TDS on horse race winnings-Section 194BB

Person Responsible to Deduct Tax:

Any person being licensed by the Government or a Licensed Bookmaker.

Category of Payee:

All assesses

Rate of Deduction of Tax:

30%

No TDS:

If the payment does not exceed Rs.2500/-

Time for Deduction of Tax:

At the time of payment

Time for Deposit of TDS:

In case of deduction by or on behalf of Government, on the same day.
Other cases- within 1 week from the last day of the month of tax deduction.

Income Tax Appellate Tribunal - Delhi

Delhi Race Club (1940) Ltd. vs Deputy Commissioner Of Income Tax on 26 December, 2006
Equivalent citations: (2007) 108 TTJ Delhi 297
Bench: V Gandhi, R Sharma

ORDER

R.C. Sharma, A.M.

1. This is an appeal filed by the assessee against the order of the CIT(A) dt. 9th June, 2003 for the asst. yr. 2001-02, in the matter of order passed under Section 201 and Section 201(1A) of the IT Act, 1961, wherein following two grounds have been raised by the assessee:

(1) That the CIT(A) without appreciating the facts of the case and on incorrect interpretation of law applicable has erred in confirming that tax at source should have been deducted on the initial exemption of Rs. 2,500 and cost of winning ticket while calculating TDS under Section 194BB.

(2) That the CIT(A) was wrong to confirm the demand of Rs. 4,25,775 under Section 201(1) and interest of Rs. 40,085 under Section 201(1A). The same may be deleted.

2. Rival contentions have been heard and record perused. Brief facts of the case are that the assessee, the Delhi Race Club (1940) Ltd. is engaged in development, promotion and conducting of horse races in Delhi. Its activities include inter alia the arranging of wagering or betting in horse races. The punters who have the winning tickets are paid the winnings after deduction of TDS. While scrutinizing the TDS return, the AO noted that the assessee had distributed amongst the winners of horse races Rs. 50,35,165 but the taxable amount shown was only Rs. 36,43,743. It was noted by the AO that in arriving at the figure of taxable amount a deduction of Rs. 2,33,922 on account of investment made and a further deduction of Rs. 11,57,500 on account of rebate was claimed. The AO has observed that under the provisions of Section 194BB of the IT Act on any payment exceeding Rs. 2,500 tax has to be deducted. He has also mentioned the provisions of Section 10(3) of the IT Act saying that the exemption can be claimed by the winner while filing his return of income and if there are more than one winnings, the exemption will be limited to only Rs. 2,500 in aggregate. On the basis of such observations the AO proposed to compute short deduction of tax on the amount of Rs. 11,57,500 claimed as rebate. The assessee replied before the AO that income by way of winning from horse races was exempt upto Rs. 2,500 in respect of each winnings. However, the AO did not agree with the explanation of the assessee and has calculated short deduction of tax without allowing deduction of Rs. 2,500 from each winnings.

3. On the second claim of deduction on investment made by punter, the assessee explained before the AO that the amount of winnings should be reduced by the total amount invested by way of bets placed by the punters on all horses. The AO did not agree with this stand also saying that the definition of income is for the person who is earning it but not for the person deducting the tax at source.

4. By the impugned order, CIT(A) confirmed the action of the AO for short deduction of tax and interest thereon.

5. Aggrieved by the above order of the CIT(A), the assessee is now in appeal before us. It was contended by the learned Authorised Representative Shri Shashi Bhushan Gupta that no tax shall be leviable in respect of winning from horse race where the amount received from such winning does not exceed Rs. 2,500. According to learned Authorised Representative, the AO should have computed the amount of winning liable to deduction pf tax at source, after deduction of Rs. 2,500 on each and every such winnings. With respect to deduction of investment made by the punter while computing the amount of winning from which tax is to be deducted, he contended that all the investments made by the punter on a horse race is to be deducted from the gross winning amount, and only on the residual portion of amount of winning, TDS is liable to be deducted. He placed reliance on the decision of the Tribunal, Calcutta Bench dt. January, 2000 in the case of Royal Calcutta Turf Club v. Dy. CIT (2001) 71 TTJ (Cal) 269 : (2001) 114 Taxman 82 (Cal)(Mag) and also on CBDT Circular No. 515, dt. 31st May, 1988 (1988) 71 CTR (St) 12 : (1988) 172 ITR 6 (St) No. 536, dt. 6th July, 1989 (1989) 78 CTR (St) 2 : (1989) 178 ITR 62 (St) No. 621, dt. 19th Dec, 1991 (1992) 101 CTR (St) 1 and No. 240 dt. 17th May, 1978.

6. On the other hand, learned Departmental Representative relied on the order of the lower authorities and submitted that AO was justified in deducting tax at source on the gross amount of prize amount as per provisions of Section 194BB of the IT Act, 1961.

7. We have considered the rival contentions, carefully gone through the orders of the authorities below and also deliberated upon the case laws cited by learned Authorised Representative and the relevant circulars of CBDT cited by him. Provisions of Section 194BB provides for deduction of tax at source from income by way of winning from horse races at such rates as may be prescribed in the Finance Act of the relevant year. It further provides that no tax will be deducted at source where the income by way of winning from any horse race to be paid to a person is Rs. 2,500 or less. Circular No. 515 of CBDT dt. 30th May, 1988 also clarifies for non-deduction of tax in respect of winnings from horse races up to the amount of Rs. 2,500. Only where such winnings exceed Rs. 2,500, tax is to be deducted at source at specified rates. Meaning thereby tax is to be deducted only on the amount of winnings in excess of Rs. 2,500. Merely because winning amount exceeds Rs. 2,500, the Department cannot ask for not allowing the initial deduction of Rs. 2,500 while computing the winning amount qualifying for deduction of tax at source. If the winning is Rs. 2,500, no deduction of tax is to be made. If the winning exceeds Rs. 2,500, tax is to be deducted on excess amount only.

8. Issue regarding deduction of Rs. 2,500 from each winning of horse race has been elaborately dealt with by the co-ordinate Bench in the case of Royal Calcutta Turf Club (supra) as follows:

Moreover, the expression 'winnings' in Section 194BB has been followed by the further expression from any horse race in an amount exceeding Rs. 5,000. Thus, it is clear that the winning must relate to a particular horse race and the floor limit of Rs. 5,000 should apply to that particular horse race alone. The Departmental contention seemed to have arisen out of a consideration of the provision of Section 10(3) in accordance with which, in the income-tax assessment of the punter, he would be allowed the basic exemption of Rs. 5,000 only once during the year. Be that the position with regard to the assessment of the punter, but so far as the provisions of deduction of tax at source are concerned, they are to be guided by Section 194BB alone. There is nothing to infer that the limit of Rs. 5,000 as mentioned in Section 194BB, should be referred to the entire winnings of the punter from horse races throughout the year. Hence, the gap even if any, in this regard cannot be filled up by making a reference to the provisions of Section 10(3).

Accordingly the assessee could not be held to be in default in respect of this deduction.

9. No decision to the contrary was brought to our notice by the learned Departmental Representative so as to persuade us to deviate from the conclusions arrived at by the co-ordinate Bench. As the facts and circumstances of the case under consideration are in per materia, respectfully following the same, we direct the AO to allow deduction of floor limit of Rs. 2,500 from each winning from horse race, claimed by assessee. However as per the amendment brought in by the Finance Act, 1992 w.e.f. 1st April, 1992, the amount of exemption was revised from Rs. 5,000 to Rs. 2,500. The claim of assessee at Rs. 2,500 during the asst. yr. 2001-02 under consideration, was therefore justified.

10. The second plea of the assessee is that amount of investment made by the punters in respect of all horse races is to be deducted from the amount of winnings for arriving at the figure qualifying for deduction of tax at source. Whereas the contention of the Department is that person responsible to deduct tax at source under Section 194BB of the Act is not required to look into the amount spent on purchase of ticket in a horse race. Therefore, on the gross amount of winning, the tax is liable to be deducted.

11. With regard to the second contention of the learned Authorised Representative regarding deduction of investment made by punters in the horse races, we found that issue stands squarely covered by the decision of Tribunal Calcutta Bench in the case of Royal Calcutta Turf Club (supra), as follows:

The expression used in Section 194BB is 'income by way of winnings'. The connotation of 'income' necessarily implies the net income after deducting the expenses incurred for earning the gross income. There could not be any doubt about the fact that the cost of purchasing tickets for race which fetched the prize money, must necessarily be deducted to arrive at the net income. Furthermore, the legislation has also used the expression 'from any horse race' and not 'horse races' in plural. It, thus, meant that the income by way of winnings from any particular horse race is required to be taken into consideration. So, one horse race is required to be taken as a unit and the entire money received by way of winnings from the said horse race is first to be considered as the gross income from that horse race. Therefrom one is required to deduct the investment made by the punter towards acquiring the tickets, may be more than one, but pertaining to the same horse race. Therefore, tax is required to be deducted only from the net income arising out of the horse race to the punter; from any particular race after deducting the investment made by the punter in purchasing all the tickets relating to such horse race. The CBDT has also accepted the said proposition in its Circular No. 240, but has directed that investment in such tickets alone which fetched the winnings money should be deducted. However, if all the tickets purchased by a punter in a particular horse race club be linked up together and if there be regular machinery with the turf club authorities to take into consideration all the tickets purchased in connection with one horse race, then the entire amount of investment on all the horses irrespective of whether the horse won or lost in that race, should be treated as investment made by the punter in that horse race. A claim made by the punter that he has purchased a large number of tickets separately in respect of the same horse race should not be accepted unless such claim could be verified by a process existing in the procedural mechanism of the turf club.

12. No decision to the contrary was brought to our notice by learned Departmental Representative during the course of hearing. We are well aware of the judicial precedent that an order passed by the co-ordinate Bench should not be lightly disregarded. In taking this view, we are supported by the decision of Hon'ble Supreme Court in the case of Union of India v. Paras Laminates (P) Ltd. wherein Hon'ble Supreme Court has observed that it is true that a Bench of two Members must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. The rationale of this rule is the need of continuity, certainty and predictability in the administration of justice. As the facts and circumstances of the instant case are in pari materia, respectfully following the proposition laid down by the co-ordinate Bench, the AO is directed to reduce the amount of tickets purchased by the punter relating to such horse race.

13. In the result, the appeal of the assessee is allowed, in terms indicated hereinabove.