Is Stake Money Received By Jockeys Liable For TDS?
CA Ashish Karundia, Senior Associate, Direct Tax, Lakshmikumaran & Sridharan
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).
| Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org |
Dear All,
The article does not conclude as a thumb rule that share of stake money paid to jockeys will not attract TDS. It should be appreciated that the practice prevailing among the various turf club authorities which govern horse race clubs in India regarding stake money is not uniform. This was the reason, it was categorically brought out in the article that “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.”
The Author has analyzed the IT provisions succinctly. A possible view could be that, without the professional services of the jockey, the Races themselves cannot take place and the Club owners will not the able to make any money as stake holders. It is for these professional services that the Jockeys are being compensated out of the prize money and therefore deduction of TDS under the CBDT circular, would be in order.!!
hi Mr Ashish
Your time and interest in analyzing these fact need to be appreciate . however every litigation need not end up with tax payers benefit !
in the present situation the missing point by which every such prized money is subject to tds : the jockey receives share of stake money from race clubs by securing prized position in the horse race , only after enrolled as qualified professional jockey in the first place and by taking active participation in the race he contributes/render services and they by attracts tds provisions.
Great article CA Ashish
CA Ashish Ji, thanks a lot for the wonderful article. My client is already in litigation and after reading your researched article I believe that chances of success are bright . It is easy to say that tax is deducible as that neither requires research nor application of mind. To contest otherwise requires research and analysis. Thanks again for making selfless efforts for benefit of many under scanner.
Mr. Ashish Karundia, If that be so then then all professional players (like our cricketers, or Golf Pros ) who receive prize money are also not liable, because they also receive prize money from from sponsors, who do not get any services.
In my view the Jockey who is a professional renders his services for the entertainment of general public through which all the stake holders including the club get their income and thus directly the jockey renders his services to the club also and TDS should be liable on the prize money. Being a CA do not advance such an advice which will lead to unwanted litigation and thereby benefiting your ilk. The TDS provisions are simple provisions and if the amount is deducted as TDS, will not prejudice the person on whose behalf it is deducted. He will get a refund or adjust his advance tax liability in such a manner that he does not lose on cash flow account. But with unwanted litigation he is sure to lose money and peace of mind.
Dear Mr. DDY,
It is true that the view in the article authored by Mr. Karundia may give rise to litigation at the lower level however, it is important to note that the Income tax Act is not here to be interpreted at one’s own sweet will in order to avoid litigation.
It is pertinent to note that the tax on the stake money paid by race clubs to jockeys is not in the nature of winnings from betting on the horse race. You would appreciate the fact that the person responsible to deduct taxes under section 194BB of the Act is a person/bookmaker who is licenced to arrange betting or wagering in a race course. Since, the payments to the jockeys is not made by them, therefore the tax cannot be deducted under section 194BB.
Further, with respect to deduction of tax under section 194J, I would like to draw your kind attention on the drafting of the statute. Section 194 J specifically provides that tax is to be deducted by a person responsible for paying, to a resident, any sum by way of (a) professional services, [ other categories excluded for the sake of brevity ]
It would therefore be imperetive to understand whether the stake money flows to the Jockey by reason of the professional services rendered by him to the horse owner or by way of prize for winning the race. Since, all other jockeys participating in the race are not entitled to receive similar amount, irrespective of the fact they all were performing similar services for the horse owner, the stake money should be distinguished with the fee for rendering a professional service. Therefore, the provisions of section 194J are applicable on the ridership fee and not on the income by way of stake money received on winning the race.
Further, the rule of comparison states that an apple is to be compared with an apple. Accordingly, the stake money should not be compared with the fees charged by the cricketers for playing a match rather with prizes such as ‘man of the match’.
Having said the above, I respectfully conclude by saying that where a payment is made to a resident tax payer, tax deduction can be done only under the provisons of sections 193 to 194LD. In absence of any express provision of deducting the tax under the Act, words cannot be imported into the act by way of interpretation to be conservative.
Being an professional, our utmost duty is to provide our well researched view to the client rather than taking a conservative approach and advising to deduct taxes withhout any provision in the law.
Jockeys are being approached to give CA CERTIFICTE u/s 201/40a(ia) for non tds deduction by Turf clubs.