The Bangalore Bench of Income Tax Appeal Tribunal (ITAT) ruled that the subsidy expenditure did not attract the TDS provision and quashed the order denying the subsidy u/s 40(a)(ia).
The caller M/s. Mysore Race Club Limited is engaged in the business of conducting horse racing and betting on and off course. The general public could bet on the horses either at the racecourse or through the counters placed outside the racecourse. The person who bets on horses is called “Punters” and if the horse he has bet on wins the race ensuring a particular rank, he will receive a cash prize according to the predetermined rates, which is the combination of the multiplier factor for each of the horse and rank. The assessee has only recorded the amount of the commission, including the aggregation tax, in his accounting books.
The AO found that the assessee made certain payments on which he did not withhold tax at source. Accordingly, he rejected the amount of the grant – Rs.2,69,94,732/-, the contribution to the Turf authorities – Rs.20,00,000/- and the doping test fee u/s 40(a) ( ia) of the law.
The Tribunal, with respect to the disallowed grant, observed that the assessee bears part of the cost of the fodder purchased to feed the horses. The payment made for the purchase of fodder does not attract any of the provisions of the TDS and with regard to the transportation subsidy as well, the Tribunal observed that the assessee paid part of the transportation costs incurred by the horse owners in the form of reimbursement made to them. The primary responsibility for deducting the TDS would lie with the horse owners, as they incurred the transportation costs. The assessee only reimbursed part of the transport costs to the horse owners. Therefore, this payment will also not be subject to withholding tax.
In addition, the Court observed that the two-year grant is also a kind of reimbursement for treating horses and does not attract the provisions of TDS. The payment to the Jockeys and Trainers Fund and the Employees Provident Society is a kind of contribution related to the business activities of the assessee and the said payments are also not covered by any of the provisions of the TDS. The final ‘Syces grant’ element is money paid to horse owners from stake money and it would also not be covered by any of the provisions of the TDS.
The Coram of Sri NV Vasudevan, Vice-President, and Sri BR Baskaran, Accounting Member maintained that “we are of the opinion that the dismissal made by AO u/s 40(a)(ia) of the Act regarding grant expenditures is not in accordance with the law and the LoA. CIT(A) was not justified in confirming said addition. Consequently, we cancel the decree issued by the Ld. CIT(A) on this issue and direct the AO to remove disavowal”.
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