The Income Tax department TDS(Tax Deducted at Source) had issued notices and consequently passed orders on some of the Turf Clubs holding that tax was to have been deducted at source on prize money (stake money) payable to owners of race horses for participating successfully in races. The High Court of Bangalore had in March 2013 directed the Bangalore Turf Club to deduct tax at source under section 194B of the Income Tax Act on stake money till the disposal of the writ petition filed by the Bangalore Turf Club, The Karnataka Race Horse Owners Association and few individual owners. The Bangalore Turf Club, has since then been deducting tax at source at 30% under section 194B causing severe financial hardship to the owners and professionals. The Bangalore Turf  Club,  the Hyderabad Race Club and the Madras Race Club were also served with demands running into crores of rupees for the earlier period on the ground that they had not deducted tax at source on stake money.

 The contention of the Income Tax Department TDS was that horse race comes under “game of any sort” mentioned in section 194B and therefore, tax was to be deducted at source under the provisions of the said section ,which was at the rate of 30%.

The Turf Club and the other petitioners contended that “winnings from horse race” is specifically covered under section 194BB and further under the said section ,the term “winnings” does not include stake money as was clarified by Central Board of Direct Taxes in a specific circular issued in 1978.

After several hearings on this matter, the judgement was finally pronounced on 26^th of September,2014 ,holding:

1. That the provisions of Section 194B with specific reference to the words “game of any sort” does not include the sport of horse racing and Section 194B does not apply to winnings from horse races.

2. That Section 194BB applies to winnings from horse racing and there is no requirement to deduct TDS on “stake money” as explicitly clarified by the Central Board of Direct Taxes in its circular.

3. That the orders passed by Income Tax Department and the notices issued on the Bangalore Turf Club are quashed being not in accordance with law.

The judgement brings a huge relief to the racing industry as the issue threatened to close down racing activity in view of the severe financial implications arising out of the view taken by the Income Tax Department.

As long as this judgement stands, the Bangalore Turf Club and the Mysore Race Club cannot deduct tax at source on stake money being paid to owners. 

The tax already deducted at source by the Turf Club under Section 194B of the Income Tax Act, will have to be claimed by the individual owners by filing their respective income tax returns.