Bangalore Turf Club Ltd. Vs ACIT (ITAT Banglore)
Assessing Officer argued 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 wisdom 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 ld. 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.
FULL TEXT OF THE ITAT JUDGEMENT
Present appeals has been filed by assessee against separate orders dated 31/07/2019 passed by Ld.CIT (A)-1, Bangalore for assessment years 2012-13 and 2014-15.
2.Both sides submit that the issue alleged for consideration before this tribunal in both these appeals are common and on identical facts. For sake of convenience we reproduce grounds raised by assessee for assessment year 2012-13 as under:
1. General Ground
1.1. The learned Assistant Commissioner of Income Tax, Circle 2(1)(1), Bangalore (`AO’) has erred in passing the order under section 143(3) of the Income Tax Act, 1961 (`the Act’) in the manner passed by him and the Commissioner of Income Tax-(Appeals)-1 (`CIT(A)’) has erred in confirming the said order. The said order being bad in law is liable to be quashed.
2. Grounds relating to disallowance under section40(a)(ia)
2.1. The learned CIT(A) has erred in confirming the disallowance in respect of payment of stake money amounting to Rs. 34,15,30,436 under section 40(a)(ia) without appreciating the fact that no tax was deductible under section 1 94BB or 194B of the Act.
2.2. The learned CIT(A) has erred in not appreciating that section 1 94BB does not cover stake money paid to horse owners; a legal proposition accepted by the Board in Circular No 240 dated 17.05.1978. The disallowance made by the learned AO and confirmed by learned CIT(A) is therefore against the mandate of a binding circular.
2.3. Assuming and without admitting that the disallowance under section 40(a)(ia) is correct, such disallowance must be restricted to 30% as the amendment made by Finance Act (No.2), 2014 with effect from 01.04.2015 is remedial in nature and hence retrospective in its applicability.
3. Grounds relating to applicability of a binding judgment which has been stayed.
3.1 The learned AO has erred in not following the decision of the Jurisdictional High Court in Bangalore Turf Club v U01 (2014) 228 Taxman 234 wherein it has held that the payment of stake money is neither covered under section 1 94BB nor under section 194B of the Act.
3.2. The learned AO has erred in not appreciating that a review petition filed by the department does not empower the assessing officer to disregard a binding jurisdictional high court decision.
3.3. On facts and in the circumstances of the case and law applicable, the decision of the Jurisdictional High Court was binding on the department and therefore the disallowance of stake money under section 40(a)(ia) is to be deleted.
3.4. The learned CIT(A) has erred in not appreciating the fact that the stay of operation of a decision by an interim order does not wipe out the existence of the decision and it does not undermine the authority of a decision as a precedent.
3.5. The learned CIT(A) has erred in relying on the order passed under section 194B read with section 201for the AY 2006-07 to AY 2015-16 without appreciating the fact that the same is pending before the Division Bench of High Court and the High Court has implicitly directed that no order connected thereto be implemented without the leave of the court.
3.6. The learned CIT(A) has erred in not appreciating the fact that the interim order of the High Court was passed on 07.12.2016, which is after the close of the financial year 2011-12. Such being the case, the decision of Hon’ble Single Judge of Karnataka which has categorically held that there is no liability to deduct taxes on stake money is explicitly applicable during the financial year 2011-12.
4. Levy of Interest under sections 234B and 234C
4.1. The learned AO has erred in levying interest under section 234B and 234C of the Act. On the facts and in the circumstances of the case and law applicable, interest under section 234B and 234C is not leviable. The appellant denies its liability to pay interest under section 234B and 234C.
5. Prayer
5.1, In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed by the learned CIT(A) and the order under section143(3) passed by the AO be quashed Or in the alternative
a) Disallowance of stake money paid to horse owners of Rs 34,15,30,436/- be deleted
b) Interest levied under section 234B amounting to Rs. 3,93,70,932 be deleted.
c) Interest levied under section 234C amounting to Rs.22,440 be deleted. The appellant prays accordingly.
Brief facts of the case are as under:
2.1 Assessee is company engaged in the business of conducting horse races. It has been observed by Ld.AO that assessee would collect ticket money from across the counters and disburse the money to winners immediately it is also been observed by Ld.AO that assessee maintains to set of books of accounts viz primary and secondary, and the financials are prepared as per the primary books.
2.2 Ld.AO noted that during the assessment year 2012-13 assessee collected total sum of Rs.1,354.44 crores through counters and the revenue recognised and declared by assessee was at 12.75% treating them as club, amount amounting to Rs.173.59 crores which was a part of primary books.
2.3 Ld.AO noted that the balance amount of Rs.1180.85 crores was disbursed as prise money to the betting individual (partners). Ld.AO also noted that assessee does not maintain the name address and pan of winning persons to whom the prize money were disbursed owing to its volume. The details such as ticket No., ticket amount and prize money disbursed are maintained in the secondary book which is not rooted through the regular books of accounts. The 2.4Ld.AO was also informed that prize money amount upto Rs. 5000 are disbursed without TDS and TDS is deducted only on prize money over Rs.5000 to punters.
2.5 Ld.AO noted that out of the revenue recognised during the year under consideration (173.59 crores) is assessee among other expenditure had disbursed stake money and cups amounting to Rs.34,15,30,436/- to the horse owners without deducting TDS as required under section 194 BB.
2.6 Ld.AO called upon assessee as to why the stake money and cups amounting to Rs.35,15,30,436/- disbursed to horse owners without deducting TDS and claimed as expenditure in P&L account should not be disallowed in terms of provisions of section 40(a)(i) of the Act. Assessee in response submitted that Hon’ble Karnataka High Court in a Writ petition filed by assessee along with others by judgment dated 26/09/2014 observed that Circular No.240 dated 17/05/1978 issued by CBDT in respect of section 194 BB would not apply to stake money is and such stake monies are not regarded as winning from horse races or races, but constitute prize-money which the owner of a race horse is proceeds on account of his horse winning a position in the race. It was also submitted that Hon’ble Karnataka High Court, with regard to applicability of provisions of section 194B held that the stake money or prize money paid by race clubs to horse owners would not attract provisions of section.
2.7 Ld.AO however disallowed the sum of Rs.35,15,30,436/- under section 40(a)(i) for the reason that revenue sought review petition before Hon’ble Karnataka High Court against the decision dated 26/09/2014.
3. Aggrieved by disallowance made by Ld.AO, assessee preferred appeal before Ld.CIT(A).
3.1 Ld.CIT(A) dismissed the appeal filed by assessee by observing as under:
“4.0 Having considered the submissions, it is observed that the only issue is regarding disallowance of expenses made by the AO in respect of prize money / stake money paid to the winning horse owners. The appellant relied on the single Judge Order of Karnataka High Court (supra), to say that withholding tax on the price money paid to winning Horse owner is not applicable. However, the AO has relied on the appeal filed by the department before the division bench of the Hon’ble Karnataka High Court, having not accepted the Judgement of the Hon’ble Single Judge of the Karnataka High Court supra.
However, it is observed that the appeal filed by the department against the Judgement of the Hon’ble Single Judge of the Karnataka High Court supra, was disposed by vide interim order WA 60/2015 dated 07-12-2016, wherein, the Hon’ble Karnataka High Court observed that:
7. The observations made by the learned Single Judge in the impugned judgment so far as interpretation of the respective provisions of the Act for TDS, shall remain stayed…
The relevant extract is reproduced supra in para 9 of this order. Considering the above, I am of the view that the matter has not reached any finality and the Hon’ble High court has given liberty to the AO to take a decision in the matter based on the facts and circumstances of the case in the proceeding under Section 201 of the Act. These proceedings u/s. 201 have direct bearing on the allowability of expenditure by the Assessing Officer u/s. 40(a)(ia) of the Act. considering the reasoning of the AO in the impugned order I am of the view that the amount paid as prize money / stake money to the horse owners upon his Horse winning the race, is nothing but identical to that of the price money won by the punters by buying the Tickets at the Race Course. Therefore, I do not find any reason to disturb the findings of the AO in this regard. Accordingly, the appeal, consisting of various grounds raised in this regard, is dismissed.”
4. Aggrieved by the order of Ld. CIT (A) assessee is in appeal before us now.
4.1 Ld.AR submitted that against the order passed by Ld.Single Judge of Hon’ble Karnataka High Court by decision dated 26/09/2014, revenue preferred a writ appeal being WA-60/2015, before a division bench filed on 07/01/2015. Hon’ble court passed an interim order by observing as under:
“4. On the aspects of the amounts of TDS to be deducted towards stake money by the club, we find that as up till now in past, deduction has not been made and the question is to be considered on the aspects of deduction by the club while making payment of the state money. It appears to us that, the payee of the stake money should file an undertaking to this court that as and when it is to be directed by the court, the amount of TDS shall be deposited with the club for enabling the club to deposit the amount with the Revenue/Income Tax Department.
5. As a matter may required to be considered de novo by the authority concerned, it would be appropriate to stay the observations made by the Ld.Single Judge so far as they relate to the obligations of the club to deduct TDS or as to whether the provisions of TDS would be applicable or not. But, of course, even if the authority after hearing the parties passes the appropriate order, the same should not be implemented without leave of this court.
6. Interim order passed by the Karnataka in Writ Appeal filed by the revenue:
On 07/12/2016, the Hon’ble High Court of Karnataka has passed an interim order with regard to the Writ Appeal filed by the department (WA 60/2015). Copy of the said interim order is enclosed as Annexure 2.
7. After admitting the writ appeals filed by the department, the Karnataka High Court at para 4 of the interim order held as under.
“4. On the aspects of the amount of TDS to be deducted towards stake money by the club, we find that as up till now in past, deduction has not been made and the question is to be considered on the aspects of deduction by the club while making payment of the stake money. It appears to us that, the payee of the stake money should file an undertaking to this Court that as and when it is so directed by the Court, the amount of TDS shall be deposited with the club for enabling the club to deposit the amount with the Revenue/Income Tax Department.”
8. At para 5 of the interim order on Writ Appeal filed by the department (WA 60/2015), the observations of the learned Single Judge in Bangalore Turf Club Ltd v U01 (2014) 228 Taxman 234 on the obligation of the appellant to deduct TDS or whether TDS provisions would be applicable or not was stayed and it was held as under.
“5. As the matter may required to be considered denovo by the authority concerned, it would be appropriate to stay the observations made by the learned Single Judge so far as they relate to the obligation of the club to deduct TDS or as to whether the provisions of TDS would be applicable or not. But, of course, even if the authority after hearing the parties passes the appropriate order, the same should not be implemented without leave of this Court.”
9. Subsequently, the Karnataka High Court, by vide interim order WA 60/2015 dated 07-12-2016 held as under:
6. “In view of the aforesaid, we are inclined to pass thv following interim order:
The matter shall stand restored to the authority at the stage of show cause notice. The club-original respective petitioner shall be at liberty to file a reply/ additional reply if it so desires….
7. The observations made by the learned Single Judge in the impugned judgment so far as interpretation of the respective provisions of the Act for TDS, shall remain stayed.
8. It is also observed and directed that the concerned authority or the appropriate officer after the reply/additional reply is submitted by the original petitioner, club or the private respondent/original petitioner as the case may be shall give opportunity of hearing to the respective parties and shall pass a fresh order in accordance with law and shall decide as to whether the requirement of TDS is applicable to the stake money being paid by the club to the person concerned who are owners of the horse participating in the race or not.
9. The aforesaid exercise shall be completed preferably within a period of three months from the receipt of certified copy of the order of this Court. However, it is observed that, the order which may be passed by the authority or the appropriate officer shall not be implemented without express leave of this Court”
10. Until further orders, at the time when stake money is to be paid by the original petitioner-club to the person concerned, the deduction shall not be made under the head of TDS if the owner of the horse/person concerned files an undertaking before this Court that he shall re-deposit the amount with the club with the interest chargeable as per the Income Tax Act within a period of one month from the date on which this Court so directs to deposit the amount, so as to enable the club to deposit the amount of TDS with the Income Tax Department. Upon the copy of the undertaking produced by the owner of the horse/person concerned, the petitioners club shall be at liberty to pay the amount without TDS, but separate calculation and record shall be maintained of the amount of TDS not deducted pursuant to this order.
11. It is also clarified that pending present proceedings, it would be open to the person concerned/owner of the horse to show the income of stake money received in their respective returns in accordance with law and the pendency of these proceedings shall not operate as a bar in the assessment proceedings before the respective authority. However, it is observed that, the assessment order if any passed in respect of any owner of the horse/person concerned shall be placed on record which may be considered by the Court at the time when final order is to be passed on the aspects of re-deposit of the amount of TDS or otherwise as observed earlier.
12. Office to place the matter upon a note filed by either side declaring that the order is passed by the appropriate authority pursuant to show cause notice.
13. It is observed and directed that the appropriate authority shall independently consider the matter without being in any manner influenced by any observations made by the learned Single Judge or the earlier order passed by it. The authority shall consider the matter independently in accordance with law.
4.2 Ld.AR submitted that Hon’ble Karnataka High Court stayed the operation of order dated 26/09/2014 and directed authorities below not to recover any demand under section 201(1) and 201(1A), for relevant assessment years which also included assessment year 2012-13 in assessee’s case, without the leave of Hon’ble Court. Hon’ble Court vide para 8 also directed to decide whether the provisions of TDS are applicable to stake money being paid to the club to the person concerned who are owners of horse participating in the race.
4.3 On merits Ld.AR placed reliance on following decisions and CBDT circulars:
