ITAT Hyderabad has held that section 194B of the Income Tax Act, 1961 do not apply to horse racing. ITAT also allowed TDS u/s 194BB after deduction of threshold limit rather than the gross amount.

Case Details:
ITA-319 to 323/Hyd/2015
Asstt. Commissioner of Income Tax (TDS) (Appellant) vs Hyderabad Race Club (Respondent) A.Ys 2009-10 to 2013-14
Date of Order: 04-09-2015

Facts of the case:
The assessee was a company registered under the Companies Act carrying on the business of racing and promotes race meetings at its Malakpet Race Course, Hyderabad. The assessee was collecting entry fee and betting money from punters and utilizing the same for payments as winnings on horse race to punters, payment of stake money to horse owners and to meet the administrative cost and other expenses. During a survey u/s 133A it was observed that observed that the assessee was not deducting TDS on payments of stake money paid to the winning horse owners and also on payments made under the head “winnings from Horse Races”, ‘share of income to other centres’/’royalty to other centres’. Therefore, assessee was asked to explain as to why it is not to be treated as “Assessee in Default” u/s 201(1) for failure to comply with the TDS provisions u/s 194B, 194BB and 194H of the Income Tax Act, 1961.

Section 194B -The assessee relied upon the CBDT Circular No.240 dated 17-05-1978 affirming that TDS provision does not apply to ‘stake money’. However, AO observed that section 194B has been widened by the insertion of the words “(or card game and other game or any sort)” w.e.f. 1.6.2001.

Section 194BB- It was observed that the assessee was deducting tax as per applicable rate on payments to punters but after deducting the amount of Rs.2500 (the basic threshold before 01-07-2010) and not on the gross amount. The assessee explained that in AY 2008-09 this issue was decided in favour of the assessee by CIT(A) accepting the basic deduction of Rs.2500 and that the order of the CIT (A) has been affirmed by the ITAT. However considering that this issue was pending in High Court treated the assessee in default.

Section 194H - Assessee was conducting horse race in various parts of the country and was paying an amount of 23% of the income from the tote pools and book makers commission to the other race clubs without deduction of tax at source. the assessee submitted that similar issue had arisen in his own case for A.Y 2008-09 and CIT (A) had deleted it and the matter was not appeal to ITAT and hence has become final. AO however, held that the “res judicata” does not apply to the taxation law.

Excerpts from the Order

………… the AO has applied the provisions of section 194B to the payments made to horse owners as “stake money” on the ground that by insertion of words ‘or card game and other game of any sort’ w.e.f. 1.6.2001, the horse racing income comes under the ambit of ‘other game of any sort’, we find that this issue had arisen in the case of Bangalore Turf Club Ltd. Vs. Union of India and others and the Hon'ble Karnataka High Court in the writ petition filed by the Bangalore Turf Club has dealt with this issue at length and has held that the amended provision of section 194B do not apply to horse racing…..

The ground No.3 of Revenue is against the deletion of the demand raised by the AO u/s 201 (1) and 201(1A) of the Act by applying the threshold limit of Rs.2500 on each payment for making TDS u/s 194BB of the Act. The grievance of the Revenue is that the basic limit is on the aggregate payment made in a year and not on each payment. On this issue, we find that the CIT (A) had followed the order of this Tribunal in assessee’s own case for A.Ys 2002-03 to 2008-09 in granting relief to the assessee. Since the CIT (A) had followed the precedent on the issue and the Revenue has not been able to rebut this finding with any evidence or decision to the contrary, we see no reason to interfere with the same……

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