Turf Clubs Exempt from Tax Deduction on Horse Race Winnings

Case Name:** Bangalore Turf Club Ltd. & Ors. vs. Income Tax Officer & Ors. **Key Takeaways:** 1. Stake money paid to horse owners is not considered "winnings" under the Income Tax Act and is therefore not subject to tax deduction at source. 2. The court took a broad view of locus standi, allowing associations representing horse owners to challenge the tax demands on behalf of their members. 3. The court emphasized the importance of judicial review to enforce the rule of law, even when there are alternative statutory remedies available. **Issue:** Whether the Turf Clubs were required to deduct tax at source from the "stake money" (prize money) paid to horse owners under Section 194B of the Income Tax Act. **Facts:** The Turf Clubs of Bangalore and Mysore filed writ petitions challenging notices issued by the Income Tax Department. The Department had demanded that the Turf Clubs deduct tax from the stake money paid to horse owners, treating it as "winnings from a game" under Section 194B. The Turf Clubs argued that stake money is not "winnings" and is therefore not subject to tax deduction. **Arguments:** - Turf Clubs: Stake money is not "winnings from a game" under Section 194B, as it is a prize paid to the owner of a winning horse. It is a distinct concept from "winnings" received by bettors. - Income Tax Department: The broad language of Section 194B, including "other games of any sort," encompasses stake money paid in horse races. **Key Legal Precedents:** - Harbanslal Sahnia v. Indian Oil Corporation Ltd. (2003) - Established that the rule of exclusion of writ jurisdiction due to availability of an alternate remedy is a matter of discretion, not compulsion. - S.P. Gupta v. Union of India (1981) - Allowed public-spirited individuals to file writ petitions to vindicate public interest, even without a specific legal injury. **Judgment:** The court ruled in favor of the Turf Clubs, holding that stake money paid to horse owners is not "winnings" under the Income Tax Act and therefore not subject to tax deduction under Section 194B. The court quashed the tax demands and notices issued by the Income Tax Department. **FAQs:** Q: Why did the court rule that stake money is not subject to tax deduction? A: The court found that stake money paid to horse owners is a form of "prize money" rather than "winnings" from a game or race. The Income Tax Act has separate provisions for taxing winnings from races, which do not apply to stake money. Q: How did the court justify allowing the Turf Clubs to file writ petitions, even though there was an alternate statutory remedy of appeal? A: The court took a broad view of locus standi, allowing associations representing horse owners to challenge the tax demands. The court emphasized that judicial review is essential to enforce the rule of law, even when there are alternative statutory remedies available. Q: What is the significance of this case for the horse racing industry? A: This case provides clarity that Turf Clubs are not required to deduct tax from the prize money (stake money) paid to horse owners. This preserves a key source of income for horse owners and supports the overall horse racing industry.

Petitioners in W.P.Nos.6565-6568/2013, 6651- 6652/2013 and Petitioner in W.P.No.6674/2013 are Turf Clubs of Bangalore and Mysore and they have filed these writ petitions challenging the demand raised by the respective Income Tax Officers (TDS) who have issued notices to them as to why they have not deducted income tax while making payment of ‘stake money’ to the owners of the horses as required under the provisions of Chapter – XVII/Section 194B of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’ for short) and as to why they should not to be treated as defaulters. The prayers sought for by the petitioners in W.P.Nos.6565- 6568/2013 and 6651-6652/2013 are as under:

(1) quash the notices dated 20.01.2012 and 07.01.2013 issued by third respondent for the years 2006-07, 2007-08, 2008-09, 2009-10, 2010-11 and 2011-12 (Annexures-B B1, B2, B3) as being unconstitutional and ultra vires the provisions of Income Tax Act, 1961.

(2) Quash notices for the years 2006-07, 2007-08, 2008-09, 2009-10 upto 31.12.2009 (3rd quarter) as being barred by limitation (Annexures-B, B1, B2, B3).

(3) Declare that the Circulars issued by the 2nd respondent (Annexure-A) is binding on all authorities under the Income Tax Act, 1961 including the 3rd respondent.

(4) Declare that the action of the 3rd respondent issuing show cause notices (Annexures-B, B1, B2, B3) is illegal and the same is contrary to the circular (Annexure- A) dated 17.05.1978.

(5) Declare that Stake Money paid by the petitioner cannot be construed as winnings from games as per Section 194B of the Act.

(6) Declare that the correct provision applicable in the present case is the Board Circular which supersedes the provisions of Section 194BB of the Income Tax Act and is binding.

(7) Declare that the petitioner is not liable to be treated as Assessee in default as per Section 201 of the Act.

(8) Quash the orders dated 6.2.13 passed by respondent No.3 produced as (Annexures- G, G1 to G9) and the consequential demand notices issued by respondent No.3 dated 6.2.13 produced as Annexures-G10 to G19.

2. The prayers sought for by the Mysore Race Club in W.P.6674/2014 insofar as prayers (i) to (v) are identical and similar to the prayer sought for by 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 deduct tax on the winnings by Stake Money and hold that the circular issued by them is not in accordance with law and consequently issue writ of certiorari quashing the said circular in vide Annexure-B.

v. Without prejudice direct the 4th respondent not to deduct TDS on the winnings by way of Stake Money in respect of Trainers and Jockeys from the horse owners.

4. I have heard the arguments of Sriyuths S S Naganand, K.P.Kumar, learned Senior Advocates, Sri A Shankar, learned Advocate appearing for petitioners and race horse owners and Sri K.V.Aravind, learned Standing Counsel for the Income Tax Department.

CONTENTIONS RAISED BY SRI S.S.NAGANAND

5. It is the contention of Sri S.S.Naganand, learned Sr.Counsel appearing on behalf of the petitioners in W.P.Nos.6565-6568/2013, 6651-6652/2013 and 6674/203 that as to what constitutes ‘stake money’ for the purpose of Section 194B came to be examined by the Department itself and as such, a Circular No.467 came to be issued on 21.08.1986 whereunder it is specifically mentioned about distinction between ‘winnings from a race horse’ and ‘earnings of stake money’. Stake money being a prize money given by a Club to the race horse owner, there is no element of a winnings as defined under the Act and it is also not winnings of race horses because when Section 194B was introduced and sought to be amended, the then Finance Minister made a speech on the Floor of Parliament making it explicitly clear and indicating thereunder that by Finance Act , 1986 Section115BB has been inserted to provide gross winnings from lotteries, crossword puzzles, races including horse races (other than income from the activity of owning and maintaining race horses), card games and other games of any sort or from gambling or betting of any nature whatsoever would be chargeable to income tax at a flat rate of 40% on the gross winnings and contends that this charge of taxation does not apply to the owning and maintaining horses. He contends that stake money paid to the race horse owner is taxed under separate and distinct provision namely, Section 74A. He contends that when the owner of winning horse is paid money, if it comes within the purview of Section 194B, then the petitioners are bound to deduct tax. He draws the attention of the Court to the definition of Section 2(24)(ix) which indicates any winnings from lotteries, 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 computation of loss and Explanation (c) defines stake money. Thus, charging section would be based on the definition of the head under which the income falls and accordingly, it is to be taxed. He contends that if Mr.A own 100 horses and spends crores of rupees on maintenance of such horses and those horses win races and get prize money and also earn from breeding, all these would be termed as ‘business activity’. In such cases, said income will not be taxed under head ‘other sources’ but would be taxed under head ‘income from profits and gains of business’. On this analogy, he contends that said income has nothing to do with the provisions of Section 194B since Section 194B does not state that said income is taxable under ‘other sources’ and deduct tax if it falls under ‘profits and gains’. He contends that Section 194B does not use the expression ‘profits’, and no distinction is made and it only indicates on winnings tax will have to be paid. Thus, question would be : What is winnings? Whether winnings is taxable under other sources or profits and gains? makes no difference. Hence, this provision will not carry the contention of revenue any further.

5.2. He would draw the attention of the Court to sub-section (4) of Section 58 which provision indicates about the amounts not deductable or in other words, restrictions with regard to computation of the income. He contends that in case of an assessee having income chargeable under the head ‘income from other sources’ no deduction in respect of any allowance expenditure in connection with such income would be allowed like winnings from lotteries, crossword puzzles, races including horse race. He would also contend that under ‘income from profession’ whatever expenditure is incurred for earning that income is allowed as an expenditure and if an individual is carrying on business expenditure incidental to such business incurred is also allowed but under this head namely, ‘income from other sources’ it is not allowed. Thus, Section 58 itself makes distinction and the proviso to sub-section (4) would indicate that nothing contained in sub-section (4) would apply in computing the income of an assessee being the owner of horses maintained by him for running horse races or in other words, proviso enables to deduct the expenditure. Thus, Section 58 would make 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 construed that there is violation of provisions of Section 194B of the Act.

5.4. He would also draw the attention of the Court to the Circular No.240 dated 17.05.1978 which indicates the provisions for deduction of tax at source will not apply to income earned by way of stake money on the ground that stake money is not regarded as ‘winnings from horse race’ but would constitute prize money received on a horse race by the owner of a horse. He submits that said Circular has neither been withdrawn or amended and as such, it is binding on the Revenue.

CONTENTIONS RAISED BY SRI A SHANKAR

6. It is the contention of Mr.Shankar that the core issue in these petitions relates to the taxability of the money received by the horse owners namely, ‘stake money’ and in this regard, he draws the attention of the Court to paragraph 6 of the statement of objections filed by the Revenue. He contends that until and unless provisions of Section 115BB of the Act is applied, provisions of 194B of the Act cannot be applied on the ground that entire income earned by the race horse owner by way of Stake Money is liable to tax under Section 115BB and as such the contentions of both the petitioners as well as the Revenue revolves around Section 115BB of the Act. He submits that plain reading of Section 115BB itself would indicate that, not being income from the activity of owning and maintaining race horses namely, not being income from the activity of earning and losses suffered in effect would indicate that Section 115BB is not applicable to the horse owner who run, own and maintain a race horse. He submits that if the legislative intent is to specifically exclude by paranthesis or bracket or comma, it is very essential that it would have no application or in other words, it would indicate as to how such income being income from the activity of owning and maintaining horse has to be ignored and he would emphasize a plain reading of the Act, the view that can be arrived at should be

considered and as such he contends that Section 115BB is not applicable to the second petitioner i.e., petitioner in W.P.No.18697/2013.

6.1. He would contend that Section 74A would indicate the method of computing the income earned in respect of maintaining a race horse and indicates as to how it is carried forward and how the expenses allowed and as such, the interpretation that can be given 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 computation being clear indicating that horse race is all inclusive and one such activity of ‘maintaining horse’ has been excluded and it is in this background, the paranthesis found in Section 115BB has to be considered and as such, he contends that activity of maintaining or owning horse do not come within the purview of Section 115BB.

6.2. He submits that from reading of Section 74A would indicate that activity of owning and maintaining a race horse is to be kept as a separate segment and Explanation to Section 74 to Section 74A would itself indicate the same. He contends that

Explanation (a)(ii) (b)& (c) defines ‘horse race’ and ‘income by way of stake money’. He submits that ‘stake money’ is not only given to horse which comes first but to other horses also like second, third, etc., which money is received by the owner of the horse. He contends that the income by way of punting, it is by way of earning in participating in the race namely, by betting as a punter for which the specific provision that would be attracted is, Section 115BB and consequently, Section 194BB would be attracted on such income. In this regard, he draws the attention of the Court to the Circular No.467 dated 21.08.1986 issued by the Board and particularly clause (3) whereunder the ‘income from activity of owning and maintaining race horse’ has been excluded and contends that stake money or the prize money which race horse owner is getting is not subjected to tax under Section 115BB and as such, Section 74A would be applicable read with Section 2(24)(ix) and the taxability is sought to be brought under Section 115BB wherein the ‘income from the activity of owning and maintaining race horses’ is excluded. He would contend that Section 2(24)(ix) has to be read harmoniously with Section 74A, 58(4), 115BB and 194B, it cannot be said that under Section 194B the petitioner would be liable to deduct tax.

6.3. He submits that the question of TDS on crosswords, lotteries, etc., came only in 2001 and undisputedly, those things were not liable for TDS. He also contends that Section 2(24)(ix) has been there from the year 1972 and only by amendment in 2001 the words “card game and other game of any sort” came to be inserted. He submits that concept of flat rate taxing is to be found in Section 115BB and it cannot be read into it the stake money is 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 VS. 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 argument of alternate remedy as contended by the Revenue. He submits that petitioner has no alternate remedy since with effect from 01.04.1997 the remedy available to the deductor has been taken away by deletion of the provisions namely, 194B and 194BB from Section 197 and as such, the only provision which was available to the deductor has now been removed from the scheme of Act, petitioner does not have any alternate remedy except invoking extraordinary jurisdiction of this Court.

6.6. He would also submit that writ petitions filed by the Association is maintainable and relies upon the judgments submitted along with memo in support of his submission and prays for allowing the writ petitions.

CONTENTIONS OF SRI K.P.KUMAR

7. Sri K.P.Kumar, learned Sr.counsel would support the contentions raised by Sri S S Naganand for petitioners and contends that for the first time by Finance Act, 1972 the definition of ‘income’, in Section 2(24) of the Act was amended to include 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 under clause (ix) as a consequent to it, amendment was brought to Section 56(2) by inserting sub-clause (ib) and such winnings were made chargeable to tax under the head ‘income from other sources’ and contends that from the beginning, the stake or prize money has been subjected to tax under the provisions of the Act from 1972 onwards. He contends that ‘winnings’ and ‘stake money’ are totally different from each other and draws the attention of the Court to Explanation (c) of Section 74A which defines as to what amounts to ‘income by way of stake money’ and distinguishes the income from ‘winnings’ which he contends is the amount received by people who bet in horse races and the said horse winning in the race would be the amount constituting ‘winnings’ as defined under Section 194BB. He further submits that by Finance Act, 1972 194B was also introduced to provide for tax deduction at source from winnings from lotteries and crossword puzzles only and winnings from other sources, be it races or card games or games of any sort were not subjected to tax deduction at source either under Section 194B or under any other provision. He contends that the intent of amending Section 74A by Finance 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 would lead to a conclusion that stake money is an income arising out of the activity of owning and maintaining horses and cannot be treated as “winnings from horse races”.

7.2. He further draws the attention of the Court to the Finance Act, 1978 whereunder Section 194BB was introduced to entail deduction of tax at source specifically on “winnings from horse races” and draws the attention of this Court to Explanatory Notes of Finance Act, 1978 as found in Circular No.240 dated 17.05.1978 which clearly specifies that the provisions of Section 194BB would not apply to stake money as they are not regarded as winnings from a horse race but constitute prize monies which an owner of an horse receives on account of his horse winning some position in the race. Hence, he contends that there is a clear exemption granted by Parliament and as such, no tax was deducted on stake monies paid to horse owners till 2013 when the Department raised a demand.

7.3. He would also contend that to prevent unaccounted income, in the Finance Act, 1986 a flat rate of tax on winnings from lotteries, crossword puzzles, races including horse races, etc., was introduced by Section 115BB and for that purposes, the gross winnings from lotteries, crossword puzzles, races including horse races (other than income from the activity of owning and maintaining race horses), card games and other games or gambling or betting of any nature were made liable to tax at a flat rate of 40% on gross winnings and submits that specific exclusion was laid out in respect of income from the activity of owning and maintaining race horses and in this regard, he draws the attention of the Memorandum explaining the provisions of the Finance Bill, 1986 . He submits that revenue’s contention that tax to be deducted on stake money on gross basis would be diametrically opposite to the intention of the legislature since it is only the net income from owning and maintaining horses (including income by way of stake money) will have to be taxed after deducting expenses, if any, in earning the income and any unabsorbed loss continues to be carried forward to subsequent years which is made clear by Section 74A(3).

7.4. He would contend that the change that was brought about by Finance Act, 2001 was to introduce tax deduction at source on winnings from ‘card game and other game of any sort’. Both in Section 194B 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 hence prays for dismissing the writ petitions.

8.1. He would also contend that Section 194B came to be amended by Finance Act, 2001 whereunder ‘card game and other game of any sort’ has been brought under the purview of Section 194B and contends that stake money from horse racing would fall within the purview of ‘game of any sort’. He would elaborate his submission to contend that clause (ii) of Explanation to Section 229 would indicate that other game of any sort includes show or entertainment programme on television or electronic goods in which people compete to win prizes and the entire intention is to win the prize and in that context, the intention of the owner of a race horse participating in a horse race when examined, would clearly indicate that his intention is to win prize in the race which is defined as stake money or prize money under Section 74A. He contends that Hon’ble Supreme Court in the case of DR.K.R.LAKSHMANAN vs STATE OF TAMILL NADU reported in (1996)2 SCC 226 has held that horse racing is a game of skill and in view of the same, it has to be held that participation in the horse race by its owner is with an intention to win prize and as such, horse race would fall within the ambit of other game of any sort.

8.2. He contends that Section 115BB is the charging section and contends that as per the said section, there are two source of income, namely, (1) the owner of the horse earns from a horse and (2) owning and maintaining a race horse is a different activity which also earns income even without participation in the race and they have been excluded and only the maintenance if without participation in the race earn income like from the breeding , then, only income of such nature is excluded under Section 115BB and if it is a stake money, it is included in Section 115BB. He submits that under Section 74A, specific distinction has been made with reference to sources of income namely, one, maintenance of horse and the other being stake money. In the course of maintaining the horse, if the owner suffers loss, that has been permitted to be set off against stake money and consciously the two sources have been recognised under Section 74A(3) which according to him has been explained in Circular No.138 dated 17.06.2014 at paragraph 35. He would submit that entire object of Section 194BB is only to impose the applicability of 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 vs. ELI LILLY reported 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 vs BCIT reported in (2013)215 TAXMANN 664 (AP) has held that writ petition on similar issue is not entertainable since assessee has a alternate remedy and as such, he contends that present writ petitions are also liable to be dismissed. Hence, he prays for dismissal of the writ petitions.

9. Having heard the learned Advocates appearing for the parties, after bestowing my careful attention to the contentions raised at the bar and on perusal of the case-law cited, I am of the considered view that following points would arise for my consideration.

i) Whether writ petitions are liable to be dismissed on the ground that petitioners have an alternate remedy of appeal under Section 246A of the Income Tax Act, 1961.

ii) Whether order passed by 3rd respondent under Section 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 under Section 2(24)(ix) and as such it would not fall within ambit of Section 194-B of the Act?

OR

Whether winnings of Stake Money by race horse owners would fall under the definition of Section 2(24)(ix) and consequently Payor is liable to deduct tax under Section 194-B of the Income Tax Act, 1961 with effect from 2001 in view of

words “or card game and other game of any sort” having been inserted by Finance Act, 2001.

OR

When winnings from horse race by way of “Stake Money” covered under Section 194BB is not included thereunder for deduction of income tax as classified by the Department under Circular No.240 dated 17.5.1978 and thereby stake money having been excluded from purview of Section 194BB, can such Stake Money be regarded as Income under Section 194B of the Act and thereby petitioners (Race-Clubs) were required to deduct tax at source while paying “prize money” also called as “stake money” to race horse owners?

iii) What order? In order to answer the points formulated herein above, I am of the considered view that it would be necessary to narrate the facts of these writ petitions, findings recorded by the Assessing Officer while adjudicating the reply given to the show cause notices, adjudicate the maintainability of the writ petitions and thereafter analyse the statutory provisions pressed into service or which may have bearing on the rival contentions raised, the applicability and relevancy of the Circulars issued by the Department and together record the findings of this Court on point No.2 formulated above 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 194B of the Act, reply came to be submitted by them which was not considered by the Department and as such, assessment orders having been passed the action of the Department has been challenged contending interalia that:

1. 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 refer to income from winnings including horse races and therefore to classify Stake Money under Section 194B would be to contravene legislative intent.

2. The obligation to deduct tax at source under Section 194B would arise when a payment covered under Section 115 BB is involved. Section 115 BB specifically excludes “income from the activity of owning and maintaining race horses” from taxability on a gross basis. This exclusion cannot be ignored and brought within the auspices of Section 194 B.

3. Stake Money cannot be classified as “winnings” according to clause (c) of the Explanation of Section 74A (1) of the Act and therefore the petitioner Club cannot be said to have violated the provisions of Section 194 B of the income tax Act.

4. Circular No.240 issued by the Central Board of Direct Taxes states that the provisions for deduction of tax at source will not apply to income by way of Stake Money as Stake Money is not regarded as “winning from a horse race” but really constitutes prize money received on a horse race by the owner of a horse. As the circular has neither been amended nor withdrawn, the provisions of the same are binding. FACTS IN W.P. Nos.18696-97/2013:

11. Petitioners in W.P.Nos.18696-97/2013 have contended that it is an Association of race horse owners formed with an object of taking care of welfare of the various horse owners and second petitioner is a race horse owner and has been participating in the racing activity conducted by Bangalore Turf Club Limited and in the course of its activities of organizing and carrying on horse racing, the fourth respondent has been offering and paying prize money to the owners of horses namely, whose horses are placed first, second, third, fourth, fifth etc., as ‘prize money’ also known as ‘Stake Money’. It has been contended that race horse owner has to incur various expenses like payment of amount to the trainer, payment of the amount to Jockey, interest on capital 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 2 nd, 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 issued by the Central Board of Direct Taxes and as per clause 25(1)f of the said circular it has been clearly indicated that Section 194BB of the Act would not apply to Stake Money.

12. Hence, petitioners have contended that Stake Money paid by the race clubs to the horse owners cannot be construed as winnings from games of any sort as per Section 194B of the Act and consequently, they have prayed this Court to hold that Section 194B of the Act is not applicable to the petitioners.

SHOW CAUSE NOTICES ISSUED TO TURF CLUB AND FINDINGS REORDED BY THE ASSESSING OFFICER

13. The assessing officer in W.P.Nos.6565- 6568/2013 and 6651-6652/2013 has passed assessment orders under Section 201(1) of the Act and prior to it show cause notice came to be issued indicating thereunder that scope of Section 194B had been widened by the insertion of words [or card game and other game of any sort] with effect from 01.06.2001 and horse race is held to be a game and as such it has to be held that petitioner – Bangalore Turf Club to be an assessee in default under Section 201 of the Act for its failure to deduct the tax from the stake money prizes paid to the horse owners. Said show cause notice came to be replied by the petitioner by submitting a detailed reply. The assessing officer without affording personal hearing to the ‘assessee in default’ though sought for proceeded to examine the reply given and arrived at a conclusion that it should be held as an assessee in default on the following grounds:

(a) horse racing is a game as held by the Hon’ble Apex Court in DR.K.R.LAKSHMAN vs STATE OF TAMIL NADU reported in (1996)2 SCC 226;

(b) horse racing is a game involving many wealthy stake holders and earn various rewards including stake money;

(c) raising horses and running them in races is not a hobby but a regular systematic and organised activity by such race horse owners and they earn income by sale and lease of race horses. While examining as to whether stake money would fall under the purview of the words ‘and other game of any sort’ inserted in Section 194B held it to be so on the following grounds:

(a) the benefit of circular No.240 dated 17.05.1978 which exempted the stake money receipt by race horse owners from the purview of TDS under Section 194BB cannot be extended beyond the scope of Section 194BB to conclude that similar receipts 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 to show cause by the Bangalore Turf Club came to be rejected and assessment orders came to be passed and demand notices raised thereunder vide Annexures-G to G9 and G10 to G19 respectively.

14. Since maintainability of these writ petitions have been challenged, it would be appropriate to adjudicate the same as preliminary point and thereafter proceed to examine the writ petitions on merits, if required. RE: POINT NO.1:

15. Sri.K.V.Aravind, learned counsel appearing on behalf of the department has contended that the writ petitions are not maintainable since orders passed by the Assessing officer under section 201(1) and 201(1A) of the Act are appealable before the Commissioner of Income Tax-Appeals under section 246A of the Act and petitioners without availing the statutory remedy of appeal, petitioners cannot invoke extraordinary jurisdiction of this Court and as such they cannot maintain present writ petitions. In support of his submissions he has relied upon the following judgments:

(1) (2013) 215 TAXMAN 664 (AP) Hyderabad Race Club vs. Deputy Commissioner of Income-tax, circle

(2) Civil Appeal No.5888/2013 disposed of on 18.07.2013 Commissioner of Income Tax, Gujarat vs. Vijaybhai N. Chandrani

(3) (2013) 36 TAXMAN 36 (SC) Commissioner of Income-Tax vs. Chhabil Dass Agarwal

16. Per contra learned Advocates appearing for the petitioners in W.P.Nos.6565-6568/2013 have contended that at the first instance after issuance of show cause notice by the third respondent they have invoked the extraordinary writ jurisdiction of this court since there is no appeal provisions under the Income Tax Act to challenge the show cause notice and when the matter was under consideration before this Court Assessing Officer has passed the assessment orders without jurisdiction and as such they have contended present writ petitions are maintainable. It is contended by learned Advocates appearing for petitioners that even otherwise, when the action of the respondents is challenged on the grounds of violation of principles of natural justice as well as one without jurisdiction, petitioners would be entitled to maintain writ petitions. Sri.Naganand, learned senior counsel appearing for the petitioner would contend that after filing of these writ petitions and after notice came to be ordered on 06.02.2013 which was duly served on the learned standing counsel, third 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. In support of his submission he has relied upon the following Judgments:

(1) AIR 1969 SC 556 M/s Baburam Prakash Chandra Maheshwari vs. Antarim Zila Parishat

(2) (1998) 8 SCC 1 Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai & Ors.,

(3) (2003) 2 SCC 107 Harbanslal Sahnia & Anr. Vs. Indian Oil Corporation Ltd., & Ors.,

(4) (2005) 6 SCC 499 State of H.P & Ors., vs. Gujarat Ambuja Cement Ltd., & Anr.,

17. Sri.K.P.Kumar, learned senior counsel appearing for respondents 4 to 12 in W.P.6565- 6568/2013 would also support Sri.S.S.Naganand, learned senior counsel and would add by contending that declining to entertain a writ petition against an assessment order would not be a invariable rule when it involves jurisdictional aspect, violation of principles of natural justice and interpretation of statutory provisions writ petition would be maintainable. In support of his submissions he has relied upon the following Judgment:

1. (2012) 55 VST 89 KARNATAKA SASKEN COMMUNICATION TECHNOLOGIES LTD., vs. JOINT COMMISSIONER OF COMMERCIAL TAXES, BANGALORE AND ANOTHER 18. It would emerge from records that at the first instance petitioner in W.P.Nos.6565-6568/2013 and W.P.Nos.6651-6652/2013 had filed these writ petitions challenging the show cause notices issued to them whereunder the jurisdictional assessing officers had called upon the respective petitioners to show cause as to why action should not be taken against them for not having deducted income tax while making payment of stake money (prize money) to the race horse owners. Undisputedly said show cause notices have been replied by the petitioners and certain details called for have also been furnished to the assessing officers by the respective petitioners.

19. Challenging the said show causes notices on various grounds including the jurisdiction of the authority to issue show cause notice and contending that it is a colourable exercise of power writ petitions came to be filed. During pendency of writ petitions, assessment orders came to be passed and as such application for amendment came to be filed by petitioners and said application was allowed and petitioners were allowed to raise additional grounds and additional prayers.

20. It is well settled law that when an alternate or efficacious remedy is available to a litigant same should be exhausted before invoking the extraordinary jurisdiction 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 justice or exercise of jurisdiction is one without authority of Law. It has been held in the said judgment as under:

“3. It is a well-established proposition of law that when an alternative and equally efficacious remedy is open to a litigant he should be required to pursue that remedy and not to invoke the special jurisdiction of the High Court to issue a prerogative writ. It is true that the existence of a statutory remedy does not affect the jurisdiction of the High Court to issue a writ. But, as observed by this Court in Rashid Ahmed v. Municipal Board, Kairana, 1950 SCR 566=(AIR 1950 SC 163), "the existence of an adequate legal remedy is a thing to be taken into consideration in the matter of granting writs" and where such a remedy exists it will be a sound exercise of discretion to refuse to interfere in a writ petition unless there are good grounds therefor. But it should be remembered that the rule of exhaustion of statutory remedies before a writ is granted is a rule of self-imposed limitation, a rule of policy, and discretion rather than a rule of law and the Court may therefore in exceptional cases issue a writ such as a writ of certiorari notwithstanding the fact that the statutory remedies have not been exhausted. In The State of Uttar Pradesh v. Mohammad Nooh, 1958 SCR 595, 605=(AIR 1958 SC 86, 93), S.R. Das, C.J., speaking for the Court, observed:

"In the next place it must be borne in mind that there is no rule, with regard to certiorari as there is with mandamus, that it will lie only where there is no other equally effective remedy. It is well established that, provided the requisite grounds exist, certiorari will lie although a right of appeal has been conferred by statute. (Halsbury's Laws of England, 3rd Ed., Vol. II, p. 130 and the cases cited there). The fact that the aggrieved party has another and adequate remedy may be taken into consideration by the superior court in arriving at a conclusion as to whether it should, in exercise of its discretion, issue a writ of certiorari to quash the proceedings and decisions of inferior Courts subordinate to it and ordinarily the Superior Court will decline to interfere until the aggrieved party has exhausted his other statutory remedies, if any. But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather 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 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. -(See the decisions of this Court in Carl Still G.m.b.H.v. State of Bihar, AIR 1961 SC 1615 and Bengal Immunity Co. Ltd. v. State of Bihar, (1955) 2 SCR 603 = (AIR 1955 SC 661). In the second place, the doctrine has no application in a case where the impugned order has been made in violation of the principles of natural justice. (See 1958 SCR 595, 605=(AIR 1958 SC 86, 93)”.

22. The Hon’ble Apex Court in the case of Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai & Ors., reported in (1998) 8 SCC 1 while examining the maintainability of writ petition against a show cause notice has held that availability of alternate remedy would not operate as a bar to invoke the extraordinary jurisdiction atleast in three contingencies namely, where writ petition has been filed for enforcement of fundamental rights or where there has been violation of principles of natural justice or where the order or proceedings is wholly without jurisdiction or the vires of an Act is challenged. It has been held as under:

“14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for “any other purpose”. 15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in atleast three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order 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 vs 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 and are based on misreading them.

18. We shall first deal with the plea regarding alternative remedy as raised by the appellant-State. Except for a period when article 226 was amended by the Constitution (42nd Amendment) Act, 1976, the power relating to alternative remedy has been considered to be a rule of self- imposed limitation. It is essentially a rule of policy, convenience and discretion and never a rule of law. Despite the existence of an alternative remedy it is within the jurisdiction of Constitution. At the same time, it cannot be lost sight of that though the matter relating to an alternative remedy has nothing to do with the jurisdiction of the case, normally the High Court should not interfere if there is an adequate efficacious alternative remedy. If somebody approaches the High Court without availing the alternative remedy provided the High Court should ensure that he has made out a strong case or that there exist good grounds to invoke the extraordinary jurisdiction.

19. Constitution Benches of this Court in K.S. Rashid and Son v. Income-tax Investigation Commission* AIR 1954 SC 207, Sangram Singh V. Election Tribunal, Kotah AIR 1955 SC 425, Union of India v. T.R. Varma AIR 1957 SC 882, State of U.P v. Mohammad Nooh AIR 1958 SC 86 and K.S.Venkataraman and Co. (P) Ltd., v. State of Madras AIR 1966 SC 1089, held that article 226 of the Constitution confers on all the High Courts a very wide power in the matter of issuing writs. However, the remedy of writ is an absolutely discretionary remedy and the High Court has always the discretion to refuse to grant any writ if it is satisfied that the aggrieved party can have an adequate or suitable relief elsewhere. The Court, in extraordinary circumstances, may exercise the power if it comes to the conclusion that there has been a breach of principles of natural justice or procedure required for decision has not been adopted.

20. Another Constitution Bench of this Court in State of Madhya Pradesh and Anr. v. Bhailal Bhai etc. etc., AIR (1964) SC 1006, held that the remedy provided in a writ jurisdiction is not intended to supersede completely the modes of obtaining relief by an action in a civil court or to deny defence legitimately open in such actions. The power to give relief under Article 226 of the Constitution is a discretionary

power. Similar view has been re- iterated xxx in [2003] 1 SCC 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., Vs 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 approaching the very departmental authorities would make no difference and as such entertainment of a writ petition though statute provides an alternate remedy would not be a bar. It has been held by the Division Bench as under:

“55. It was contended that against the order passed by the assessing authority, a statutory first appeal and against that appeal, a statutory second appeal is provided and therefore the learned single judge was justified in directing the parties to approach the appellate forum and this court should not entertain these appeals. Normally, when the statute provides an alternative remedy by way of an appeal, this court declines to entertain a writ petition against such assessment orders. But, it is not an invariable rule specifically when the case involves interpretations of constitutional provisions and when the authorities have already interpreted these provisions in a particular manner, the question of the party approaching the very departmental authorities would make no difference. That apart, these assessment orders are passed after coming into force of the Finance Act, 1994 and when service tax was imposed. The question for consideration is, when once by a parliamentary legislation, service tax is levied on the entire consideration received by the assessee, whether it is open to the State Legislature to levy sales tax on any portion of the said consideration which has already suffered service tax. Even otherwise also, the question for consideration is as discussed above, whether the contract in question is an indivisible contract or a composite contract and even if it is a composite contract, what is the dominant nature of the contract. These are matters which require to be interpreted by this court. It will have an effect not only on the assessee before this court, but to all the assessees who are similarly placed in the State, so that the law is settled and assessment orders to be passed by the authorities would be in accordance with law. Therefore we do not see any merit in the contention that merely because an alternative remedy is provided against these orders by way of statutory appeals, that this court should not entertain these writ appeals.

26. It also requires to be noticed that Section 197 of the Act which came to be inserted by Finance Act, 1997 with effect from 01.06.1997 provided for the assessing officer to issue 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 the case may be. Undisputedly, Section 194B and 194BB was omitted by Finance Act, 1986 with effect from 01.04.1987. As such, the petitioner who according to the revenue was required to deduct tax on the stake money could not have approached the jurisdictional officer to seek for issuance of a certificate contending that it is not liable to deduct tax or in other words, deduct no tax on any ground whatsoever. Such remedy which was available to the assessee like in the instant case to the petitioner has been taken away by virtue of Section 197 having been removed or deleted from the statute.

27. The High Court of Andhra Pradesh in the case of P.V.RAJAGOPAL & OTHERS vs UNION OF INDIA & OTHERS reported in (1998) 233 ITR 678 was examining as to whether the employee after deduction by the employer should file a return and seek refund and as such, writ petition by the Trade Unions on behalf of the employees would be maintainable or not has held that the employer was acting as the agent of the revenue and was also an instrument of the State and the alleged violations of the Income tax involved the service conditions of the employees and as such, it has been held that Trade Unions were entitled and justified in filing the writ petitions. It has been held in the said judgment as under:

“The alternate remedy is for an assessee to apply to the Income-tax Officer for a certificate under section 197 that the amount presumably is not subject to deduction of tax at source or should be subject to deduction at a lower rate. This section may work well in the case of unusual or extraordinary payments. But in the case of an interest subsidy payable to thousands of employees it would be meaningless to suggest that each employee should approach the Income-tax Officer for a certificate under section 197. Some employees may be able to get it in time, some may not be able to get it. Some Income-tax Officers may grant certificates and some as in the present case deny certificates under some misunderstanding about the scope of the section or the taxability of the amount in question. It must be xxx compel any such adjudication by him. Yet a misunderstanding of the provisions by the field officers and reluctance of the Central Board of Direct Taxes to clarify the matter has led to a situation where the employees have to carry on litigation in several High Courts or transfer the unnecessary 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 vs 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 all. The purpose of deduction of tax at source is not to collect a sum which is not a tax levied under the Act; it is to facilitate the collection of the tax lawfully leviable under the Act. The interpretation put on those provisions by the respondents would result in collection of certain amounts by the State which is not a tax qualitatively. Such an interpretation of the taxing statute is impermissible.”

29. In the instant case, the petitioner cannot be held to be deductor under Section 201 of the Act since according to the revenue, petitioner is required to deduct tax at source under Section 194B.

30. The Hon’ble Apex Court in AKHILA BHARATIYA SOSHIT KARAMCHARI SANGH (RAILWAY) vs UNION OF INDIA & OTHERS reported in (1981) 1 SCC 246 while examining the maintainability of a writ petition filed by an unrecognized association has held to the following effect:

“62. A technical point is taken in the counter-affidavit that petitioner 1 is an unrecognised association and that, therefore, the petitioner to that extent, is not sustainable. It has to be overruled. Whether the petitioners belong to a recognised union or not, the fact remains that a large body of persons with a common grievance exists and they have approached this Court under Article 32. Our current processual jurisprudence is not of individualistic Anglo- Indian mould. It is broad-based and people-oriented, and envisions access to justice through 'class actions', 'public interest litigation', and 'representative proceedings'. Indeed, little Indians in large numbers seeking remedies in courts through collective proceedings, instead of being driven to an expensive plurality of litigations, is an affirmation of participative justice in our democracy. We have no hesitation in holding that the narrow concept of 'cause of action' and 'person aggrieved' and individual litigation is becoming obsolescent in some jurisdictions. It must fairly be stated that the learned Attorney- General has taken no objection to a non-recognised association maintaining the writ petitions.”

31. Yet again, Hon’ble Apex Court in the case of S.P.GUPTA vs UNION OF INDIA AND ANOTHERS reported in (1981)(supp.)SCC 87 where legal wrong or legal injury is caused to a determinate class or group of persons or the constitutional or legal rights of such determinate class or group of 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 trial, inmates of the Protective Home in Agra or Harijan workers engaged in road construction in the district of Ajmer, who are living in poverty and destitution, who are barely eking out a miserable existence with their sweat and toil, who are helpless victims of an exploitative society and who do not have easy access to justice, this Court will not insist on a regular writ

petition to be filed by the public- spirited individual espousing their

cause and seeking relief for them. This Court will readily respond even to a letter addressed by such individual acting pro bono publico. It is true that there are rules made by this Court prescribing the procedure for moving this Court for relief under Article 32 and they require various formalities to be gone through by a person seeking to approach this Court. But it must not be forgotten that procedure is but a handmaiden of justice and the cause of justice can never be allowed to be thwarted by any procedural technicalities. The Court would therefore unhesitatingly and without the slightest qualms of conscience cast aside the technical rules of procedure in the exercise of its dispensing power and treat the letter of the public-minded individual as a writ petition and act upon it. Today a vast revolution is taking place in the judicial process; the theatre of the law is fast changing and the problems of the poor are coming to the forefront. The Court has to innovate new methods and devise new strategies for the purpose of providing access to justice to large masses of people who are denied their basic human rights and to whom freedom and liberty have no meaning. The only way in which this can be done is by entertaining writ petitions and even letters from public spirited individuals seeking judicial redress for the benefit of persons who have suffered a legal wrong or a legal injury or whose constitutional or legal right has been violated but who by reason of their poverty or socially or economically disadvantaged position are unable to approach the Court for relief. It is in this spirit that the Court has been entertaining letters for Judicial redress and treating them as writ petitions and we hope and trust that the High Courts of the country

will also adopt this pro-active, goal- oriented approach. But we must hasten to make it clear that the individual who moves the Court for judicial redress in cases of this 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 persons for whose benefit the action is brought, arising from violation of some constitutional or legal right or legally protected interest. What is complained of in these cases is a specific legal injury suffered by a person or a determinate class or group of persons. But there may be cases where the State or a public authority may act in violation of a constitutional or statutory obligation or fail to carry out such obligation, resulting in injury to public interest or what may conveniently be termed as public injury as distinguished from private injury. Who would have standing to complain against such act or omission of the State or public authority? Can any member of the public sue for judicial redress? Or is the standing limited only to a certain class of persons? Or is there no one who can complain and the public injury must go unredressed? To answer these questions it is first of all necessary to understand what is the true purpose of the Judicial function. This is what Prof. Thio states in his book on Locus Standi and Judicial Review:

Is the judicial function primarily aimed at preserving legal order by confining the legislative and executive organs of government within their powers in the interest of the public (Jurisdiction de droit objectif) or is it mainly directed towards the protection of private individuals by preventing illegal encroachments on their individual rights (jurisdiction de droit subjectif)? The first contention rests on the theory that Courts are the final arbiters of what is legal and illegal ....Requirements of locus standi are therefore unnecessary in this case since they merely impede the purpose of the function as conceived here. On the other hand, where the prime aim of the judicial process is to protect individual rights, its concern with the regularity of law and administration is limited to the extent that individual rights are infringed.

We would regard the first proposition as correctly setting out the nature and purpose of the judicial function, as it is essential to the maintenance of the rule of law that every organ of the State must act within the limits of its power and carry out the duty imposed upon it by the Constitution or the law. If the State or any public authority acts beyond the scope of its power and thereby causes a specific legal injury to a person or to a determinate class or group of persons, it would 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 redress if the law is contravened. The view has therefore been taken by the Courts in many decisions that whenever there is a public wrong or public injury caused by an act or omission of the State or a public authority which is contrary to the Constitution or the law, any member of the public acting bona fide and having sufficient interest can maintain an action for redressal of such public wrong or public injury. The strict rule of standing which insists that only a person who has suffered a specific legal injury can maintain an action for judicial redress is relaxed and a broad rule is evolved which gives standing to any member of the public who is not a mere busybody or a meddlesome interloper but who has sufficient interest in the proceeding. There can be no doubt that the risk of legal action against the State or a public authority by any citizen will induce the State or such public authority to act with greater responsibility and care thereby improving the administration of justice. Lord Diplock rightly said in Rex v. Inland Revenue Commissioners. (1981) 2 WLR 722,740.

It would, in my view, be a grave lacuna in our system of public law if a pressure group, like the federation, or even a single public-spirited taxpayer, were prevented by outdated technical rules of locus standi from bringing the matter to the attention of the Court to vindicate the rule of law and get the unlawful conduct stopped.... It is not, in my view, a sufficient answer to say that judicial review of the actions of officers or departments of Central Government is unnecessary because they are accountable to Parliament for the way in which they carry out their functions. They are accountable to Parliament for what they do so far as regards efficiency and policy, and of that Parliament is the only judge; they are responsible to a Court of Justice for the lawfulness of what they do, and of that the Court is the only judge. This broadening of the rule of locus standi has been largely responsible for the development of public law, because it is only the availability of judicial remedy for enforcement which invests law with meaning and purpose or else the law would remain merely a paper parchment, a teasing illusion and a promise of unreality. It is only by liberalising the rule of locus standi that it is possible to effectively police the corridors of powers and prevent violations of 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 from the citations noticed hereinabove, it has been held that an association has a locus standi to file a writ petition on behalf of its members:-

(a) (1984) 3 SCC 161- BANDHUA MUKTI MORCHA V. UNION OF INIDA & ORS;

(b) [(1993) 4 SCC]- SUPREME COURT ADVOCATES ON RECORD ASSOCIATION AND OTHERS V/S UOI;

(c) ((241) ITR 20)- STEEL EXECUTIVES ASSOCIATION V/S RASHTRIYA ISPAT NIGAM LTD;

(d) ((261) ITR 15)- BHEL EMPLOYEES ASSOCIATION V/S UOI;

(e) ((269) ITR 390)- BHEL EXECUTEVES/OFFICERS ASSOCIATION AND OTHERS V/S DCIT AND ORS;

(f) ((236) ITR 253)- ALL INDIA FEDERATION OF TAX PRACTITIONERS V/S UOI AND ORS;

(g) ((178) ITR 97)- FEDERATION OF HOTEL AND RESTAURANT ASSOCIATION OF INDIA AND OTHERS V/S UOI;

33. In that view of the matter, it cannot be gainsaid by the revenue that writ petitions are not maintainable and said contention raised by the revenue is hereby rejected. RE: POINT NO.(2)

34. In view of point No.(1) having been answered in the affirmative, let me examine these writ petitions on merits.

35. The petitioner-clubs (hereinafter referred to as ‘Turf Club’) in the course of its activities of organising and carrying on horse racing, has been offering and paying price money to the owners of winning horses. Price money is also referred to as ‘stake money’ which is earned by the horse owners, whose horses win in a race. This money paid to the race horse owners would be in addition to the trophy that is given for some of the races.

36. The statutory provisions having a bearing on the point and its analysis will have to be made by considering the circulars issued by the Department and then record my finding thereon.

STATUTORY PROVISIONS OF INCOME TAX ACT, 1961: CHAPTER –I Definitions.

2. In this Act, unless the context otherwise requires, -

(24) “income” includes -

“(ix) 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;]

Explanation – For the purposes of this sub-clause, -

(i) “lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner whatsoever, under any scheme or arrangement by whatever name called;

(ii) “card game and other game of any sort” includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game;]”

Income from other sources

“56 (1) xxx (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) xxx

(ia) xxx

(ib) income referred to in sub- clause (ix) of clause (24) of section

2:”

Amounts not deductible “58 (1) xxx

(2) xxx

(3) xxx

(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 purposes of this sub-section, “horse race” means a horse race upon which wagering or betting may be lawfully made.]”

Losses from certain specified sources falling under the head “Income from other sources”.

74A (1) - omitted

(2) - omitted

(3) In the case of an assessee, being the owner of horses maintained by him for running in horse races (such horses being hereafter in this sub- section referred to as race horses), [the amount of loss incurred by the assessee in the activity of owning and maintaining race horses in any assessment year shall not be set off against income, if any, from any source other than the activity of owning and maintaining race horses in that year and] shall, subject to the other provisions of this chapter, be carried forward to the following assessment year and-

(a) it shall be set off against the income, if any, [from the activity of owning and maintaining race horses] assessable for that assessment year:

Provided that the activity of owning and maintaining race horses is carried on by him in the previous year relevant for that assessment year; and

(b) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on; so, however, that no portion of the loss shall be carried forward for more than four assessment years immediately succeeding the assessment year for which the loss was first computed.

Explanation.- For the purposes of this sub- section-

(a) " amount of loss incurred by the assessee in the activity of owning and maintaining race horses" means-

(i) in a case where the assessee has no income by way of stake money, the amount of expenditure (not being in the nature of capital expenditure) laid out or expended by him wholly and exclusively for the purposes of maintaining race horses;

(ii) in a case where the assessee has income by way of stake money, the amount by which such income falls short of the amount of expenditure (not being in the nature of capital expenditure) laid out or expended by the assessee wholly and exclusively for the purposes of maintaining race horses;

(b) " horse race" means a horse race upon which wagering or betting may be lawfully made;

(c) " income by way of stake money" means the gross amount of prize money received on a race horse or race horses by the owner thereof on account of the horse 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 meaning as in Section 74A.” Winnings from lottery or crossword puzzle “194B. The person responsible for paying to any person any income by way of winnings from any lottery or crossword puzzle (or card game and other game of any sort) in an amount exceeding (five thousand rupees) shall, at the time of payment thereof, deduct income-tax thereon at the rates in force:

Provided that in a case where the winnings are wholly in kind or partly in cash and partly in kind but the part in cash is not sufficient to meet the liability of deduction of tax in respect of whole of the winnings, the person responsible for paying shall, before releasing the winnings, ensure that tax has been paid in respect of the winnings.

Winnings from horse race.

“194BB. Any person, being a bookmaker or a person to whom a licence has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race course, who is responsible for paying to any person any income by way of winnings from any horse race in an amount exceeding two thousand five hundred rupees shall, at the time of payment thereof, deduct income-tax thereon at the rates in force.

Certificate for deduction at lower rate

“197 (1) Subject to rules made under sub-section 2(A), where in the case of any income of any person, or sum payable to any person, income-tax is required to be deducted at the time of credit or, as the case may be, at the time of payment at the rates in force under the provisions of sections 192, 193, 194, 194A, 194C, 194D, 194G, 194-I, 194J, 194K, 194LA and 195, the Assessing Officer is satisfied that the total income of the recipient justifies the deduction of income-tax at any lower rates or no deduction of income tax as the case may be, the Assessing Officer shall, on an application made by the assessee in this behalf, give to him such certificate as may be appropriate.

(2) where any such certificate is given, the person responsible for paying the income shall, until such certificate is cancelled by the Assessing Officer deduct income tax at the rates specified in such certificate or deduct no tax, as the case may be.

(2A) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, 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 the definition of the income. The said income enumerated under Section 2 (24) (ix) is chargeable to tax under Section 56 (2) (ib) of the Act under the income from other sources and said Section is the charging section.

39. Section 58 of the Act came to be amended by Finance Act, 1986, with effect from 01.04.1987 by inserting sub section (4). It was inserted to provide that no deduction of any expenditure to be allowed in computing the income by way of winnings from lotteries, cross-word puzzles, races including horse races, card games and other games, or gambling or betting of any nature. Proviso to sub section (4) of Section 58 would indicate that sub section (4) would not be applicable in respect of computing the income of a race horse owner earned from the activity of owning and maintaining such horses.

40. Section 74A was inserted by Finance Act, 1972, with effect from 01.04.1972. Sub-section (3) was inserted by Finance Act, 1974 with effect from 01.04.1975. Sub-section (1) and (2) came to be omitted and sub-section (3) was amended by Finance Act, 1986 with effect from 01.04.1987. Sub-section (3) and its explanation deals with manner of carry forward and set off of income from the activity of owning and maintaining horses. The explanation (a) deals with the manner of computation of losses. Explanation (c) defines stake money.

41. A reading of explanation (c) to sub section (3) of Section 74A would indicate that ‘stake money’ is an income arising out of the activity of owning and maintaining horses. It would also indicate that in case where the assessee has no income by way of stake money in the relevant year, the whole of the revenue expenditure laid out or expended by him wholly and exclusively for the purposes of maintaining race horses will be regarded as the loss incurred by him in the activity of owning and maintaining horses. However, where the assessee has income by way of stake money in the relevant year the amount of loss incurred by him in the activity of owning and maintaining race horses will be the amount by which the stake money falls short of the revenue expenditure laid out or expended by him wholly and exclusively for the purposes of maintaining such horses. The loss incurred by the tax payer in the activity of owning and maintaining horses will be set off against his winnings, if any, from races, in the previous year and 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 puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever, were made chargeable to tax under the head “Income from other sources”. The, taxable income from these is computed after allowing a deduction in respect of expenditure (not being in the nature of capital expenditure) incurred by the tax-payer wholly and exclusively for the purpose of making or earning such income. Under a specific provision made in the law, losses relating to these sources are allowed to be set off only against income from the same source. Further, losses relating to these sources incurred in one year are not allowed to be carried forward and set off against the income of a subsequent year. Race horse owners have to incur regular expenditure on the maintenance of horses. In fact, the activity of maintaining horses and running them in races is somewhat akin to a business carried on by a tax-payer in an organised manner. Under the existing provisions of law, however, while the losses incurred by a taxpayer in his business or profession are allowed to be carried forward and set off against the profits of the business or profession in subsequent years up to a period of eight assessment years, a race horse owner is not allowed to carry forward and set off the losses attributable to maintenance of such horses in subsequent years. With a view to mitigating the hardship arising from this position, the Bill seeks to provide that owners of race horses will be entitled to carry forward and set off the loss incurred by them on maintenance of race horses against their income from the source “races including horse races” in subsequent years. However, unlike taxpayers engaged in business or profession who are allowed to carry forward business losses up to eight years, the benefit of carry forward in such cases will be allowed only for four assessment years next following the assessment year for which the loss was first computed. Certain consequential amendments have also been proposed for this purpose.”

43. Section 115BB was introduced by Finance Act, 1986, with effect from 01.04.1987. In order to prevent unaccounted income, the legislature introduced a flat rate of tax on winnings from lotteries, cross-word puzzles, races including horse races etc., so that any income of casual non-recurring nature could be charged at 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 exemption of Rs.5,000 under section 10 (3), no further allowances or deductions are admissible against the gross winnings except in cases where there is a diversion by overriding title as in the case of certain lotteries where a certain percentage has to be foregone to the Government/agency conducting the lotteries. Consequential amendment has also been made in section 197 (1) (a) of the Income-tax Act.”

44. A reading of Section 115BB would indicate that income from the activity of owning and maintaining race horses has been specifically excluded. It would also be relevant and necessary to note the explanation found in the Finance Bill, 1986, whereunder the purpose of insertion of said Section has been explained as under:

“Under the existing provisions of Section 56 of the Income-tax Act, 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 nature whatsoever is chargeable to tax under the head “Income from other sources” along with the other incomes of an assessee. It has been found that in several cases, lotteries have provided a medium to the assessees to camouflage their unaccounted income/wealth. Further, with a view to reducing the liability to tax, very often it has been contended that the winnings belong to several co-owners. Similarly, in the case of winnings from horse races, fictitious losses are set off against the winnings resulting in claims for refund of tax deducted at source. To curb these malpractices, the Finance Bill seeks to insert a new section 115BB to provide that gross winnings from lotteries, crossword puzzles, races including horse races (other than income from the activity of owning and maintaining race horses), card games and other games of any sort or from gambling or betting of any nature whatsoever shall be chargeable to income-tax at a flat rate of 40 per cent on the gross winnings.”

45. Consequent to introduction of Section 115BB, consequent amendments were effected in Section 58 and Section 74A withdrawing the benefit of reduction of expenditure and set off losses in connection with such income. Section 58 (4) was inserted to provide that no deduction of any expenditure would be allowed in computing the

income by way of any winnings from lotteries, cross- word puzzles, races including horse races, card games 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 legislature to treat the activity of owning and maintaining horses separately. In other words, the net income from owning and maintaining horses (including income by way of stake money) was to be taxed after deducting expenses, if any, in earning the income and any unabsorbed loss continues to be carried forward to subsequent years as is made explicitly clear by sub section (3) of Section 74A.

47. Section 194B was inserted by Finance Act, 1972, with effect from 01.04.1972. It casts an obligation on every person responsible for paying any income by way of winnings from any lottery or cross- word puzzle in an amount exceeding Rs.1,000/- (substituted to Rs.10,000/- by Finance Act, 2001, with effect from 01.06.2001) is required to deduct income tax thereon at the rates in force. This Section was amended by Finance Act, 2001. After the words ‘cross-word puzzle’ the words ‘or card game and other game of any sort’ was inserted with effect from 01.06.2001.

48. Section 194BB was introduced by Finance Act, 1978, with effect from 01.04.1978 which provides for deduction of tax at source from income by way of winnings from horse races at such rates as prescribed. The Central Board of Direct Taxes by way of explanatory notes on the provisions of the Finance Act, 1978, issued Circular No.240 dated 17.05.1978 which indicates that the provisions of Section 194BB would not apply to stake monies since such stake monies are not regarded as winnings from a horse race or races but constitute prize money which the owner of a race horse receives on account of his horse winning a position in the race.

49. The Circular No.240 issued in this regard would read as under:

“25.1 Deduction of tax at source from income by way of winnings from horse races – Section 194BB – The Finance Act has inserted a new section 194BB in the Income Tax Act to provide for deduction of tax at source from income by way of winnings from horse races at such rates as may be prescribed in the Finance Act of the relevant year. The main features of this provision are explained below:-

(a) The obligation to deduct tax at source will apply only where such winnings are paid by a bookmaker or a person to whom a license has been granted by the Government under any law for the time being in force for horse racing in any race course or for arranging for wagering or betting in any race 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 Rs.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 Rs.100 each on two horses – horse ‘A’ and horse ‘B’ – in a particular horse race, and he wins Rs.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 Rs.400 (Rs.500 – Rs.100 and not Rs.300 (Rs.500-Rs.200).

(d) Where the income by way of winnings from a horse race payable to a person exceeds Rs.2,500/-, tax will have to be deducted at source from such winnings even though the winnings may be paid to the person in instalments of less than Rs.2,500. Similarly, where the bookmaker or other person responsible for paying the winnings from horse races credits such winnings and debits the losses to the individual account of the punter, the set-off of the losses against the income would constitute constructive payment of such income. Hence, where the income by way of winnings from a horse race credited to the individual account of the punter exceeds Rs.2,500/- tax will have to be deducted at source at the time of payment of such winnings, even though the net amount payable to the punter after adjustment of the losses debited to his individual account may be less than Rs.2,500/-.

(e) The expression “any horse race” occurring in section 194BB would, where the context so requires, include more than one horse race. In view thereof, winnings by way of jackpot and treble pool would fall within the ambit of section 194BB.

(f) The provisions for deduction of tax at source will, however, not apply to income by way of stake money. This is because “stake money”, in common parlance, is not regarded as winnings from a horse race, but really constitutes the “prize money” received on a horse race by the second or in any lower position.

(g) Part II of the Schedule to the Finance Act provides for the deduction of tax at source from such winnings at the rate of 34.5 per cent, (income-tax 30 per cent, plus surcharge 4.5 per cent.) in the case of resident non-corporate tax payers. In the case of non- resident non-corporate tax- payers, tax will be deductible on the same basis as is currently applicable to income other than interest payable on a tax-free security, i.e., at the rate of 34.5 per cent or the higher appropriate rate applicable to the winnings from horse races if such winnings were the total income of the person.

25.2 Consequential changes have also been made in sections 197, 198, 199, 200, 202, 203, 204 and 205 of the Income Tax Act with a view to placing the tax deducted at source from horse race winnings on a par with the tax deducted at source from other categories of income.

25.3 The aforesaid provisions 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 1 st 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 case of K.P.VERGHESE vs ITO reported in (1981)131 ITR 597 that circulars issued by the Central Board of Direct Taxes are binding on the revenue. On account of I.T. authorities having levied tax by invoking sub- section (2) of Section 52 of the Act which related to tax on actual gains, even in cases where transaction was honest and bonafide and there being no understatement of the consideration, which was quite contrary to the instructions issued in the circular, CBDT yet again issued another circular by pointing out the steps to be taken, which came to be noticed by the Hon’ble Apex Court in the above referred judgment and held as under:

“It has come to the notice of the Board that in some cases the Income tax officers have invoked the provisions of section 52(2) even when the transactions were bona fide. In this context reference is invited to the decision of the Supreme Court in Navnit Lal C.Jeveri v. K.K. Sen (1965) 56 ITR 198 and Ellerman Lines Ltd., V. Commissioner of Income tax (1971) 82 ITR 913, wherein it was held that the circular issued by the Board would be binding on all officers and persons employed in the execution of the Income tax Act. Thus, the Income-Tax Officers are bound to follow the instruction issued by the Board.”

and instructed the ITO’s that “while completing the assessments they should keep in mind the assurance given by the Minister of Finance and the provisions of s. 52(2) of the I.T. Act may not be invoked in cases of bona fide transactions”. These two circulars of the CBDT are, as we shall presently point out, binding on the tax department in administering or executing the provision enacted in sub-s.(2), but quite apart from their binding character, they are clearly in the nature of contemporanea expositio furnishing legitimate aid in the construction of sub-s. (2). The rule of construction by reference to contemporanea expositio is a well- established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way where the language of the statue is plain and unambiguous. This rule has been succinctly and felicitously expressed in Crawford on Statutory Construction, 1940 Edn., where it is stated in paragraph 219 that “administrative construction (i.e.., contemporaneous construction placed by administrative or executive officers charged with executing 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 that sub-section.

But the construction which is commending itself to us does not rest merely on the principle of contemporanea expositio. The two circulars of the CBDT to which we have just referred are legally binding on the revenue and this binding character attaches to the two circulars even if they be found not in accordance with the correct interpretation of sub-s.(2) and they depart or deviate from such construction. It is now well settled as a result of two decisions of this court, one is Navnit Lal C. Javeri v. K.K. Sen, AAC (1965) 56 ITR 198 and the other in Ellerman Lines Ltd., V. Commissioner of Income tax (1971) 82 ITR 913 that circulars issued by the CBDT under s. 119 of the Act are binding on all officers and person employed in the execution of the Act even if they deviate from the provisions of the Act.”

51. In fact, the very same circular No.240 dated 17.05.1978 came up for consideration before the Division Bench of Madras High Court in the case of C.IT. VS investment Trust of India Ltd reported in (2003)264 ITR 506 (Madras) and came to be held as binding on the department.

52. It is the contention of Sri K.V.Aravind, learned Standing Counsel for the Income Tax Department that deductor has no right to question the validity of deduction to be made and only after filing the return of income same can be assailed in the assessment proceedings. He has relied upon the following judgment:

COMMISSIONER OF INCOME-TAX V/S ELI LILLY AND CO.(INDIA) P.LTD.,- (2009) 312 ITR 225 (SC)

(i) Whether the TDS provisions which are in the nature of machinery provisions are independent of the charging provisions?

At the outset, we wish to clarify that our judgment is confined strictly to the question of deductibility of tax from the “income chargeable under the head ‘Salaries’ under section 192(1). This introduction is important for the reason that unlike other sections in Chapter XVII-B regulating deduction of tax at source out of other payments, section 192 requires such deduction on “estimated income” chargeable under the head “Salary” and at the time of payment of salary. Chapter XVII is divided into various parts as A to F. Part A deals with deduction at source and advance payment. Section 190, inter alia, provides that notwithstanding the regular assessment in respect of any income, the tax on such income shall be payable by deduction or 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 provision is made for deducting tax at source on the basis of payment of such sum as income-tax on the income comprised therein. Under the 1961 Act, total income for the previous year is chargeable to tax under section 4. Section 4(2), inter alia, provides that in respect of income chargeable under section 4(1), income-tax shall be deducted at source where it is so deductible under any provision of the 1961 Act. Section 192(1) falls in the machinery provision. It deals with collection and recovery of tax. That provision is referred to in section 4(2).

(iii) On the scope of section 201(1) and section 201(1A)

A perusal of section 201(1) and section 201(1A) shows that both these provisions are without prejudice to each other. It means that the provisions of both the sub-sections are to be considered independently without affecting the rights mentioned in either of the sub-sections. Further, interest under section 201(1A) is a compensatory measure for withholding the tax which ought to have gone to the exchequer. The levy of interest is mandatory and the absence of liability for tax will not dilute the default. The liability of deducting tax at source is in the nature of a vicarious liability, which pre-supposes existence of primary liability. The said liability is a various liability and the principal liability is of the person who is taxable. A bare reading of section 201(1) shows that interest under section 201(1A) read with section 201(1) can only be levied when a person is declared an assessee-in-default. For computation o interest under section 201(1A), there are three elements. One is the quantum on which interest has to be levied. The second is the rate at which interest has to be charged. The rate of interest is provided in the 1961 Act. The quantum on which interest has to be paid is indicated by section 201(1A) itself. Sub-section (1A) specifies “on the amount of such tax” which is mentioned in sub- section (1) wherein, it is the amount of tax in respect of which the assessee has been declared in default. The object underlying section 201(1) is to recover the tax. In the case of short deduction, the object is to recover the shortfall. As far as the period of default is concerned, the period starts from the date of deductibility till the date of actual payment of tax. Therefore, the levy of interest has to be restricted for the above stated period only. 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 provisions are independent of the charging provisions. In the said judgment itself Hon’ble Apex Court has clarified that it is confined strictly to the question of deductibility of tax from the “income chargeable under the head ‘salaries” under Section 192(1) and as such this Court is of the view that principles laid down in the said judgment would be inapplicable to the facts of the present case.

CONCLUSION

53 A cursory look of Finance Act, 2001, introduced with effect from 01.04.2002 and particularly Section 194B would indicate that it was introduced to tax deduction at source on winnings from ‘card games and other games of any sort’. Explanation to Section 2 (24) (ix) was simultaneously introduced along with the words inserted in Section 194B whereunder the card games and other games of any sort was introduced within the ambit of tax deduction along with lotteries and cross-word puzzles. It is relevant to point out that words namely, ‘card game and other game of any sort’ which came to be inserted in Section 194B was already in existence in the definition clause namely, Section 2(24)(ix) with effect from 01.04.1972 and Section 115BB from the year 01.06.1987 introduced by Finance Act, 1986 itself. By insertion of these words, the Parliament has sought to bring into sweep the TDS to be made by the Payor even for the activity of ‘card game and other game of any sort’ by adding Explanation (ii) to Section 2(24)(ix). The budget speech of the Finance Minister would indicate the back drop in which amendment to Section 194B was sought to be introduced namely, vast number of people were participating and winning various gifts or prizes in television shows and entertainment programs conducted by Electronic Media in respect of which the element of evasion of tax was found or in other words, such prize money paid to the winner/s was not being taxed. As such, explanation (i) and (ii) also came to be inserted to Section 2 (24) (ix) of the Act by Finance Act, 2001 with effect from 01.06.2001 which undisputedly is an inclusive definition. The relevant portion of the budget speech rendered by the Finance Minister is as under:

“Winnings from lotteries, crossword puzzles etc., are currently taxed at 40%. As the marginal personal income-tax rates have now stabilized at 30%, this income will also now be taxed at 30%. Television game shows 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 the insertion of the words above referred to. The said budget speech would indicate that television game shows had gained popularity and such of those winners who receive the prize money which attract the income tax will have to be deducted at source from the winnings of these games and all other similar games. The principles of ejusdem generis would squarely apply to the facts of the present case since the words or phraseology used in Section 194B namely, ‘other game of any sort’ would take its colour from the context in which the same has been used and the said phrase can only be games akin to the games which are specifically mentioned in the said provision. As such, stake money or prize money cannot be included within the said phraseology in the light of the fact that the words used in fiscal statute have to be given strict interpretation.

55. Thus, a conspectus reading of the provisions of the Act, circulars and the speech of the Finance Minster would indicate that amendment brought about by Finance Act, 2001 had no bearing over income derived from owning and maintaining horses.

56. The revenue has made an attempt to contend that on account of the words ‘or card game and other similar game’ introduced by way of insertion to Section 194B by Finance Act, 2001 would encompass the income by way of stake money and thereby an obligation is cast on the Turf Clubs to deduct the tax at source on such stake money paid to the race horse owners requires to be considered with utmost circumspection for reasons more than one. Firstly, the definition clause under the Income Tax Act, is to be construed as inclusive definition and not exhaustive.

57. Further, the words ‘or card game and other game of any sort’ found in Section 194B is to be read ejusdem generis. It can also be gain said that the doctrine of noscitur a sociis namely the meaning of the word is to be judged by the company it keeps would be applicable. The said principle came up for consideration before the Hon'ble Apex Court in the case of STATE OF BOMBAY VS. HOSPITAL MAZDOOR SABHA (AIR 1960 SC 610) and it has been held as under:

“9. It is, however, contended that, in construing the definition, we must adopt the rule of construction noscuntur a sociis. This rule, according to Maxwell, means that, when two or more words which are susceptible of analogous meaning are coupled 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 words have been deliberately used in order to make the scope of the defined word correspondingly wider. It is only where the intention of the Legislature in associating wider words with words of narrow significance is doubtful, or otherwise not clear that the present rule of construction can be useful applied. It can also be applied where the meaning of the words of wider import is doubtful; but, where the object of the Legislature in using wider words is clear and free of ambiguity, the rule of construction in question cannot be pressed into service. As has been observed by Earl of Halsbury, L. C., in The Corporation of Glasgow v. Glasgow Tramway an Omnibus Co. Ltd. (1), in dealing with the wider word used in s. 6 of Valuation of Lands (Scotland) Act, 1854,

"the words 'free from all expenses whatever in connection with the said tramways' appear to me to be so wide in their application that I should have thought it impossible to qualify or cut them down by their being associated with other words on the principle of their being ejusdem generis with the previous words enumerated ".

If the object and scope -of the statute are considered there would be no difficulty in holding that the relevant words of wide import have been deliberately used by the Legislature in defining “industry" in s. 2(j). The object of the Act was to make provision for the investigation and settlement of industrial disputes, and the extent and scope of its provisions would be realised if we bear in mind the definition of " industrial dispute " given by S. 2(k), of " wages” by S. 2(rr), "workman " by S. 2(s), and of " employer by s. 2(g). Besides, the definition of public utility service prescribed by s. 2(m) is very significant. One has merely to glance at the six categories of public utility service mentioned by s. 2(m) to realise that the rule of construction on which the appellant relies is inapplicable in interpreting the definition prescribed by s. 2(j).”

58. When the words ‘and other game of any sort’ used in Section 194B is examined with reference to the preceding words and interpreted, the one and only conclusion which can be drawn would be that activity of owning and maintaining horses cannot by any stretch of interpretation be held that it would fall within the definition of ‘and other game of any sort’.

59. Thus, harmonious reading of the statutory 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 term “or any other similar game” found in explanation (ii) will have to be ejusdem generis and so also the term “any other similar game” found in Section 2(24)(ix) of the Act. On advent of game shows involving prize money being telecast through electronic media and said prize money having not found its place in the definition clause of “Income” under the Income Tax Act, 1961, Legislature introduced explanation (i) and (ii) to sub- clause (ix) of sub-section (24) of Section 2 so as to include such prize money also under definition of “income”, since in those events people would compete with each other to win prizes. In fact, this position becomes clear from the budget speech of the Finance Minister which came to be rendered on the Floor of Parliament in the backdrop of amendment brought to Section 194B and Section 2(24)(ix). Explanation (i) and (ii) which is once again extracted herein below:

“Winnings from lotteries, crossword puzzles etc., are currently taxed at 40%. As the marginal personal income-tax rates have now stabilized at 30%, this income will also now be taxed at 30%. Television game shows 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.”

Ejusdem generis, principle of construction would mean same kind or nature, whereby wide words associated in the text with more limited words 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 described 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 perused and also read along with Section 194B it can be easily inferred the legislature has intended to bring such income earned by the prize winning members who compete with each other and win prizes in any game show or entertainment programme on television or electronic media and games similar to it. Hence, “stake 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 genus of the words found in Explanation 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 cannot be treated as `assessee in default’ under Section 201 of the Income Tax Act, 1961.

(4) Consequently, the notices dated 20.12.2012, 07.01.2013 issued by third respondent for the years 2006-07, 2007- 08, 2008-09, 2009-10 (Annexures-B1, B2, B3) in W.P.Nos.6565-6568/2013 and 6651- 6652/2013 are hereby quashed as being ultra vires of the provisions of the Income Tax Act, 1961.

(5) Assessment orders dated 06.02.2013 passed by third respondent vide Annexures-G, G1 to G9 and the consequential demand notices issued by third respondent dated 06.02.2013 as per Annexures-G10 to G19 in W.P.Nos.6565- 6568/2013 and 6651-6652/2013 are hereby quashed.

(6) Notice dated 28.11.2012 issued by third respondent vide Annexure-B in W.P.No.6674/2013 is hereby quashed.

(7) A writ of mandamus is issued to first and third respondents in W.P.No.18696- 18697/2013 not to demand TDS from the petitioners under Section 194B of the Income Tax Act, 1961 since stake money is outside the purview of Section 194B of the Income Tax Act, 1961. (

8) Rule made absolute.

(9) Costs made easy.

Sd/-

JUDGE