Madras Race Club, CHENNAI V. DCIT, CHENNAI

ITA 646/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96299 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 31-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADHUKAR BHUSARI IRS
• Assessee Lawyers: DR ANITHA SUMANTH
• Keywords: Recovery proceedings; Non-deduction of tax
• Section: 201(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : CHENNAI . . . , ! ' , # $% & [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ] ./ I.T.A.NOS.646, 647, 648, 649, 650, 651, 652, 653, 6 54, 655, 656 AND 657/MDS/2015 / ASSESSMENT YEARS : 2007-08, 2007-08, 2008-09, 2 008- 09, 2009-10, 2009-10, 2010-11, 2010-11, 2011-12, 20 11-12, 2012-13 AND 2012-13. M/S. MADRAS RACE CLUB RACE COURSE ROAD, GUINDY, CHENNAI 600 032. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, TDS CIRCLE I, CHENNAI [PAN AAACM 7640R] ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : DR. ANITHA SUMANTH, ADVOCATE /RESPONDENT BY : DR. MILIND MADHUKAR BHUSARI, IRS, CIT / DATE OF HEARING : 07.10.2015 / DATE OF PRONOUNCEMENT : 28.10.2015 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST THE COMMON ORDER OF THE COMMISSIONER OF INCOME-TAX (AP PEALS)-17, CHENNAI DATED 31.12.2014 FOR THE ABOVE ASSESSMENT Y EARS. ITA NO.646 TO 657/2015 :- 2 -: 2. THE ASSESSEE HAS RAISED THE FOLLOWINGS GROUNDS. 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) CONFIRMING THE ORDER LEVYING PENALTY U/S 201 (1) & (1A) OF THE ACT ON STAKE MONEY FORM HORSE RACINGS IS ERRONEOUS, CONTRARY TO LAW AND FACTS. THE SAME IS LIABLE TO BE REVERSED IN FULL. 2. THE AUTHORITIES ERRED IN NOT NOTING THAT THE PR OCEEDINGS WERE BAD IN LAW AND BARRED BY LIMITATION. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRS I N APPLYING THE PROVISION OF SEC.194 B OF THE ACT IN CONTRADICTION TO SEC.194 BB THAT SPECIFICALLY DEALS WITH HORSE RACING . 4. THE AUTHORITIES OUGHT TO HAVE NOTED THAT THE CB DT CIRCULAR NO.240 DATED 17.5.1978 HAS CLARIFIED THE P OSITION WITH REGARD TO TAX DEDUCTED AT SOURCE FROM INCOME B Y WAY OF WINNINGS ON HORSE RACING AND ERRED IN NOT APPLYING THE SAME. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISTINGUISHING THE JUDGMENT OF THE KARNATAKA HIGH C OURT IN THE CASE OF BANGALORE TURF CLUB LTD VS. UNION OF IN DIA ON WHOLLY UNTENABLE GROUNDS. 6. THE AVAILABLE CASE LAW SUPPORTS THE STAND OF TH E ASSESSEE IN FULL AND HAS BEEN WHOLLY MIS-INTERPRETED BY THE AUTHORITIES. 7. THE AUTHORITIES ERRED IN NOT NOTING THAT THE RE CIPIENTS HAVE OFFERED THE AMOUNT TO TAX AND THE JUDGMENT OF THE S UPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGES PVT.LTD. VS CIT (2007) 293 ITR 226 APPLIES ON ALL FOURS. 3. THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A COMPANY WITH LIMITED LIABILITY REGISTERED U/S 25 OF THE COMP ANIES ACT. THE ASSESSEE HAS BEEN CONDUCTING HORSE RACES IN CHENNAI A ND THE HILL STATION OF OOTACAMUND AND COLLECTING THE ENTRY FE E AND BETTING MONEY FROM PUNTERS AND KEEPS CERTAIN PORTION OF THE ITA NO.646 TO 657/2015 :- 3 -: BETTING AMOUNT COLLECTED FROM PUNTERS AND THE SAME I S UTILIZED FOR PAYMENT OF STAKE MONEY TO HORSE OWNERS, ADMINIS TRATIVE COST AND OTHER EXPENSES THE TDS INSPECTION WAS CARRIED OUT IN THE OFFICE PREMISES OF THE ASSESSEE ON 14.02.2013. IT WA S FOUND THAT TAX WAS NOT DEDUCTED ON PAYMENTS OF STAKE MONEY DISB URSED AMONG THE WINNING HORSE OWNERS. ACCORDING TO THE AO , HORSE RACING IS A GAME AND COVERED BY SEC.194B OF THE ACT AND HENCE HE ISSUED A SHOW CAUSE NOTICE TO THE ASSESSEE TO EX PLAIN WHY IT SHOULD NOT BE HELD TO BE AN ASSESSEE IN DEFAULT U/S 201 (1) OF THE ACT FOR FAILURE TO DEDUCT TAX FROM STAKE MONEY PRIZE S PAID TO HORSE OWNERS U/S 194B OF THE ACT PERTAINING TO FYS 2 006-07 TO 2011-12. IN RESPONSE, THE ASSESSEE STATED THAT THE ST AKE MONEY IS NOT LIABLE TO TDS U/S 194BB AS PER BOARD'S CIRCUL AR NO.240 OF 17.05.1978. THE ASSESSEE HAS ALSO RELIED ON THE DECI SION OF SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE (P) LIMITED VS CIT (2007) 293 ITR 226 WHEREIN IT WAS HELD THAT IF THE PAYEE HAS ALREADY PAID TAX ON THE INCOME, RECOVERY OF TAX CANNOT BE MADE ONCE AGAIN FROM THE TAX DEDUCTOR. THE ASSESSEE FURTHER ARGUED THAT THE STAKE MONEY WILL NOT BE COVERED BY S EC.194B OF THE ACT ALSO. NOT CONVINCED WITH THE REPLY OF THE AS SESSEE, THE AO WAS OF THE VIEW ITA NO.646 TO 657/2015 :- 4 -: THAT THE ASSESSEE'S CASE WAS COVERED BY SEC. 194B O F THE ACT IN VIEW OF THE AMENDED PROVISION OF SEC.194B BY FINANCE ACT, 2001 WITH EFFECT FROM 01.06.2001 AND NOT BY SECTION 194BB READ WITH CIRCULAR NO.240 DATED 17.05.1978. RELYING ON THE DEFI NITION OF STAKE MONEY AS MENTIONED IN SEC.74A OF THE ACT, THE AO HELD THAT THOUGH SEC. 194BB DOES NOT INCLUDE IN ITS SCOPE TH E STAKE MONEY PAYMENTS, IT CAN HARDLY BE ARGUED THAT THE SAME IS PRECLUDED FROM THE WIDER AMBIT OF WINNINGS FROM GAME OF ANY SORT IN SEC.194B. THE ASSESSING OFFICER ALSO HELD THAT IT IS A SETTLED PRINCIPLE OF LAW THAT WHEN TWO OR MORE CLAUSE S APPEAR TO DEAL WITH THE SAME SUBJECT, THE ONE WITH THE LATEST A MENDMENT PREVAILS. THIS IS WITHOUT PREJUDICE TO HOLD THAT TH E ACTIVITY OF BREEDING AND OWNING DIFFERS FROM THE ACTIVITY OF RA CING AND PARTICIPATING IN A RACE FOR STAKE MONEY. THE ACTIVIT Y OF PARTICIPATING IN THE RACE ITSELF COMES UNDER THE AMBIT OF THE GAME. THE ACTIVITY OF FACING FOR THE PURPOSE OF ST AKE MONEY COULD MAKE SUCH STAKE MONEY ASSUME THE CHARACTER OF WINING FROM THE GAMES. THE ASSESSING OFFICER ALSO RELIED O N EXPLANATION 2 TO SECTION 2(24)(IX) OF THE ACT TO HO LD 'THAT THE STAKE MONEY IS SQUARELY COVERED BY THE DEFINITION O F 'GAMES AND OTHER GAMES OF ANY SORT'. THUS, THE AO REJECTE D THE ITA NO.646 TO 657/2015 :- 5 -: CONTENTION OF THE ASSESSEE THAT IT IS NOT LIABLE TO DEDUCT TAX ON THE STAKE MONEY PAID. THE AO ALSO REJECTED THE CONT ENTION OF THE ASSESSEE THAT TAX CANNOT BE RECOVERED FROM THE DEDUCTOR ONCE THE DEDUCTEE PAID THE TAX ON THE INCOME AS THE ASSESSEE DID NOT FURNISH NECESSARY PROOF IN SUPPORT OF ITS CLAIM. THE AO FURTHER REJECTED THE CONTENTION OF THE ASSESSEE THA T THE REOPENING IS NOT VALID FOR FINANCIAL YEARS 2007 TO 08 TO 2009-10 AFTER THE EXPIRY OF TWO YEARS FROM THE END OF. THE FINANCIAL YEAR IN WHICH THE STATEMENT FILED AS REFERRED TO SE C.200 OF THE ACT FOR THE REASON THAT THE DEDUCTOR HAS NOT FILED THE RETURN IN RESPECT OF STAKE MONEY. THE AO HELD THAT THE STAKE MONEY FROM HORSE RACES IS IN THE NATURE OF PRIZE MONEY RE CEIVED ON HORSE RACE BY THE OWNER THEREOF ON ACCOUNT OF THE F ACT THAT THE HORSE WINNINGS THE RACE OR STANDS IN SECOND OR IN AN Y LOWER POSITION. ACCORDINQ TO ASSESSING OFFICER THE STAKE MONEY IS LIABLE FOR TDS U/S 194B OF THE ACT AND BY NOT DEDUC TING TAX, THE ASSESSEE IS TO BE TREATED AS THE ASSESSEE IN DEFAUL T FOR NOT DEDUCTING TAX AT SOURCE U/S 194B OF THE ACT. THEREF ORE THE ASSESSING OFFICER LEVIED TAX U/S 201(1) OF THE ACT FOR THE ASSESSMENT YEARS 2007-08 TO 2012-13. AGGRIEVED, THE ITA NO.646 TO 657/2015 :- 6 -: ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONE R OF INCOME TAX (APPEALS). 4. ON APPEAL THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. AGAIN ST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. WE FIND THAT THE LOWER AUTHORITIES HAS APPLIED THE PROVISIONS OF SECTION 194B TO THE PAYMENTS MADE TO HORSE OWNERS AS STAKE MONEY ON THE GROUND THAT BY INSERTION OF WO RDS OR CARD GAME AND OTHER GAME OF ANY SORT W.E.F. 1.6.2001, THE HO RSE 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 (2014) 52 TAXMANN.COM 290 AND THE KARNATAKA HIGH COURT IN THE WRIT PETITION NOS. 6565 TO 6568, 6651- 6652, 6674, 18696 & 18697 OF 2013 (T-IT) 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 RELEVANT POR TION OF THE JUDGMENT OF THE HIGH COURT IS REPRODUCED HEREUNDER FOR READY REFERENCE: ITA NO.646 TO 657/2015 :- 7 -: 58. WHEN THE WORDS 'AND OTHER GAME OF ANY SORT' USE D IN SECTION 194B IS EXAMINED WITH REFERENCE TO THE PRECEDING WO RDS AND INTERPRETED, THE ONE AND ONLY CONCLUSION WHICH CAN BE DRAWN WOULD BE THAT ACTIVITY OF OWNING AND MAINTAINING HO RSES CANNOT BY ANY STRETCH OF INTERPRETATION BE HELD THAT IT WO ULD FALL WITHIN THE DEFINITION OF 'AND OTHER GAME OF ANY SORT'. 59. THUS, HARMONIOUS READING OF THE STATUTORY PROVI SIONS WOULD INDICATE THAT FROM THE YEAR 1972 ITSELF, THE TERM OTHER GAME OF ANY SORT' WAS TAXABLE UNDER THE HEAD 'INCOME FROM O THER SOURCES' AND TDS WAS NOT ATTRACTED ON SUCH INCOME. 60. SUB-S ECTIONS (1) AND (2) OF SECTION 74A WHICH WAS INTRODUCED BY FINA NCE ACT, 1972, WITH EFFECT FROM 01.04.1972 WAS OMITTED BY FI NANCE ACT, 1986 WITH EFFECT FROM 01.04.1987. HOWEVER, SUBSECTI ON (3) TO SECTION 74A WAS INSERTED BY FINANCE ACT, 1974, WITH EFFECT FROM 01.04.1975 INDICATING THE DISTINCTION BETWEEN 'WINN INGS' AND 'ACTIVITY OF OWNING AND MAINTAINING HORSES' WHICH H AS CONTINUED TILL DATE. THOUGH, SECTION 194BB PROVIDED FOR TDS T O BE MADE ON 'WINNINGS FROM RACE HORSES' WITH EFFECT FROM 01.04. 1978, THE CIRCULAR 240 DATED 17.05.1978 CAME TO BE ISSUED CLA RIFYING THAT IT DID NOT APPLY TO STAKE MONEY. HENCE, INSERTION OF T HE WORDS 'CARD GAME OR OTHER GAME OF ANY SORT' TO SECTION 194B WIT H EFFECT FROM 2001 WOULD HAVE NO BEARING ON PAYMENT OF STAKE MONI ES PAID BY THE TURF CLUBS TO THE RACE HORSE OWNERS. 61. EXPLAN ATION (II) TO SUB-SECTION (IX) OF SECTION 24 CAME TO BE INSERTED BY FINANCE ACT, 2001. IT IS AN INCLUSIVE DEFINITION. THE TERM 'OR A NY OTHER SIMILAR GAME' FOUND IN EXPLANATION (II) WILL HAVE TO BE EJU SDEM GENERIS AND SO ALSO THE TERM 'ANY OTHER SIMILAR GAME' FOUND IN SECTION 2(24)(IX) OF THE ACT. ON ADVENT OF GAME SHOWS INVOL VING PRIZE MONEY BEING TELECAST THROUGH ELECTRONIC MEDIA AND S AID PRIZE MONEY HAVING NOT FOUND ITS PLACE IN THE DEFINITION CLAUSE OF 'INCOME' UNDER THE INCOME-TAX ACT, 1961, LEGISLATUR E INTRODUCED EXPLANATIONS (I) AND (II) TO SUB-CLAUSE (IX) OF SUB -SECTION (24) OF SECTION 2 SO AS TO INCLUDE SUCH PRIZE MONEY ALSO UN DER DEFINITION OF 'INCOME', SINCE IN THOSE EVENTS PEOPLE WOULD COM PETE WITH EACH OTHER TO WIN PRIZES. IN FACT, THIS POSITION BE COMES CLEAR FROM THE BUDGET SPEECH OF THE FINANCE MINISTER WHICH CAM E TO BE RENDERED ON THE FLOOR OF PARLIAMENT IN THE BACKDROP OF AMENDMENT BROUGHT TO SECTION 194B AND SECTION 2(24) (IX). EXPLANATIONS (I) AND (II) WHICH IS ONCE AGAIN EXTRA CTED HEREIN BELOW: 'WINNINGS FROM LOTTERIES, CROSS-WORD PUZZLES ETC., ARE CURRENTLY TAXED AT 40%. AS THE MARGINAL PERSONAL IN COME-TAX RATES HAVE NOW STABILISED AT 30%, THIS INCOME WILL ALSO N OW BE TAXED AT 30%. TELEVISION GAME SHOWS ARE VERY POPULAR THESE D AYS. I WISH THE WINNERS WELL. AT THE SAME TIME, I PROPOSE THAT INCOME-TAX AT THE RATE OF 30% WILL BE DEDUCTED AT SOURCE FROM THE WINNINGS OF THESE AND ALL SIMILAR GAME SHOWS.' EJUSDEM GENERIS, PRINCIPLE OF CONSTRUCTION WOULD MEAN SAME KIND OR NATURE, WHEREB Y WIDE ITA NO.646 TO 657/2015 :- 8 -: WORDS ASSOCIATED IN THE TEXT WITH MORE LIMITED WORD S ARE TAKEN TO BE RESTRICTED BY IMPLICATION TO MATTERS OF THE SAME LIMITED CHARACTER. FOR THIS PRINCIPLE TO APPLY THERE SHOULD BE SUFFICIENT INDICATION OF A CATEGORY THAT CAN PROPERLY BE DESCR IBED AS A CLASS OR GENUS, EVEN THOUGH NOT SPECIFIED AS SUCH IN THE ENACTMENT. THE NATURE OF GENUS IS GATHERED BY IMPLICATION FROM THE EXPRESS WORDS WHICH SUGGESTS IT. 62. NOW, TURNING MY ATTENTION TO THE FACTS ON HAND AND EXPLANATION (II) INSERTED BY FINANCE ACT, 2001 IS P ERUSED AND ALSO READ ALONG WITH SECTION 194B IT CAN BE EASILY INFER RED THE LEGISLATURE HAS INTENDED TO BRING SUCH INCOME EARNE D BY THE PRIZE WINNING MEMBERS WHO COMPETE WITH EACH OTHER AND WIN PRIZES IN ANY GAME SHOW OR ENTERTAINMENT PROGRAMME ON TELEVIS ION OR ELECTRONIC MEDIA AND GAMES SIMILAR TO IT. HENCE, 'S TAKE MONEY' WHICH IS PAID TO RACE HORSE OWNERS ON THEIR HORSES BEING PLACED 1, 2 OR 3 ONWARDS IN A HORSE RACE CANNOT FORM THE GENU S OF THE WORDS FOUND INEXPLANATION II TO SECTION 2(24)(IX) NOR IT CAN BE HELD THAT SUCH WINNINGS WOULD FALL WITHIN THE WORDS 'AND OTHE R GAME OF ANY SORT' FOUND IN SECTION 194B. 63. HENCE, THIS COURT IS OF THE CONSIDERED VIEW THA T AMENDMENT BROUGHT ABOUT BY FINANCE ACT OF 2001 TO SECTION 2(2 4) AND 194B WOULD HAVE NO BEARING ON THE INCOME EARNED FROM 'OW NING AND MAINTAINING HORSES'. IN OTHER WORDS, THE TERM 'ANY OTHER SIMILAR GAME' FOUND IN EXPLANATION (II) TO SECTION 2(24)(IX ) HAS TO BE HELD AS INCLUSIVE DEFINITION AND HAS TO BE READ EJUSDEM GENERIS AND AS SUCH, ACTIVITY OF OWNING AND MAINTAINING HORSES CAN NOT BY ANY STRETCH OF IMAGINATION FALL IN THE DEFINITION OF 'C ARD GAME O OTHER GAME OF ANY SORT' FOUND IN SECTION 194B. 6. IN VIEW OF THE ABOVE, THE ISSUE IS DISPUTE IS SQUAR ELY COVERED BY THE JUDGMENT OF KARNATAKA HIGH COURT (CITED SUPR A) AND ACCORDINGLY WE REVERSE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) AND DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. ITA NO.646 TO 657/2015 :- 9 -: 7. IN THE RESULT, THE APPEALS OF THE ASSESSEE IS ITA N OS.646 TO 657/MDS/2015 ARE ALLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 28TH DAY OF OC TOBER, 2015, AT CHENNAI. SD/- SD/- ( . . . ! ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! ' ) (CHANDRA POOJARI) # / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:28.10.2015 KV %&'' ()'*) / COPY TO: ' 1 . / APPELLANT 3. ' +',! / CIT(A) 5. )-.' / / DR 2. / RESPONDENT 4. ' + / CIT 6. .0'1 / GF