be an assessee in default u/s 201(1) of the Act for failure to deduct tax from stake money prizes paid to horse owners u/s 194B of the Act pertaining to FYs 2006-07 to 2011-12. In response, the assessee stated that the stake money is not liable to TDS u/s 194BB as per Board's circular No.240 of 17.05.1978. The assessee has also relied on the decision of Supreme Court in the case of Hindustan Coca Cola Beverage (P)
Limited vs CIT (2007) 293 ITR 226 wherein it was held that if the payee has already paid tax on the income, recovery of tax cannot be made once again from the tax deductor. The assessee further argued that the stake money will not be covered by sec.194B of the Act also. Not convinced with the reply of the assessee, the AO was of the view
ITA No.646 to 657/2015 :- 4 -: that the assessee's case was covered by sec. 194B of the Act in view of the amended provision of sec.194B by Finance Act, 2001 with effect from 01.06.2001 and not by section 194BB read with Circular No.240 dated 17.05.1978. Relying on the definition of stake money as mentioned in sec.74A of the Act, the AO held that though Sec. 194BB does not include in its scope the stake money payments, it can hardly be argued that the same is precluded from the wider ambit of winnings from game of any sort in sec.194B. The Assessing Officer also held that it is a settled principle of law that when two or more clauses appear to deal with the same subject, the one with the latest amendment prevails. This is without prejudice to hold that the activity of breeding and owning differs from the activity of racing and participating in a race for stake money. The activity of participating in the race itself comes under the ambit of the game. The activity of facing for the purpose of stake money could make such stake money assume the character of wining from the games. The Assessing Officer also relied on explanation 2 to section 2(24)(ix) of the Act to hold 'that the stake money is squarely covered by the definition of "games and other games of any sort". Thus, the AO rejected the ITA No.646 to 657/2015 :- 5 -: contention of the assessee that it is not liable to deduct tax on the stake money paid. The AO also rejected the contention of the assessee that tax cannot be recovered from the deductor once the deductee paid the tax on the income as the assessee did not furnish necessary proof in support of its claim. The AO further rejected the contention of the assessee that the reopening is not valid for financial years 2007 to 08 to 2009-10 after the expiry of two years from the end of. The financial year in which the statement filed as referred to sec.200 of the Act for the reason that the deductor has not filed the return in respect of stake money. The AO held that the stake money from horse races is in the nature of prize money received on horse race by the owner thereof on account of the fact that the horse winnings the race or stands in second or in any lower position. Accordinq to Assessing Officer the stake money is liable for TDS u/s 194B of the Act and by not deducting tax, the assessee is to be treated as the assessee in default for not deducting tax at source u/s 194B of the Act. Therefore the Assessing Officer levied tax u/s 201(1) of the Act for the Assessment Years 2007-08 to 2012-13. Aggrieved, the ITA No.646 to 657/2015 :- 6 -: assessee preferred an appeal before the Commissioner of Income Tax (Appeals).
On appeal the Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer. Against this, the assessee is in appeal before us.
We have heard both the parties and perused the material on record. We find that the lower authorities has applied the provisions of section 194B to the payments made to horse owners as “stake money” on the ground that by insertion of words ‘or card game and other game of any sort’ w.e.f. 1.6.2001, the horse racing income comes under the ambit of ‘other game of any sort’, we find that this issue had arisen in the case of Bangalore Turf Club Ltd. Vs. Union of India and others (2014) 52 taxmann.com 290 and the Karnataka High Court in the writ petition Nos. 6565 to 6568, 6651-6652, 6674, 18696 & 18697 of 2013 (T-IT) filed by the Bangalore Turf Club has dealt with this issue at length and has held that the amended provision of section 194B do not apply to horse racing. The relevant portion of the judgment of the High Court is reproduced hereunder for ready reference:
ITA No.646 to 657/2015 :- 7 -:
When the words 'and other game of any sort' used in section 194B is examined with reference to the preceding words and interpreted, the one and only conclusion which can be drawn would be that activity of owning and maintaining horses cannot by any stretch of interpretation be held that it would fall within the definition of 'and other game of any sort'.
Thus, harmonious reading of the statutory provisions would indicate that from the year 1972 itself, the term ‘other’ game of any sort' was taxable under the head 'income from other sources' and TDS was not attracted on such income. 60. Sub-sections (1) and (2) of section 74A which was introduced by Finance Act, 1972, with effect from 01.04.1972 was omitted by Finance Act, 1986 with effect from 01.04.1987. However, subsection (3) to section 74A was inserted by Finance Act, 1974, with effect from 01.04.1975 indicating the distinction between 'winnings' and 'activity of owning and maintaining horses' which has continued till date. Though, Section 194BB provided for TDS to be made on 'winnings from race horses' with effect from 01.04.1978, the Circular 240 dated 17.05.1978 came to be issued clarifying that it did not apply to stake money. Hence, insertion of the words 'card game or other game of any sort' to section 194B with effect from 2001 would have no bearing on payment of stake monies paid by the Turf Clubs to the race horse owners. 61. Explanation (ii) to sub-section (ix) of section 24 came to be inserted by Finance Act, 2001. It is an inclusive definition. The term "or any other similar game" found in Explanation (ii) will have to be ejusdem generis and so also the term "any other similar game" found in section 2(24)(ix) of the Act. On advent of game shows involving prize money being telecast through electronic media and said prize money having not found its place in the definition clause of "Income" under the Income-tax Act, 1961, Legislature introduced Explanations (i) and (ii) to sub-clause (ix) of sub-section (24) of section 2 so as to include such prize money also under definition of "income", since in those events people would compete with each other to win prizes. In fact, this position becomes clear from the budget speech of the Finance Minister which came to be rendered on the Floor of Parliament in the backdrop of amendment brought to section 194B and section 2(24)(ix). Explanations (i) and (ii) which is once again extracted herein below: "Winnings from lotteries, cross-word puzzles etc., are currently taxed at 40%. As the marginal personal income-tax rates have now stabilised at 30%, this income will also now be taxed at 30%. Television game shows are very popular these days. I wish the winners well. At the same time, I propose that income-tax at the rate of 30% will be deducted at source from the winnings of these and all similar game shows." Ejusdem generis, principle of construction would mean same kind or nature, whereby wide
ITA No.646 to 657/2015 :- 8 -: words associated in the text with more limited words are taken to be restricted by implication to matters of the same limited character. For this principle to apply there should be sufficient indication of a category that can properly be described as a class or genus, even though not specified as such in the enactment. The nature of genus is gathered by implication from the express words which suggests it.
Now, turning my attention to the facts on hand and Explanation (ii) inserted by Finance Act, 2001 is perused and also read along with section 194B it can be easily inferred the legislature has intended to bring such income earned by the prize winning members who compete with each other and win prizes in any game show or entertainment programme on television or electronic media and games similar to it. Hence, "stake money" which is paid to race horse owners on their horses being placed 1, 2 or 3 onwards in a horse race cannot form the genus of the words found inExplanation II to section 2(24)(ix) nor it can be held that such winnings would fall within the words "and other game of any sort" found in section 194B.
Hence, this Court is of the considered view that amendment brought about by Finance Act of 2001 to Section 2(24) and 194B would have no bearing on the income earned from 'owning and maintaining horses'. In other words, the term 'any other similar game' found in Explanation (ii) to section 2(24)(ix) has to be held as inclusive definition and has to be read ejusdem generis and as such, activity of owning and maintaining horses cannot by any stretch of imagination fall in the definition of 'card game o other game of any sort' found in section 194B”.
In view of the above, the issue is dispute is squarely covered by the judgment of Karnataka High Court (cited supra) and accordingly we reverse the order of Commissioner of Income Tax (Appeals) and decide the issue in favour of the assessee.
ITA No.646 to 657/2015 :- 9 -: In the result, the appeals of the assessee is to 7. 657/Mds/2015 are allowed. Order pronounced on Wednesday, the 28th day of October, 2015, at Chennai.