TDS not applicable to winnings from horse racing: HC

The High Court on Friday said the Tax Deduction at Source (TDS) cannot be applicable to the winnings of horse racing.

Hearing a petition by Bangalore Turf Club (BTC), Justice Aravind Kumar quashed the order of Income Department (I-T) demanding the BTC to pay over Rs 100 crore as tax for the winnings and observed that the entire assessment order by the department is issued without jurisdiction. The department, in its order, said that since this being taxable and the TDS having not been deducted, it has also levied the penalty to the tax payable by BTC.  

The petitioners had moved the court after the department ordered to pay up the amount as tax pending since 2007, stating that this amounts to profit and is liable to be taxed.The BTC submitted that when the horse owner wins, it is treated as prize money not as betting money. Contending that there needs to be a separate account to assess expenditure and income, it said TDS does not apply to the winnings from horse racing.

Noting that tax can be imposed and collected only if there is provision which enables the authority to impose and collect tax, the petitioners said, “In this case, the I-T department is not empowered to levy and collect tax in respect of the disbursement of stake money to winning horse owners. The impugned notice is violative of Article 265 of the Constitution.”

Noting that the action of the department is a result of non-application of mind as the stake money has been considered a separate source of income, the petition said, “The show cause notices are ultra vires the provisions of the Income tax Act, 1961. Therefore, the impugned notices are liable to be quashed.”
 Mentioning that the process of payment of stake money to owners of the winning race horses are admitted transactions of the petitioner club in its annual returns for several decades and at no point of time the provisions of TDS were made applicable to the petitioner, the BTC said, “The horse owner, in accordance with law, is entitled to file his returns and the I-T department is entitled to assess the same in accordance with law.

 This being the position, seeking to impose and collect tax again from the club would be contrary to provisions of Section 191 and would amount to double taxation.” Justice Aravind Kumar observed that the notice by the I-T department was without jurisdiction.