Is Stake Money Received By Jockeys Liable For TDS?
In a short but succinct article, the author has dealt with the controversial topic whether stake money received by jockeys is liable for TDS or not. After thorough research and a systematic study of sections 194BB and 194J of the Act, the author has drawn the conclusion that there is no present obligation to deduct tax on these payments.
Casual and non recurring receipts were exempted from payment of Indian Income Tax since 1918 [end note 1] except where such receipts arose from business or exercise of profession, vocation or occupation. The Indian Courts have held that winnings from horse races amount to casual and non recurring income, however, whether such income qualifies as business income of the taxpayer or not is a question of fact [end note 2]. Resultantly, winnings from horse races were brought to tax where horse racing constituted a business of the taxpayer else exempted where the same constituted hobby. In order to bring uniformity in taxing such winnings, the legislature amended [end note 3] the Income Tax Act, 1961 ('ITA') and deemed, winnings from horse races, as income [end note 4] on the basis of the suggestions [end note 5] of various committees [end note 6].
After bringing winnings from horse races within the tax net, the legislature inserted section 194BB [end note 7] which provided for tax deduction at source ('TDS') on payment of winnings from horse race. Winnings from horse races within its ambit encompass income by way of betting, income by way of stake money (prize money) [end note 8].
Income by way of stake money is paid by the race clubs to horse owners, racehorse trainers and jockeys as per the rules made by Turf Authorities of the Race Clubs. A circular issued by Central Board of Direct Taxes ('CBDT') explaining the scope of section 194BB specifically provided for non deduction of tax on payment of stake money [end note 9].
In spite of the clarifications from CBDT, the question of applicability of TDS on stake money is not yet settled. The scope of this article is limited to analysis of applicability of TDS on stake money paid to jockeys.
Jockey is a person who rides a horse especially as a professional in a race for which he receives ridership fees from the horse owners [end note 10]. Apart from ridership fees, jockey also receives share of stake money from the race clubs in case jockey secures the prized position [end note 11].
Section 194J of the ITA provides for deduction of tax at the rate of 10% on payment of any sum by way of fees for professional services to a resident. Explanation (a) to section 194J defines 'professional services' as services rendered by a person in the course of profession including services as a sports person [ end note 12].
It is, therefore, evident that deduction under section 194J is attracted only when any specified service is rendered to any person for a consideration.
Facts of a particular case may suggest that the jockey receives share of stake money from race clubs by securing prized position in the horse race and not because of rendering any professional services to the race clubs or to racehorse owner.
Revenue authorities, however, relying on circular [end note 13] wherein it is said that there is no stipulation that professional services must be rendered to the person making payment for invoking section 194J may contend that even though no professional services are rendered to the race club, still TDS under section 194J will be attracted. In this regard, reference is made to the decision of Hon'ble Delhi High Court in the case of Vipul Medcorp TPA (P.) Ltd. [end note 14] wherein it was held that even though it is not necessary to render professional services to the payer nevertheless specified professional services must be rendered in respect of which payment is received to attract TDS under section 194J.
Thus, a view emerges that to attract section 194J, nature and character of payment in the hands of the recipient is relevant i.e. the amount should be received by the payee as a fee for rendering professional services.
In a given set of facts, it may be possible to contend that the share of stake money received by jockeys from the race clubs is not in the nature of fees for professional services i.e. towards rendering of any professional services either to race clubs or horse owners but received as prize money for securing the prized position.
In light of the above discussion, a view emerges that tax may not be required to be deducted on share of stake money paid by race clubs to jockeys either under section 194BB or section 194J.
Analysis of TDS implications on the payment of stake money to horse owners is also under process by the Author though having a prima facie view that such payments should not attract TDS. A detailed discussion on this issue will follow shortly.
Refer section 3 (2) (viii) of The Indian Income Tax Act, 1918.
Janab A. Syed Jalal Sahib v. CIT [1960] 39 ITR 660 (Madras High Court), Lala Indra Sen [1940] 8 ITR 187 (Allahabad High Court –Full Bench).
Vide Finance Act, 1972.
Refer section 2 (24) (ix) of Income Tax Act, 1961
To bring horizontal and vertical equity.
John Mathai Report 1953-54, Nicholas Kaldor Report 1956, K.N.Wanchoo Report, 1971.
Vide Finance Act, 1978.
As understood in common parlance.
Circular No. 240 dated 17th May, 1978.
As understood in common parlance.
As per the rules made by Turf Authorities of the Race Clubs – Refer R.W.I.T.C Ltd. – Rules of Racing, 2012.
Section 44AA read with Notification No. 88/2008 [S.O. 2085(E)] dated 21st August, 2008 whereby interalia sports person is specifically notified as 'professionals'.
Circular No. 8/2009 dated 24th November, 2009.
[2011] 245 CTR 125 (Delhi HC).
Ashish-Karundia
Is Stake Money Received By Jockeys Liable For TDS?
CA ASHISH KARUNDIA,
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