TMI Blog2021 (10) TMI 1135X X X X Extracts X X X X X X X X Extracts X X X X ..... o disallowance could be made under section 40 (a) (ia) of the act in the hands of assessee. Nature of expenditure - Expenditure on modification of TV towers - claim un/s 37 - AR submitted that, during the year six TV towers were modified to fit the technology cameras which could be used during horse races and there is no enduring benefit in the hands of assessee and that, amount paid for purchase of technological camera are capitalised the books of account on which depreciation is claimed in accordance with section 32 - HELD THAT:- In present facts assessee incurred expenses on re-modification of TV towers which might, undergo further modification as and when the technologically upgraded camaras are brought in. It is submitted that the towers were remodified to fit in the new camaras purchased. Admittedly, the cameras purchased by assessee were capitalised on which depreciation is claimed. Thus in our view though expenditure do not have the character of enduring benefit, the advantage is not for indefinite future. Accordingly, respectfully applying the principles laid down in EMPIRE JUTE COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX [ 1980 (5) TMI 1 - SUPREME COURT] we ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be quashed. Grounds relating to disallowance under section 40(a)(ia) 2.1. The learned CIT(A) has erred in confirming the disallowance in respect of payment of stake money amounting to ₹ 33,87,11,726 under section 40(a)(ia) without appreciating the fact that no tax was deductible under section 194BB or 194B of the Act. 2.2. The learned CIT(A) has erred in not appreciating that section 194BB does not cover stake money paid to horse owners; a legal proposition accepted by the Board in Circular No 240 dated 17.05.1978. The disallowance made by the learned AO and confirmed by learned CIT(A) is therefore against the mandate of a binding circular. 2.3. Assuming and without admitting that the disallowance under section 40(a)(ia) is correct, such disallowance must be restricted to 30% as the amendment made by Finance Act (No.2), 2014 with effect from 01.04.2015 is remedial in nature and hence retrospective in its applicability. 3. Grounds relating to applicability of a binding judgment which has been stayed 3.1. The learned AO has erred in not following the decision of the Jurisdictional High Court in Bangalore Turf Club v UOI (2014) 228 Taxman 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d concreting of such stables under section 37 5.1. The learned CIT(A) has erred in confirming the disallowance of revenue expenditure incurred on constructing temporary stables; repairs on existing stables and concreting such stables claimed as deduction totaling to ₹ 1,04,79,000. 5.2. The learned CIT(A) has erred in concluding that since the appellant had not incurred similar expenditure either in preceding years or in subsequent years, the same failed to prove its nature as temporary structures and consequently were to be treated as capital expenditure. 5.3. On facts and circumstances of the case, the impugned expenditure of ₹ 1,04,79,000/-constitute revenue expenditure and should be allowed as a deduction under section 37(1) of the Act. 6. Grounds relating to disallowance of expenditure incurred on upgradation of UPS systems under section 37 6.1. The learned CIT(A) has erred in confirming the disallowance of revenue expenditure incurred on upgrading UPS systems claimed as deduction amounting to ₹ 12,20,000. 6.2. The learned CIT(A) has erred in not appreciating the fact that the reason for upgrading the existing UPS was that the old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting to ₹ 33,87,11,726/- to the horse owners without deducting TDS as required under section 194 BB. 3. Ld.AO called upon assessee as to why the stake money and cups amounting to ₹ 33,87,11,726/- disbursed to horse owners without deducting TDS and claimed as expenditure in P L account should not be disallowed in terms of provisions of section 40(a)(i) of the Act. Assessee in response submitted that, Hon ble Karnataka High Court in a Writ petition filed by assessee along with others by judgment dated 26/09/2014 observed that Circular No.240 dated 17/05/1978 issued by CBDT in respect of section 194 BB would not apply to stake money is and such stake monies are not regarded as winning from horse races or races, but constitute prize-money which the owner of a race horse is proceeds on account of his horse winning a position in the race. It was also submitted that Hon ble Karnataka High Court, with regard to applicability of provisions of section 194B held that the stake money or prize money paid by race clubs to horse owners would not attract provisions of the section. 4. Ld.AO however disallowed the sum of ₹ 33,87,11,726/- under section 40(a)(i) fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 63, 35,000/- Asphalting of roads ₹ 1,19,00,000/- The remaining expenditure incurred by assessee towards remodification of TV towers to fit technological camera amounting to ₹ 8,40,000, towards upgrading of UPS amounting to ₹ 12,20,000 and expenditure incurred for setting up of stable for housing racehorses and concluding the stable area - 99,39,000 + 5,40,000 were disallowed as capital. Aggrieved by the order of the Ld.CIT(A), assessee as well as revenue are in appeal before us. Assessee is appeal: It is submitted that Ground No:1 is general in nature and do not require adjudication. 9. Ground No.2 i s relating to disallowance under section 40(a)(ia) amounting to ₹ 33,87,11,726/-. 9.1 The Ld.AR submitted that the, said amount was disallowed without appreciating the fact that TDS was not deductible under section 194BB or 194B of the Act. The Ld.AR submitted that identical issue arose the immediately preceding assessment year wherein this coordinate bench of this Tribunal in assessee s own case in ITA Nos. 1848 1850/Bang/2019 by order dated 18.12.2020 for A.Ys. 2012-13 and 2014-15 on identical facts held as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Single Judge in Bangalore Turf Club Ltd v U01 (2014) 228 Taxman 234 on the obligation of the appellant to deduct TDS or whether TDS provisions would be applicable or not was stayed and it was held as under. 5. As the matter may required to be considered denovo by the authority concerned, it would be appropriate to stay the observations made by the learned Single Judge so far as they relate to the obligation of the club to deduct TDS or as to whether the provisions of TDS would be applicable or not. But, of course, ezertrj the authority after hearing the parties passes the appropriate order, the same should not be implemented without leave of this Court' 9. Subsequently, the Karnataka High Court, by vide interim order WA 60/ 2015 dated 07-12-2016 held as under: 6. In view of the aforesaid, we are inclined to pass thv following interim order: The matter shall stand restored to the authority at the stage of show cause notice. The club-original respective petitioner shall be at liberty to file a reply/ additional reply if it so desires.... 7. The observations made by the learned Single Judge in the impugned judgment so far as interpretation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise as observed earlier. 12. Office to place the matter upon a note filed by either side declaring that the order is passed by the appropriate authority pursuant to show cause notice. 13. It is observed and directed that the appropriate authority shall independently consider the matter without being in any manner influenced by any observations made by the learned Single Judge or the earlier order passed by it. The authority shall consider the matter independently in accordance with law. Ld.AR submitted that Hon ble Karnataka High Court stayed the operation of order dated 26/09/2014 and directed authorities below not to recover any demand under section 201(1) and 201(1A), for relevant assessment years which also included assessment year 2012-13 in assessee s case, without the leave of Hon ble Court. Hon ble Court vide para 8 also directed to decide whether the provisions of TDS are applicable to stake money being paid to the club to the person concerned who are owners of horse participating in the race. On merits Ld.AR placed reliance on following decisions and CBDT circulars: Extract from CBDT circular No. 240 dated 17/05/1978 Extract from Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the horse on account of the fact that the horse wins the race or comes second or third, as the case may be. It was contended that the CBDT Circulars are binding on the Departmental authorities, as held by the Hon'ble Supreme Court in the cases of K.P. Verghese v. ITO [1981] 7 Taxman 13/131 ITR 597 and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913. In fact, the very same Circular No. 240 dated 17.05.1978 came up for consideration before the Madras High Court in the case of CIT v. Investment Trust of India Ltd. [2003] 127 Taxman 168/264 ITR 506 and it was held to be binding on the Departmental authorities. Accordingly, it has been explained that in view of the Circular of CBDT dated 17.05.1978 (supra), which specifically provides that no TDS is required to be made in respect of payment of stake money, the Assessing Officer is not right in treating the assessee as an 'assessee in default' for the purposes of Sec. 201(1) of the Act. It was further pointed out that what cannot be done directly, cannot be done indirectly. The Assessing Officer, being bound by the CBDT Circular, cannot hold the assessee liable to TDS by bringing the assessee within the domain of Section 194B o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other amendment was brought in Section 2(24)(ix) of the Act w.e.f. from 01.04.2002 and an Explanation was added explaining that the words 'card game or other game of any sort' shall include any game show, an entertainment program on TV or any electronic mode in which people compete or any other similar game. A combined reading of Sections 194B and 2(24)(ix) Explanation (ii) makes it clear that the said amendment would not apply to winning from horse races. This fact is also clear from the Memorandum explaining the provisions of Finance Bill, 2001 which makes it clear that the intention of the Legislature was to cover various kinds of quiz shows which are launched on TV and shows of similar kind. Our attention was also drawn to the Budget speech of the Finance Minister on 28.02.2001 wherein he stated that television game shows are very popular these days and I propose that income tax at 30 % will be deducted at source from the winnings of these and all similar game shows. Hence, it is submitted that it would be incorrect to say that the aforestated amendment in Section 194B of the Act brings within its fold the 'Stake Money' received by the owners of the winning ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parlance is not regarded as winnings from horse race, but really constitutes the prize money received on a horse race by the owner thereof on account of the fact that the horse wins the race or stands second or in any lower position. (underlined for emphasis by us) It has also been emphasized that even the Legislature accepts the aforesaid understanding of stake money inasmuch even Section 74A of the Act explains the meaning of stake money as contained in CBDT Circular dated 15.05.1978 (supra). 9. The next argument advanced by the learned representative was that there is an inherent difference between Sections 194B and 194BB of the Act; that Section 194B of the Act was introduced in 1972 and Section 194BB of the Act was introduced in 1978. Had the Government been of the view that horse races are covered in Section 194B of the Act, there would have been no need to specially introduce a new Section altogether in 1978. This clearly shows that even the Legislative intent was never to include horse races within the domain of Section 194B of the Act. As per the learned representative, the Government could have amended Section 194B of the Act itself and introduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceding words and interpreted, it can be concluded that the activity of owning and maintaining horses cannot be equated with lotteries and card games. Moreover, words used in Section 194B of the Act are lottery, crossword-puzzle, and card games, which are essentially 'luck oriented' as opposed to being 'skill oriented' and hence, it would be wrong to equate a horse race, which is skill oriented with luck oriented games. It has also been explained that the Hon'ble Supreme Court in case of Dr. K.R. Lakshmanan v. State of Tamil Nadu [1997] 223 ITR 601 held that horse racing is a game of skill. 11. It has also been explained that the Act itself distinguishes between income earned from lottery and such games vis- -vis income of horse owners. Elaborating further, it is explained that Section 58 of the Act refers to amounts not deductible and sub-section (4) states that no deduction in respect of any expenditure shall be allowed while 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. However, the proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attract the provisions of Section 194B of the Act. Against this Single Bench ruling, the Department moved to the Division Bench, which has sent back the case to the file of the Assessing Officer to adjudicate the issue de novo. Furthermore, it has been mentioned that the Chennai Bench of the Tribunal in the case of Madras Club v. DCIT [IT Appeal No. 646- 657 (Mds) of 2015] and Hyderabad Bench of the Tribunal in the case of Hyderabad Race Club [IT Appeal No. 319/323 (Hyd) of 2015] has adjudicated similar issue in favor of the assessee. 14. An alternate plea has been raised to the effect that the Assessing Officer has not recorded a finding that the recipients of the stake money have not paid income-tax on the said income, and in the absence of such a finding, the assessee cannot be treated as an assessee in default , and reliance was placed on the judgment of the Hon'ble Allahabad High Court in the case of Jagran Prakashan Ltd. v. Dy. CIT [2012] 21 taxmann.com 489/209 Taxman 92/345 ITR 288. Elaborating further, it is contended that the purpose of Chapter XVII of the Act is to provide for a mechanism of withholding tax. Explanation to Section 191 of the Act clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to the owners of the horses who win the races. In this context, we shall first discuss the type of payments made by the assessee to owners on winning of the horse races. The assessee makes two types of payments. First, is in the nature of amount paid to the person who bets on the horses/jockeys. There is no dispute with regards to applicability of TDS on this type of payment as the same is liable for TDS u/s 194BB of the Act. We are concerned with the second type of payment made by the assessee, which are in the nature of prize money paid by the assessee to the owner of horses on account of the horse winning the race or standing second or in any lower position, which is termed as 'stake money'. The Assessing Officer has not disputed the fact that the payment made by the assessee is in the nature of 'stake money', thus there is no dispute with respect to the fact as to what constitutes 'stake money'. The Assessing Officer is of the view that by virtue of amendment in Section 194B of the Act by Finance Act, 2001, the scope of Section 194B of the Act has been widened to cover within its ambit winning from games of any sort even though Circular No. 240 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich deals with TDS on 'Winning from horse races'. 19. Now, coming to the argument raised by the Assessing Officer that the Finance Act, 2001 has inserted the words 'card game or other game of any sort' in Section 194B of the Act which will even cover the stake money which is otherwise not covered by Section 194BB of the Act. We find that at the time when the amendment was brought in Section 194B of the Act, Section 194BB of the Act, which specifically dealt with TDS on winning from horse races, was already on the statute and the Legislature in its wisdom could have made the amendment in Section 194BB of the Act itself to include 'stake money' within its ambit; that would have obviated any need to make amendment in Section 194B of the Act, which is a general provision for TDS, in order to cover 'stake money' in its ambit. The learned representative has rightly pointed out to the Budget speech of the Finance Minister wherein it was stated that television game shows are very popular these days and I propose that income tax at 30 % will be deducted at source from the winnings of these and all similar game shows. Another way of bringing to ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect of expenditure disallowed on modification of TV towers and under section 37. 10.1 The Ld.AR submitted that, during the year six TV towers were modified to fit the technology cameras which could be used during horse races. He submitted that there is no enduring benefit in the hands of assessee and that, amount paid for purchase of technological camera are capitalised the books of account on which depreciation is claimed in accordance with section 32 of the Act. 10.2 The Ld.AR submitted that, assessee modified the designs as per the technology and therefore the replacement/re-modification of TV towers cannot be treated as an enduring benefit. He placed reliance on decision of Hon ble Delhi High Court in case of CIT vs. Denso India Pvt.Ltd., reported in (2010) 195 taxman 434. It has been submitted that necessary modifications needs to be done as per change in the technology and it is recurring expenditure. On the contrary, the Ld.Sr.DR submitted that upgrading of technology gives enduring benefit to assessee and therefore cannot be revenue in nature. He placed reliance on orders passed by authorities below. We have reduced submitted advance by both sides i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inite future. Accordingly, respectfully applying the principles laid down by Hon ble Supreme Court (supa) , we hold the expenditure to be revenue in nature. We direct the Ld.AO to delete the disallowance made on expenses towards re-modification of TV towers. Accordingly this ground raised by assessee stands allowed. 11. Ground No.5 is in respect of disallowance of expenditure incurred on constructing temporary stables, repairs to existing stables and gun greeting of such stables. 11.1 Ld.AR submitted that, this expenditure have been incurred to accommodate outstation horses that come to Bangalore to take part in races. It is submitted that assessee has deducted tax before making payment to the contractors. He submitted that these structures are temporary in nature and therefore has to be treated as revenue. 11.2 On the contrary, the Ld.Sr.DR submitted that, these structures are to be provided to outstation horses whenever the races take place. The structure is permanently made and therefore gives enduring benefit to assessee and has rightly treated as capital in nature. We have perused submissions advanced by both sides in light of records placed before us. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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