Income tax on gross winnings from online games without setting off loss upheld as section 115BBJ is prospective.
In a recent judgment, ITAT Hyderabad has upheld tax on gross winnings instead of net winnings from online games holding that provisions of 115BBJ being a new section introduced from AY 2024-25 can not be given retrospective effect
ABCAUS Case Law Citation:
4708 (2025) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) – NFAC in confirming the addition made by the Assessing Officer (AO) on account of gross receipts from gaming activity u/s 115BB of the Income Tax Act, 1961 (the Act) and not allowing set off of losses from the gaming platform.
The appellant assessee was a private sector salaried employee having annual income less than five lakh rupees and no other income than salary.
The Assessing Officer noted that in the return of income, the assessee had not disclosed any income winning from gaming platform. The assessee filed his reply and submitted the statement of transactions in Rummy Culture which showed that against the gross winning amount during the year, the assessee had loss from the game and thereby there was a net loss from online gaming activities.
The Assessing Officer denied the setting of the loss against the winning amount while passing the assessment order in view of the provisions of section 58(4) r.w.s. 115BB of the Act and held that in case of the income from other sources, no deduction in respect of any expenses and allowances is allowable in computing income by way of winning from inter alia card games and other games and gross receipt is taxable @ 30% as per section 115BB of the Act.
Before the Tribunal the assessee submitted that only the net result of the gaming activities has to be taken into consideration and therefore, the provisions of section 58(4) of the Act cannot be pressed into service for taking only the gross winning amount to tax @ 30% as per the provisions of section 115BB of the Act.
The assessee emphasised on the amended provisions of the Act vide the Finance Act, 2023 whereby section 115BBJ has been introduced w.e.f. A.Y 2024-25 and corresponding section 194BA for TDS effective from 01/04/2023. He submitted that these 2 provisions specifically govern the taxation of the income from online game. This newly introduced regime replaced the earlier arbitrary framework that provide charging of tax on the gross winning amount without recognizing the loss or entire cost. Section 115BBJ introduced the concept of new net winning which more accurately reflects the true economic income accruing to a player. The assessee further submitted that the explanatory memorandum to the Finance Bill 2023 acknowledges that the earlier provisions were inadequate to address the unique transactional nature of online games where the winning and losses occur frequently within a single platform.
It was submitted that the provisions introduced by Finance Act, 2023 are beneficial in nature and curative in effect and therefore, this amendment was made at correcting an unfair and excessive tax burden under the earlier provisions. Therefore, provision u/s 115BBJ be construed having retrospective or at least clarificatory application to tax only as net tax winning rather than taxing on gross receipts even when the assessee has incurred the net loss from the activities of online gaming from the same platform.
It was contended that the amendment was not an exemption or new relief but rather a procedural framework to remove the anomaly to tax gross income without allowing the corresponding loss. Thus, the doctrine of real income should be applied. This newly introduction of provisions of the Income Tax Act ensure only real income is chargeable to tax. The assessee referred to the judgement of the Hon’ble Supreme Court and submitted that the principle of real income has been upheld by the Hon’ble Supreme Court in the said case.
It was further submitted that the Assessing Officer while passing the assessment order u/s 143(3) of the Act has accepted the net income from online gaming and therefore, the Department is bound to follow the rule of consistency when the facts in both the cases are identical. The assessee relied upon the judgment of the Hon’ble Allahabad High Court as well as the judgment of the Hon’ble Supreme Court.
Thus, the only substantial issue raised by the assessee was that section 115BBJ inserted vide Finance Bill 2023 w.e.f. A.Y 2024-25 be treated as explanatory and curative in nature and thereby having a retrospective effect of its applicability.
The Tribunal observed that the settled rule of interpretation as discussed and reiterated by the Hon’ble Supreme Court regarding the retrospectivity of a particular legislation is once again considered by the Constitution Bench.
The Tribunal observed that as laid down, unless the terms of statute expressly so provides or necessarily require it retrospective operation should not be given to a statute so as to take way or impair an existing right or create a new obligation or imposing a new liability otherwise than as regards the matter of procedure. The Hon’ble Supreme Court observed that where a benefit is conferred by a legislation, the rule against retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other persons or on the public generally, and where to confer such benefit appears to have been the legislators objects, then the presumption would be that such legislation, giving it purposive construction, would warrant it to be given a retrospective effect.
The Tribunal noted that in the instant case, the provisions of section 115BBJ is providing only the taxation of certain income with flat rate and therefore, it is not a procedural provision to be treated as having removed the unwanted hardship to certain set of assessees.
The Tribunal held that if a fresh benefit is provided by the Legislature in an existing provisions, then such an amendment should be given a retrospective effect. It was not a case of amendment in the existing provisions but there was a new section introduced by this amendment with prospective effect from A.Y 2024-25, therefore, these provisions cannot be given a retrospective effect.
Accordingly, the appeal was dismissed.
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