Mysore Race Club Limited Vs ACIT (ITAT Bangalore)
The Income Tax Act prescribes deduction of tax at source u/s 192 to 195 of the Act. The assessee would be liable to deduct tax at source only in respect of payments which are covered by above said sections. The case of the assessee is that it has paid subsidy which is in the form of either reimbursement of part of expenses or absorption of certain expenses in maintenance of horses, transportation and contribution to welfare funds. None of these payments would fall under sec. 192 to 195 of the Act requiring deduction of tax at source. We notice that the A.O., without pointing out the section under which the assessee would be liable to deduct tax at source in respect of above said payments, has simply disallowed the subsidy payments by invoking the provisions of section 40(a)(ia) of the Act. We notice that the Ld. CIT(A) also confirmed the addition by observing that the assessee should have obtained no deduction certificate u/s 197 of the Act, meaning thereby, the Ld. CIT(A) has also not pointed out the section under which the above said payments would attract TDS liability.
A perusal of the explanation furnished by the assessee would show that
(a) the assessee is absorbing part of cost of fodder purchased for feeding horses. The payment made for purchase of fodder does not attract any of the TDS provisions. In this case, the assessee is charging the cost of fodder at lower rate. Thus, this does not amount to payment to anyone, which would attract TDS provisions under any of the sections.
(b) in respect of transport subsidy also, we notice that the assessee has met part of transportation expenses incurred by the horse owners in the form of reimbursement made to them. The primary liability to deduct TDS would lie upon the horse owners, since they have incurred the cost of transportation. The assessee has only reimbursed part of transportation cost to the horse owners. Accordingly, in our view, this payment will also not liable for deduction of tax at source.
(c) the two-year old subsidy is also a kind of reimbursement to groom horses and the same, in our view, would also not attract provisions of TDS.
(d) payment to jockeys and trainers fund and employees welfare society is a kind of contribution connected with the business activities of the assessee and the said payments are also not covered by any of the TDS provisions.
(e) the last item “Syces subsidy” is the money paid to the owners of horses from out of stake money and it would also be not covered by any of the TDS provisions.
Accordingly, we are of the view that the disallowance made by A.O. u/s 40(a)(ia) of the Act in respect of subsidy expenditure is not in accordance with law and the Ld. CIT(A) was not justified in confirming the said addition. Accordingly, we set aside the order passed by the Ld. CIT(A) on this issue and direct the A.O. to delete the disallowance.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Both the appeals preferred by the assessee are directed against the orders passed by Ld. CIT(A), Mysuru and they relate to the assessment years 2009-10 & 2013-14. Since common issues are urged in these appeals, they were heard together and are being disposed of by this common order, for the sake of convenience.
2. The common facts are that the assessee is engaged in the activity of conducting horse racing and on and off course betting. The public at large could place bets on horses either at the race course or through the counters placed outside the race course. The person who places bet on horses are called “Punters” and if the horse on which he has placed bet wins the race securing particular rank (1st or 2nd or 3rd etc.), he will get prize money according to the pre-determined rates, which is the combination of multiplying factor for each of the horse and the rank. The public can place their bets either at the totalizator or with the registered book makers who are licensed to bet in the race course. The assessee would be entitled to receive commission amount from totalizators and book makers. Accordingly, the assessee has accounted for only commission amount including totalizator tax in its books of account on the reasoning that its income consists of commission income only. Accordingly, the assessee did not account for betting amount paid by the punters and disbursement of prize money/dividend to them in its books of accounts on the reasoning that those transactions are diverted at source. It was also submitted that the punters who bet at the totalizators have not direct contact with the assessee and the betting tax payable on betting amount is collected and paid to the State Government under the Betting Tax Act.
3. The facts relating to AY 2009-10 are that the assessee filed its return of income for assessment year 2009-10 on 5.10.2009 declaring loss of Rs.1.77 crores, which was processed u/s 143(1) of the Income-tax Act,1961 [‘the Act’ for short]. Subsequently, the A.O. reopened the assessment u/s 148 of the Act, as the A.O. was of the view that the assessee should have declared the entire amount received at the betting counter as its income and the disbursement of prize money/dividend as its expenditure. In this regard, the A.O. took support of the decision rendered by Hyderabad bench of Tribunal in the case of Hyderabad Race Club Vs. JCIT (2009) 25 DTR 0209. In the reopened the assessment, the AO examined the payments made to punters as prize money/dividend and noticed that the assessee has made cash payments exceeding Rs.20,000/- in violation of section 40A(3) of the Act. Accordingly, he disallowed a sum of Rs.81,04,548/- in assessment year 2009-10 u/s 40A(3) of the Act.
4. In assessment year 20 13-14 also, the A.O. noticed that the assessee has not accounted for the betting money received and prize money/dividend amounts disbursed. In this year also, the A.O. took the view that the assessee should have routed the above said collections and payments through the profit & loss account. He also noticed that the assessee has made payments by way of cash in violation of section 40A(3) of the Act. Accordingly, he disallowed a sum of Rs.49,95,095/- u/s 40A(3) of the Act. The A.O. also noticed that the assessee has made certain payments on which it has not deducted tax at source. Accordingly, he disallowed following amounts u/s 40(a)(ia) of the Act.
