Case Law Details
Royal Western India Turf Club Limited Vs ITO (ITAT Mumbai)
In a significant ruling for the horse racing industry, the Income Tax Appellate Tribunal (ITAT) Mumbai bench has affirmed that “stake money” received by horse owners from race clubs is not subject to Tax Deducted at Source (TDS) under either Section 194B or Section 194BB of the Income Tax Act, 1961. The decision came in the appeal filed by the Royal Western India Turf Club Limited (RWITC) against a demand of over ₹19.47 crore, including interest, for the Assessment Year 2016-17.
The Tribunal’s order, pronounced on May 22, 2025, effectively reiterates its own previous judgment on the same issue for an earlier assessment year of the RWITC, emphasizing the binding nature of specific CBDT circulars and the interpretation of relevant statutory provisions.
The Heart of the Dispute: Stake Money vs. Winnings
The Royal Western India Turf Club Limited is primarily involved in conducting horse races and offering hospitality services. The core contention between the club and the Income Tax Department revolved around the nature of “stake money” paid to horse owners whose horses win or place in races. The department contended that this stake money constituted “winnings” from a “game of any sort” and was therefore liable for TDS under Section 194B of the Income Tax Act. Since the RWITC had not deducted TDS on these payments, the Assessing Officer (AO) declared the club an “assessee-in-default” under Section 201(1) of the Act, raising a substantial demand. The Joint Commissioner of Income Tax (Appeals) subsequently upheld the AO’s stance.
The RWITC, however, consistently argued that stake money is distinct from betting winnings and is not covered by TDS provisions. They maintained that such payments are intended to defray the significant expenses incurred by owners in training and maintaining horses, rather than being pure “winnings” in the speculative sense.
Arguments and Counter-Arguments
The Revenue’s case was built primarily on the 2001 amendment to Section 194B, which expanded its scope to include winnings from “other game of any sort.” The AO contended that this phrase was broad enough to encompass horse races, irrespective of whether they involved chance or skill, and that Section 194BB (specifically dealing with horse races) did not explicitly exclude stake money from this wider ambit.
The RWITC, represented by its Liquidator, vehemently opposed this view. Their arguments rested on several pillars:
1. Prior Tribunal Decision: The club immediately pointed to its own case for Assessment Year 2012-13 (ITA No. 6625/Mum/2017, order dated June 28, 2019), where the Tribunal had already decided this exact issue in the assessee’s favor.
2. Interpretation of Section Headings: The assessee argued that the heading of Section 194B – “Winning from lottery or crossword puzzle” – clearly indicates its general nature, while Section 194BB’s heading – “Winning from horse race” – denotes it as the specific provision for horse racing income. A specific provision, they contended, should prevail over a general one.
3. Ejusdem GenerisPrinciple: The club implicitly argued that the phrase “other game of any sort” in Section 194B should be interpreted in context with the preceding words “lotteries, crossword puzzles or card games.” This principle suggests that general words following specific ones should be construed as being of the same kind.
4. Legislative Intent: The RWITC referred to the then Finance Minister’s budget speech during the 2001 amendment, which primarily aimed to bring winnings from “television game shows” into the TDS net under Section 194B. This indicated that the amendment was not intended to alter the existing treatment of horse racing stake money.
5. CBDT Circular No. 240 (May 17, 1978): A cornerstone of the assessee’s defense was this long-standing CBDT Circular. The Circular explicitly clarified that “stake money” paid to horse owners is not regarded as winnings from horse races for the purpose of TDS under Section 194BB. The assessee argued that this Circular remains in force and is binding on the Income Tax Department.
6. Alternate Plea (Hindustan Coca-Cola Principle): As a fall-back argument, the club submitted that even if TDS were applicable, the horse owners (recipients of stake money) had already declared this income and paid taxes on it in their respective returns. Therefore, following the Supreme Court’s decision in Hindustan Coca-Cola, the RWITC should not be treated as an “assessee-in-default.”
ITAT’s Detailed Reasoning and Judicial Precedents
The ITAT found strong merit in the RWITC’s contentions.
Firstly, the Tribunal noted that the “exactly same issue” had been dealt with in detail in the assessee’s own case for A.Y. 2012-13, where a categorical finding was given against the applicability of TDS on stake money. Despite the department’s claim that this earlier Tribunal decision was under appeal before the High Court, the ITAT emphasized that the previous order remained binding on the lower authorities unless overturned.
Secondly, on the interpretation of the Income Tax Act sections:
- Specificity of Section 194BB:The ITAT reiterated that Section 194BB is the specific provision designed for “Winning from horse race.” If the Legislature intended to include stake money, it would have amended Section 194BB directly, rather than relying on a general provision like Section 194B.
- Scope of Section 194B:The Tribunal aligned with the assessee’s view that the 2001 amendment to Section 194B, inserting “card game or other game of any sort,” was not intended to cover stake money from horse races. The Budget speech reference further supported this narrow interpretation, suggesting its focus on new forms of winnings like those from TV game shows.
- Binding Nature of CBDT Circulars:The ITAT heavily relied on CBDT Circular No. 240 (May 17, 1978). It underscored the well-settled legal principle that CBDT Circulars are binding on the Income Tax Department. The Tribunal observed that the department was attempting to indirectly tax an income that had been specifically excluded by a valid and existing Circular, which is impermissible in law. This principle is widely affirmed by various judicial precedents, including the Supreme Court’s pronouncements.
Thirdly, the ITAT also considered the assessee’s alternate plea based on the Supreme Court’s landmark judgment in Hindustan Coca-Cola Beverage Pvt. Ltd. vs. CIT [(2007) 293 ITR 226 (SC)]. This judgment established that if the recipient of income has already paid tax on that income and filed their return, the deductor cannot be treated as an “assessee-in-default” under Section 201(1) for non-deduction of TDS. The rationale behind this is to prevent double recovery of tax on the same income. The Tribunal found “enough substance” in this contention and held that if the assessee could furnish confirmation from all horse owners that they had duly reported and paid taxes on the stake money, the RWITC should not be treated as an “assessee-in-default.”
Conclusion and Impact
Based on this comprehensive analysis, the ITAT concluded that stake money received by horse owners is not liable for TDS under either Section 194B or Section 194BB. Consequently, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to delete the entire demand, including interest, raised under Section 201(1) and 201(1A) of the Act.
This ruling provides significant relief to horse racing clubs and reinforces several key principles of tax law: the specific overriding the general, the importance of legislative intent, the binding nature of CBDT circulars on the revenue authorities, and the overarching principle that an assessee should not be deemed in default if the ultimate tax liability has already been discharged by the recipient. The judgment will likely bring clarity and stability to the taxation of stake money in the horse racing fraternity.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The aforesaid appeal has been filed by the assessee against order dated 27/12/2024 passed by Addl./JCIT-(A)-2, Noida in relation to the order passed u/s.201 for the A.Y.2016-17.
2. In the grounds of appeal assessee has challenged the demand of Rs.19,47,55,473/- u/s.201(1) including interest u/s.201(1A) of Rs.9,12,65,584/- holding that payment made to its horse race owners i.e. stake money which has been held to be subject to TDS u/s.194B.
3. At the outset, it has been stated that this issue stands covered by the decision of the Tribunal in assessee‟s own case for the Y. 2012-13 in ITA No. No.6625/Mum/2017 order dated 28/06/2019.
4. The brief facts are that the assessee is in the business of conducting of horse races and providing hospitality services to its members and their guests. The assessee had a license to organize races at Mumbai and Pune and also allowed to accept bids at its race course bidding centers. The main issue involved is whether TDS should be deducted u/s.194B on the „stake money‟ paid by the assessee to the horse owners of winning of the races organized by the assessee. The assessee‟s case is that stake money paid to the horse owners is not liable to TDS u/s.194B, whereas the ld. AO has treated the stake money liable for TDS u/s.194B on stake money of Rs.34,49,66,299/-. Since assessee has not deducted TDS, therefore, AO has treated assessee as “assessee-in-default”. In response to the show-cause notice assessee has filed detailed submission and which has dealt and incorporated in the assessment order from pages 2-8. The assessee has also relied on the CBDT Circular No.240 dated 17/05/1978 which exempted stake money paid to horse owners from the purview of TDS u/s.194BB. However, the ld. AO held that benefit of said Circular cannot be extended beyond the scope of Section 194BB so as to conclude that similar receipts are not subject matter of TDS u/s.194B. He held that Section 194B was amended by Finance Act, 2001, to expand the scope of that section to winnings from “other game of any sort” over and above the winnings from lotteries, Cross word puzzles or card games as the section 194B does not provide any specific exclusions, exceptions, the phrase “game of any sort” covers a wide gamut of games including horse races contrary to the contention of the deductor that the amendment was intended expand the scope of TDS on winnings from TV games. Hence, the use of the phrase “other game of any sort can be construed to mean winnings from any game irrespective of whether such winning involve any chance or luck or they involve exercises of skill. This would cover the case of stake money where the horse owners receive the prize money to defray expenses incurred by the owners towards training and maintenance of horses as by its very definition.
5. He further held that although Section 194BB does not include in its scope of the stake money payments, however, the same is precluded from the wider ambit from winning from game of any sort as provided u/s.194B.
6. In so far as reliance placed on the decision of the Tribunal in assessee’s own case for A.Y.2012-13, he held that the decision of the Tribunal has not been accepted and department is in appeal before the Hon’ble High Court and the Tribunal has erred in holding that provision of Section 194B are not attracted of stake money. Accordingly, he treated the amount of stake money of Rs.34,39,66,299/- liable for TDS and has computed TDS in default u/s.201(1) of Rs.10,34,89,890/- and computed the interest of Rs.9,12,18,585/-. The Ld. First Appellate Authority has simply confirmed the said reasoning of the ld. AO.
7. We find that exactly same issue has been dealt in detail by the Tribunal wherein the Tribunal has considered the arguments from both the parties and also analysed the relevant provisions of the Act and CBDT Circular. The relevant finding of the Tribunal reads 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. 18. 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‟. 19. 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 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. 20. 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 ld. 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. 21. 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. 22. 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‟.
8. Thus, once the Tribunal has given a categorical finding on each and every point which has been raised by the ld. AO therefore, respectfully following the aforesaid decision, we hold that assessee was not liable to deduct TDS on stake money received by the horse owners u/s.194B or u/s.194BB and therefore, assessee cannot be treated as „assessee in default‟ u/s.201. Consequently, assessee is not liable for any interest u/s.201(1A).
9. In the result, appeal of the assessee is allowed.
Order pronounced on 22nd May, 2025.
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Thanks for sharing case law, very informative ^ useful in TDS matters