TMI Blog2014 (12) TMI 843X X X X Extracts X X X X X X X X Extracts X X X X ..... which is pre-eminently one of discretion - No inflexible rule can be laid down or in other words there cannot be any straight jacket formula in this regard. Where proceedings are taken before a Tribunal under a provision of law, which is ultra vires, it is open to a party aggrieved thereby to move the High Court under Article 226 for issuing appropriate writs for quashing them on the ground that they are incompetent, without his being obliged to wait until those proceedings run their full course – assessee cannot be held to be deductor u/s 201 since according to the revenue, assessee is required to deduct tax at source u/s 194B - it cannot be gainsaid by the revenue that writ petitions are not maintainable and the contention raised by the revenue is rejected. TDS deduction on payment of stake money to the owners of horses u/s 194B - Whether order passed by 3rd respondent u/s 201(1) of the Act is liable to be set aside on the ground of "stake money" paid by the Turf Clubs to the race horse owners cannot be construed as winnings from 'games of any sort' as defined u/s 2(24)(ix) and as such it would not fall within ambit of Section 194-B – Held that:- Assessee-clubs (hereinafter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll within the words "and other game of any sort" found in Section 194B - amendment brought about by Finance Act of 2001 to Section 2(24) and 194B would have no bearing on the income earned from 'owning 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 cannot by any stretch of imagination fall in the definition of 'card game or other game of any sort' found in Section 194B - "stake money" or "prize money" paid by race clubs to horse owners would not attract the provisions of Section 194B of Income Tax Act, 1961 – assessee cannot be treated as 'assessee in default' u/s 201 of the Income Tax Act, 1961 – revenue is directed not to demand TDS from the petitioners u/s 194B of the Income Tax Act, 1961 since stake money is outside the purview of Section 194B – Decided in favour of assessee. - WRIT PETITION NOS. 6565 – 6568/2013, 6651-6652/2013,C/w 18696-18697/2013 & 6674/2013 (T-IT) - - - Dated:- 26-9-2014 - ARAVIND KUMAR, J. For The Petitioner : S.S. Naganand, Sr. Counsel and S. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Bangalore Turf Club in W.P. Nos.6565-6568/2013 and 6651-6652/2013 and in addition to the same, they have also sought for the following relief :- (vi) declare that there is no amount is due towards 3rd respondent from the petitioner Club in this regard as due taxes have already been paid by the recipients of Stake Money and a payment of the same by the petitioner Club prior to the payment of Stake Money would have led to double taxation which would be ultra vires to the provisions of Article 265 of the Constitution. 3. First Petitioner in W.P.Nos.18696-697/2013 is an Association called 'Karnataka Race horse Owners Association, Bangalore' said to be espousing the cause of race horse owners and taking care of their welfare. Second petitioner is a race horse owner registered with respondent No.4 Turf Club and has been participating in the racing activity conducted by it. The reliefs sought for by these petitioners are almost identical to the prayers made in W.P.Nos.6565-6568/2013, 6651-6652/2013 and 6674/2013 which is already extracted herein above. In addition to the same, they have also sought for the following reliefs: iv. direct the 4th respondent not to dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries, cross word puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever is to bring in the income derived from the entertainment programme telecast through electronic media in which people compete for prizes and as such, the word 'other game of any sort' should be understood in that background and horse race cannot be put in this category since this definition talks of other games meaning entertainment programme on T.V. or electronic mode and puts in a condition in which people compete or in other words, it means somebody is conducting a show on either a platform of internet or computer and many people participate in it because the prizes have been announced and as such, prize money from horse race cannot be brought within this definition clause. 5.1. He would also draw the attention of the Court to Section 56 of the Act that income enumerated under Section 2(24)(ix) is chargeable to tax in terms of Section 56(2)(ib) and the manner of setting of and carry forward of losses is provided under Section 74A(iii). He contends that Explanation (a) and (b) of Section 74A(iii) deals with computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake a distinction from winnings from horse races different from winnings from lotteries, crossword puzzles, card games and other games of any sort or gambling or betting. 5.3. He contends that stake money earned from horse racing cannot be classified as winnings from 'lotteries or crossword puzzles' or 'other games of any sort' as there are other provisions of law that specifically referred to income from winnings including horse races and as such, any exercise undertaken by the Revenue to classify stake money under Section 194B would amount to contravening the intent of the legislature. He would elaborate his submission to contend that obligation to deduct tax at source under Section 194B would arise when a payment covered under Section 115BB is involved and when Section 115BB itself specifically excludes 'income from the activity of owning and maintaining race horses' from taxability on gross basis, such exclusion cannot be ignored and brought within the four corners of Section 194B. Hence, he contends that stake money cannot be classified as 'winnings' as per clause (c) of Explanation to Section 74A of the Act and as such, it cannot be construe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven is from the plain reading of the words found in the provision. He contends that when the Act specifically excluded one activity of an income from horse race it would necessarily mean horse race must have several activities of income like punting income, sponsorship income etc,. and it is in this background, words found in the bracket will have to be considered and when the income earned by maintaining the horse is specifically excluded, not a single race horse owner in the country has been assessed under Section 115BB. He submits right from the time provision has come into the statute book, none have been assessed under Section 115BB since Section 74A is found in the Statute book and the income is specifically computed under the provisions of that Section and carried forward to be set off only against income from horse races of that activity and it cannot be set off against other income and he supports his contention by way of an illustration: If Mr.A as an Advocate, also owns a horse and make a loss, such loss cannot be set off against the professional income earned as an Advocate. He submits that there are specific exclusions found in Section 74A and the method of comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also component to be included under Section 115BB when there is a specific exclusion clause. He submits that judgment of LAKSHMAN's case relied upon by the Revenue does not arise and it was not in the context of Income Tax Act. He contends that the words used in one Act cannot be imported to another Act as held by the Hon'ble Apex Court in the matter of ICDS v. CIT reported in (2013) 350 ITR 527 (SC) wherein it has been held that provisions involved in the case of Motor Vehicle Act is different and same cannot be imported under the Income Tax Act. 6.4 He also draws the attention of the Court to Section 194B which does not mention about the word 'horse races' since it has been taxed earlier and what has been changed by amendment is bringing a provision to deduct at source in respect of those activities specified thereunder and horse race being conspicuously absent, it cannot be brought within the words 'and other game of any sort'. He submits that Section 194B and Section 115BB have to be read harmoniously and not disjunctively. 6.5 He contends that one another provision which may have relevance to the issue in question is, Section 197 to counter the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inance Act, 1974 by incorporating sub-section (3) was to entitle the race horse owners to carry forward and set off loss incurred by them in owning and maintaining race horses against their income from the source races including horse races in subsequent assessment years, which could not be carried forward for more than four assessment years. He submits that this benefit of carrying forward was bestowed only on the activity of owning and maintaining losses and not other 'winnings' makes it evident that the intention of the legislature, from the very beginning was to treat income from the activity of ownership and maintenance of race horses differently from 'winnings' and infact, from 'winnings from race horses' also. He draws the attention of the Court to the relevant portion of the memorandum of Finance Bill of 1974 which explains the provisions to buttress his argument. 7.1 He particularly draws the attention of the Court to Explanation to Section 74A(3) which defines the term amount of loss incurred by the assessee in the activity of owning and maintaining race horses and income by way of stake money and contends that reading of the two together ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4B and by way of Explanation to Section 2(24)(ix). He submits that this amendment was brought about in the backdrop of several television shows and entertainment programmes in which several persons won various gifts/prizes in respect of which there was possibility of tax evasion by winners and as such, the inclusive definition was introduced by inserting the words 'card game and other games of any sort' and he draws the attention of the Court to the budget speech of the Finance Minister while bringing about amendment to Section 194B and submits that in the light of the same, the amendments of 2001 would have no bearing on stake money and it would not fall within the sweep of 'other game of any sort' and contends that the inclusive definition is to be read ejusdem generis and giving it the colour of preceding words would not arise. Hence, he submits that amendment to Section 194B would have no bearing on payment of stake monies. CONTENTIONS OF SRI K.V.ARAVIND 8. Reiterating the grounds urged in the statement of objections, at the outset, he would submit that the petitioner has alternate remedy of filing an appeal under Section 246A of the Income Tax Act and hen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TDS on the betting amount without any dispute stake money is not a betting amount and it is not intended to cover stake money. 8.3 He would submit that once the Finance Act of 2011 has been introduced and position of law changes, the Circulars governing the previous Finance Acts would have no application and it has to be understood that the modification of a Circular having not been given effect to retrospectively, it cannot be applied. He submits that Hon'ble Apex Court in the case of CIT v. ELI LILLY in (2009)312 ITR 225 (SC) has explained the mode in which the TDS provisions would apply and contends that TDS being a tentative deduction on the income which is chargeable under Section 4, rate of tax prescribed by the statute cannot be questioned by the assessee. He would submit that in W.P.Nos.6565-6568/2013 show cause notices were challenged and subsequently, assessment order has been passed which is appealable and in support of his submission, he contends that the Andhra Pradesh High Court in the case of Hyderabad Race Club v. BCIT reported in [2013]215 Taxmann 664 (AP) has held that writ petition on similar issue is not entertainable since assessee has a alternate remed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve with conclusions thereon after noticing the Case Laws having bearing on these issues. FACTS IN W.P.NOS.6565-6568/2013, 6651-6652/2013 AND 6674/2013 10. The Bangalore and Mysore Turf Clubs in their respective writ petitions have contended that it is organizing and carrying on the business of race club and horse racing. It is contended that they have been offering and paying prize money to the owners of winning horses, namely, those horses who win or placed second, third, fourth and fifth and the prize money is also referred to as 'Stake Money' in racing parlance which is the money earned by horse owners of race horses which participate successfully in a race. They have contended the purpose of payment of this Stake Money is to defray the expenses incurred by the horse owner towards the capital investment namely, for the purchase of the horses and their maintenance. On account of notices issued by the Income Tax Department as to why they should not be treated as defaulters for non production of TDS prior to the payment of Stake Money to the owners of horses by not deducting income tax while making payment of Stake Money to race horse owners as required under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital investment, the monthly basic maintenance cost as determined by the race clubs and several other incidental expenses and only after defraying the said expenses, the balance left with the horse owner is treated as net income which is classified under 'other sources of income' which is purely towards the activity of owning and maintaining the race horse and receipt of 'Stake Money' would constitute prize money received by the owner of a horse which wins the race or stands 2nd, 3rd, 4th or in any lower position and would be outside the purview of winnings as defined under section 2(24)(ix) of the Act. They have also contended that till recently, no tax was deducted at source on the Stake Monies paid to the owners under any of the provisions contained in Chapter XVII-B of the Act dealing with tax deduction at source and at no point of time the issue had ever been raised by the Department. They also contended that Section 194BB of the Act which relates to deduction of tax at source (TDS) for winnings from horse races was inserted by Finance Act, 1978 and with regard to applicability of Section 194BB to Stake Money, circular No.240 dated 17.05.1978 came to be issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are not a subject matter of tax deduction at source under Section 194B of the Act. (b) The use of the phrase 'other game of any sort' has to be construed to mean winnings from any game irrespective of whether such winning involve any chance or luck or skill. (c) Section 74A does not indicate that stake money receipts are to be construed as income from the activity of owning and maintaining race horses as contrasted to income from winnings from race horses. (d) Section 2(24)(ix) of the Act indicates that income includes winnings from races including horse races and stake money received by race horse owner is not excluded from its purview nor it indicates that the accrual of stake money is incidental to the activity of owning and maintaining race horses. However, Explanation (ii) to Section 2(24)(ix) having been inserted by Finance Act, 2001 with effect from 01.06.2001 defines card games or other games of any sort to include the games defined thereunder or any similar game and as such, it means that in any game in which people compete to win prizes would take within its fold the stake money received by the race horse owners. On these grounds, the reply given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent has created certain records by antedating the assessment orders as 06.02.2013 and served the same on the petitioner on 07.02.2013 at 2.35 P.M which was accompanied by demand notices and said orders having been passed without notice to the petitioner and same being in violation of principles of natural justice, petitioners are entitled to question them by invoking writ jurisdiction. It is also contended that petitioner in its reply to the impugned notices had submitted reply on 23.01.2013 and had specifically requested for personal hearing before any order is passed and on receipt of said reply, the Assessing Officer ought to have heard the petitioners and without affording any opportunity to petitioners, third respondent has proceeded to pass assessment orders in which proceedings undisputedly neither petitioners nor their representatives had appeared before the assessing authority. As such it is contended that assessment orders are liable to be quashed in writ jurisdiction by this court and availability of alternate remedy of appeal in the background of factual aspects would not bar the petitioner to approach this Court invoking exercise of extraordinary jurisdiction. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction and when such jurisdiction is invoked the existence of adequate alternate remedy will be taken note of before issuing writ or exercising the extraordinary jurisdiction. Where such alternate remedy is available it would be normal to refrain from exercising extraordinary jurisdiction unless there are good grounds thereof. However, writ Courts would not lose sight of the fact that a writ in the nature of certiorari will issue, provided the requisite grounds exist and mere existence of alternate remedy would not per se act as a barrier to the issuance of such writs. The exercise of extraordinary jurisdiction by the writ Court would depend upon variety of individual facts which is pre-eminently one of discretion. No inflexible rule can be laid down or in other words there cannot be any straight jacket formula in this regard. 21. The Hon'ble Apex Court in Babu Ram's case reported in AIR 1969 SC 556 has held that existence of alternate remedy would not bar filing of the writ petition where it is alleged that the authorities had acted under the provisions of law which are ultra vires or where it is alleged that authorities is acted in violation of principles of natural j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved party had other adequate legal remedies. In the King v. Postmaster-General Ex parte Carmichael [1928 (1) KB 291] a certiorari was issued although the aggrieved party had an alternative remedy by way of appeal. It has been held that the superior court will readily issue a certiorari in a case where there has been a denial of natural justice before a Court of summary jurisdiction. The case of Rex v. Wandsworth Justices Ex parte Read, 1942(1)KB 281 is an authority in point. In that case a man had been convicted in a Court of summary jurisdiction without giving him an opportunity of being heard. It was held that his remedy was not by a case stated or by an appeal before the quarter sessions but by application to the High Court for an order of certiorari to remove and quash the conviction. There are at least two well-recognised exceptions to the doctrine with regard to the exhaustion of statutory remedies. In the first place, it is well-settled that where proceedings are taken before a Tribunal under a provision of law, which is ultra vires, it is op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, we would rely on some old decisions of the evolutionary era of the constitutional law as they still hold the field . 23. Yet again the Hon'ble Apex Court in Harbanslal Sahnia v. Indian Oil Corporation Ltd. reported in [2003] 2 SCC 107 has held that rule of exclusion of writ jurisdiction on account of availability of alternate remedy is of discretion and not of compulsion and has laid down the broad contours under which the High Courts would exercise its writ jurisdiction in spite of availability of alternate remedy. 24. The above principles have been reiterated by Hon'ble Apex Court in the case of State of H.P Others v. Gujarat Ambuja Cement Ltd Another STC VOL 142, 2005[ (2005) 6 SCC 499]. It came to be held as under: 17. Stand of the respondents on the other issues was to the effect that the submissions of the appellants do not carry any weight and have been made overlooking the factual and legal position. The submissions completely overlook the essence of the notifications a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 72. 21. In Harbanslal Sahnia v. Indian Oil Corporation Ltd. [2003] 2 SCC 107, this Court held that the rule of exclusion of writ jurisdiction by availability of alternative remedy is a rule of discretion and not one of compulsion and the court must consider the pros and cons of the case and then may interfere if it comes to the conclusion that the petitioner seeks enforcement of any of the fundamental rights; where there is failure of principles of natural justice or where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged. 22. In G. Veerappa Pillai v. Raman and Raman Ltd., AIR (1952) SC 192; xxx [2001] 6 SCC 569, this Court held that where hierarchy of appeals is provided by the statute, party must exhaust the statutory remedies before resorting to writ jurisdiction . 25. Division Bench of this Court in (2012) 55 VST 89 (Karnataka) [Sasken Communication Technologies Ltd., v Joint Commissioner of Commercial Taxes (Appeals)-3, Bangalore and another] has held that when the case involves interpretation of constitutional provisions and when the authorities have already interpreted these provisions in a particular manner, the party a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e certificate to pay or to deduct income tax at any lower rate or deduct no income tax if he is satisfied that total income of the recipient would qualify for the same, to issue certificate to the person responsible for paying the income to the said effect. Chapter XVII deals with collection and recovery of Tax deduction at source. Section 190 of the Act mandates that deduction will have to be made at source and also advance payment of tax so deducted. Under sub-section (1) of Section 197 where in the case of any income of any person or sum payable to any person, income tax is required to be deducted either at the time of credit or at the time of payment at the rates in force under the provisions specified thereunder. However, if the assessing officer is satisfied that the total income of the recipient justifies deduction of income tax at any lower rate or no deduction of income tax as the case may then Assessing officer on an application made by the assessee in this behalf give to him such certificate as may be appropriate. In such an event person responsible for paying the income would be required to deduct tax so specified in the certificate or is not required to deduct tax as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary burden to the employees who can hardly bear them. In our considered opinion, the action taken under section 201 was wholly illegal and not authorised by the statute. It amounted to an unreasonable coercion which has to be resisted only by invoking the extraordinary jurisdiction of this court. There is thus no loophole which requires to be plugged. Perhaps, a better solution may be evolved. In this background, the contention of learned senior standing counsel for the Revenue that there is an alternate remedy by way of assessment procedure is unacceptable. 28. A co-ordinate Bench of this Court in the case of Hyderabad Industries v. Income Tax Officer Another reported in [1991] 188 ITR 749 while holding that an amount which will not be included in the total income of a person cannot be construed as income for the purposes of deduction of tax at source has held as under: The construction sought to be placed by the respondents is based on a distinction which has no substance in it. It is not understandable as to why a benefit which will not be included in the total income of a person, should be considered as income for the purpose of deduction of tax at source at al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons is violated, then judicial redressal would be permissible. It has been held in the said judgment as under: 17. It may therefore now be taken as well established that where a legal wrong or a legal injury is caused to a person or to a determinate class of persons by reason of violation of any constitutional or legal right or any burden is imposed in contravention of any constitutional or legal provision or without authority of law or any such legal wrong or legal injury or illegal burden is threatened and such person or determinate class of persons is by reason of poverty, helplessness or disability or socially or economically disadvantaged position, unable to approach the Court for relief, any member of the public can maintain an application for an appropriate direction, order or writ in the High Court under Article 226 and in case of breach of any fundamental right of such person or determinate class of persons, in this Court under Article 32 seeking judicial redress for the legal wrong or injury caused to such person or determinate class of persons. Where the weaker sections of the community are concerned, such as under-trial prisoners languishing in jails without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kind must be acting bona fide with a view to vindicating the cause of justice and if he is acting for personal gain or private profit or out of political motivation or other oblique consideration, the Court should not allow itself to be activised at the instance of such person and must reject his application at the threshhold, whether it be in the form of a letter addressed to the Court or even in the form of a regular writ petition filed in Court. We may also point out that as a matter of prudence and not as a rule of law, the Court may confine this strategic exercise of jurisdiction to cases where legal wrong or legal injury is caused to a determinate class or group of persons or the constitutional or legal right of such determinate class or group of persons is violated and as far as possible, not entertain cases of individual wrong or injury at the instance of a third party, where there is an effective legal-aid organisation which can take care of such cases. 18. The types of cases which we have dealt with so far for the purpose of considering the question of locus standi are those where there is a specific legal injury either to the applicant or to some other person or perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be a case of private injury actionable in the manner discussed in the preceding paragraphs. So also if the duty is owed by the State or any public authority to a person or to a determinate class or group of persons, it would give rise to a corresponding right in such person or determinate class or group of persons and they would be entitled to maintain an action for judicial redress. But if no specific legal injury is caused to a person or to a determinate class or group of persons by the act or omission of the State or any public authority and the injury is caused only to public interest, the question arises as to who can maintain an action for vindicating the rule of law and setting aside the unlawful action or enforcing the performance of the public duty. If no one can maintain an action for redress of such public wrong or public injury, it would be disastrous for the rule of law, for it would be open to the State or a public authority to act with impunity beyond the scope of its power or in breach of a public duty owed by it. The Courts cannot countenance such a situation where the observance of the law is left to the sweet will of the authority bound by it, without any redre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law. It was pointed out by Schwartz and H.W.R. Wade in their book on Legal Control of Government at page 354: Restrictive rules about standing are in general inimical to a healthy system of administrative law. If a plaintiff with a good case is turned away, merely because he is not sufficiently affected personally, that means that some government agency is left free to violate the law, and that is contrary to the public interest. Litigants are unlikely to expend their time and money unless they have some real interest at stake. In the rare cases where they wish to sue merely out of public spirit, why should they be discouraged? It is also necessary to point out that if no one can have standing to maintain an action for judicial redress in respect of a public wrong or public injury, not only will the cause of legality suffer but the people not having any judicial remedy to redress such public wrong or public injury may turn to the street and in that process, the rule of law will be seriously impaired. It is absolutely essential that the rule of law must wean the people away from the lawless street and win them for the court of law. 32. Even in the following cases apart fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mode, in which people compete to win prizes or any other similar game;] Income from other sources 56(1) (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head Income from other sources , namely (i) (ia) (ib) income referred to in sub-clause (ix) of clause (24) of section 2: Amounts not deductible 58 (1) (2) (3) (4) In the case of an assessee having income chargeable under the head Income from other sources , no deduction in respect of any expenditure or allowance in connection with such income shall be allowed under any provision of this Act in computing the income by way of any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature, whatsoever: Provided that nothing contained in this sub-section shall apply in computing the income of an assessee, being the owner of horses maintained by him for running in horse races, from the activity of owning and maintaining such horses. Explanation- For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orse or horses or any one or more of the horses winning or being placed second or in any lower position in horse races.] Tax on winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or gambling or betting of any form or nature whatsoever. 115BB. Where the total income of an assessee includes any income by way winnings from any lottery or crossword puzzle or race including horse race (not being income from the activity of owning and maintaining race horses) or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, the income tax payable shall be the aggregate of (i) the amount of income tax calculated on income by way of winnings from such lottery or crossword puzzle or race including horse race or card game and other game of any sort or from gambling or betting of any form or nature whatsoever, at the rate of 30%; and (ii) the amount of income tax with which the assessee would have been chargeable had his total income been reduced by the amount of income referred to in clause (i). Explanation: for the purposes of this Section, horse race shall have the same mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the circumstances under which, an application may be made for the grant of a certificate under sub-section (1) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. ANALYSIS OF STATUTORY PROVISIONS AND DISCUSSION THEREON: 37. The word 'income' as defined under the Act is inclusive. The legislature extended the connotation of the word 'income' so as to include within its ambit certain clauses of the income which, but for this inclusive definition, it would have fallen outside its scope. In the background, let me analyse the statutory provisions to ascertain whether 'Stake Money' would constitute 'Income' falling within the words card game and other game of any sort as defined under Section 194B of the Act. 38. Sub clause (ix) of sub-section (24) of Section 2 was inserted by the Finance Act, 1972, with effect from 01.04.1972. A perusal of the above provision would indicate that any income from the winnings from lotteries, cross-word puzzles, races including horse races, card games or other games of any sort, gambling or betting of any form on nature would come within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the balance, if any, will be carried forward to be set off against income from the same source in subsequent years. The loss computed for any previous year will be allowed to be set off in a subsequent year not only against the stake money received in the relevant subsequent year but also other winnings, if any, from races. 'Income by way of stake money' would mean the gross amount of prize money received on a race horse or race horses by the owner on account of the horse or horses or any one or more of the horses winning or being placed second or third or other lower position as the case may be in a horse race. 42. In fact, the Memorandum explaining the provisions of the Finance Bill, 1974 clearly recognises that the activity of maintaining horses and running them in races is akin to running a business. The relevant text of the Memorandum explaining the provisions in Finance Bill, 1974 is extracted herein below: Carry forward and set off of losses from horse races-Under an amendment made by the Finance Act, 1972, the exemption available under the Income-tax Act in respect of casual and non-recurring receipts was withdrawn and winnings from lotteries, crossword pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... flat rate. The scope and effect of this Section has been explained by the Board in a Circular No.461 dated 09.07.1986 which reads as under: Provision of a flat rate of tax on winnings from lotteries, crossword puzzles, races, including horse races, etc.,- 31.1 Under the existing provisions, any income by way of winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever is chargeable to tax under the head Income from other sources along with the other income of an assessee. By inserting a new section 115BB in the Income-tax Act, it has been provided that any income of a casual and non-recurring nature of the type referred to above, shall be charged to income-tax at a flat rate of 40 per cent. This provision will, however, not apply to income from the activity of owning and maintaining race horses. For this purpose, a new sub-section has been added to section 58 to provide that no deduction shall be allowed in respect of any expenditure or allowance in computing the income from the aforesaid sources. What has to be borne in mind is that apart from the general exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes and other games or gambling or betting of any nature. As already noticed hereinabove, proviso to Section 58 (4) would indicate that sub section (4) would not apply in computing the income of a race horse owner earned from the activity of owning and maintaining such horses. This itself would clearly indicate that the intention of the legislature was to treat the winnings from lotteries, cross-word puzzles, horse races etc., differently the income earned from the activity of owning and maintaining horses. 46. With the introduction of Section 115BB, sub sections (1) and (2) of Section 74A which provided for set off of losses with respect to lotteries, cross-word puzzles, races including horse races, card games and other games or gambling or betting of any nature were omitted. Obviously, for the reason, Section 115BB contemplated tax on the gross amount of winnings while sub sections (1) and (2) contemplated set off of losses. However, sub section (3) of Section 74A which provides the procedure of set off and carry forward of losses from the activity of owning and maintaining race horses came to be retained with certain modifications which would indicate the intention of the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course. (b) No tax will be deducted at source where the income by way of winnings from any horse race to be paid to a person is ₹ 2,500/- or less, or where the payment is made before 1st June, 1978. (c) The term winnings in common parlance, means the amount received by the punter in excess of the bet laid by him on the horse or horses which have won in the particular race. Where a punter places bets on more than one horse in a particular race, the expression winnings will connote the amount won by the punter in that horse race as reduced by the amount invested by way of bet on the particular horse or horses which won the race, and not by the amount invested on the horse or horses which won the race, and not by the amount invested on the horse or horses which won the race, and not by the amount invested on the horse or horses which lost in that race. Hence, where a punter invests ₹ 100 each on two horses horse 'A' and horse 'B' in a particular horse race, and he wins ₹ 500 on the bet placed on horse 'A' but loses the bet on horse 'B', the winnings of the punter from this horse race would be ₹ 400 (Rs.500 ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions take effect from 1st April, 1978. However, as stated above, deduction of tax at source will not be made in cases where such winnings are paid before 1st June, 1978. 50. Circulars issued by the Department are normally meant to be followed and accepted by the authorities. They are binding on all the authorities administering the tax department. The above referred circular which is in the nature of explanatory notes on the provisions relating to the Finance Act, 1978 cannot be held or construed as one not binding on the department inasmuch as, it is in pursuance of the said circular the stake money is not considered as winnings from any horse race as defined under Section 194BB and no tax deduction has been made hitherto by any person, being a book maker or a person to whom licence has been granted for horse racing or for arranging for wagering or betting who is responsible for paying to any person any income by way of winnings from horse race. It is because of this circular issued, the department has not called upon such persons who fall under Section 194BB to deduct income tax at the time of making such payments. It has been held by the Hon'ble Apex Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a statute) generally should be clearly wrong before it is overturned; such a construction, commonly referred to as practical construction, although non -controlling, is nevertheless entitled to considerable weight, it is highly persuasive . The validity of this rule was also recognised in Baleshwar Bagarti v. Bhagirathi Dass (1908) ILR 35 Cal 701, 713, where Mookerjee J. stated the rule in these terms: It is a well- settled principle of interpretation that courts in construing a statute will give much weight to the interpretation put upon it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it. and this statement of the rule was quoted with approval by this court in Deshbandhu Gupta Co. v. Delhi Stock Exchange Association Ltd.[1979] 4 SCC 565; AIR 1979 SC 1049. It is clear from these tow circulars that the CBDT, which is he highest authority entrusted with the execution of the provisions of the Act, understood sub-s. (2) as limited to cases where the consideration for the transfer has been understated by the assessee and this must be regarded as a strong circumstance supporting the construction which we are placing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collection at source or by advance payment in accordance with the provisions of the chapter. Hence, before a regular assessment is made, tax on income becomes payable by deduction or collection at source or by advance payment in accordance with the provisions of the Chapter. Section 191 provides for direct payment of income-tax by the assessee in cases where provision for deduction of tax at source is not made under the Chapter. Part B of Chapter XVII contains a group of sections which provides for deduction of tax at source. Section 192 provides for deduction of tax on the income chargeable under the head Salaries by any person responsible for paying such salaries. Section 193 provides for deduction of income-tax by the person responsible for paying any income by way of interest on securities. Section 194 provides for deduction of tax at source by the company paying dividends . Section 194A, Section 194B, section 194BB, inter alia, provide for deduction of tax at source from the income of interest other than interest on securities, winnings from lotteries, winnings from horse races, respectively. Even with regard to payment to contractors and sub-contractors, specific prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. It may be clarified that the date of payment by the concerned employee can be treated as the date of actual payment. We are directing the Assessing Officer to examined each case to ascertain whether the employee-assessee (recipient) has paid the tax due on the home salary/special allowance(s) received from the foreign company. In case taxes due on home salary/ special allowance(s) stand paid then the Assessing Officer shall not proceed under section 201(1). In cases where the tax has not been paid, the Assessing Officer shall proceed under section 201(1) to recover the shortfall in the payment of tax. Similarly, in each of the 104 appeals, the Assessing Officer shall examine and find out whether interest has been paid/recovered for the period between the date on which tax was deductible till the date on which the tax was actually paid. If, in any case, interest accrues for the aforestated period and if it is not paid then the adjudicating authority shall take steps to recover interest for the aforestated period under section 201(1A). In the above referred judgment, Hon'ble Apex Court was examining as to whether TDS provisions which are in the nature of machinery pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are very popular these days. 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. When the mover of the Bill on the floor of the House explains the reason for introduction of such Bill and the speech made thereon can certainly be referred to for the purposes of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation was enacted. Thus, an exercise in the ascertainment of meaning of the statute, everything which is logically relevant would be admissible. Thus, while introducing explanation (i) and (ii) to Section 2(24)(ix) and the words 'or card game and other game of any sort' by Finance Act, 2001 with effect from 01.06.2001, the speech made by the Finance Minister while moving for such amendment by way of insertion to these sections, can be examined as it would throw light on the true intent of the legislature. 54. It is in this background the budget speech of the Finance Minister rendered on 28.02.2001 requires to be noticed to ascertain the intent of the legislature in bringing about th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d together they are understood to be used in their cognate sense. They take is it were their colour from each other, that is, the more general is restricted to a sense analogous to a less general. The same rule is thus interpreted in Words and Phrases (Vol. XIV, P. 207): Associated words take their meaning from one another under the doctrine of noscuntur a sociis, the philosophy of which is that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it; such doctrine is broader than the maxim Ejusdem Generis. In fact the latter I maxim is only an illustration or specific application of the broader maxim noscuntur a sociis . The argument is that certain essential features or attributes are invariably associated with the words business and trade as understood in the popular and conventional sense, and it is the colour of these attributes which is taken by the other words used in the definition though their normal import may be much wider. We are not impressed by this argument. It must be borne in mind that noscuntur a sociis is merely a rule of construction and it cannot prevail in cases where it is clear that the wider word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry provisions would indicate that from the year 1972 itself, the term 'other game of any sort' was taxable under the head 'income from other sources' and TDS was not attracted on such income. 60. Sub section (1) and (2) of Section 74A which was introduced by Finance Act, 1972, with effect from 01.04.1972 was omitted by Finance Act, 1986 with effect from 01.04.1987. However, sub section (3) to Section 74A was inserted by Finance Act, 1974, with effect from 01.04.1975 indicating the distinction between 'winnings' and 'activity of owning and maintaining horses' which has continued till date. Though, Section 194BB provided for TDS to be made on 'winnings from race horses' with effect from 01.04.1978, the Circular 240 dated 17.05.1978 came to be issued clarifying that it did not apply to stake money. Hence, insertion of the words 'card game or other game of any sort' to Section 194B with effect from 2001 would have no bearing on payment of stake monies paid by the Turf Clubs to the race horse owners. 61. Explanation (ii) to sub-section (ix) of Section 24 came to be inserted by Finance Act, 2001. It is an inclusive definition. The ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion II to Section 2(24)(ix) nor it can be held that such winnings would fall within the words and other game of any sort found in Section 194B. 63. Hence, this Court is of the considered view that amendment brought about by Finance Act of 2001 to Section 2(24) and 194B would have no bearing on the income earned from 'owning 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 cannot by any stretch of imagination fall in the definition of 'card game or other game of any sort' found in Section 194B. 64. For the reasons aforestated, I proceed to pass the following: ORDER (1) Writ petitions Nos.6565-6568/2013 and 6651-6652/2013, 6674/2013 and 18696- 18697/2013 are hereby allowed. (2) It is hereby declared that stake money or prize money paid by race clubs to horse owners would not attract the provisions of Section 194B of Income Tax Act, 1961. (3) It is hereby declared that petitioners in W.P.Nos.6565-6568/2013,6651-6652/2013 and 6674/2013 can ..... X X X X Extracts X X X X X X X X Extracts X X X X
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