The Karnataka High Court gave a big relief to racing which was under threat of being crippled by the Income Tax department demand of 30 per cent TDS on stakes earned by race horse owners under section 194 B which meant that the stake money earned by winning races was treated as windfall income and could not be set off against expenses like any other income.

The Bangalore Turf Club sought to cripple the professionals like trainers and jockeys by bringing them also under the same bracket under pressure from KROA though the Income Tax claim was only against race horse owners. The High Court has quashed the order of the Income Tax Commissioner. Crores of rupees which the club had deducted from stake money and deposited with the TDS section of the Income Tax department can now be reclaimed.

The Income Tax department had slapped Rs 500 crores demand for past arrears on the Bangalore Turf Club. The BTC went to court to question the orders of the Income Tax Department. In the meanwhile the Karnataka Trainers Association represented by 10 trainers namely Rashid Byramji, its President S Padmanabhan, Darius Byramji, Zareer Darashah, Neil Darashah; Prithviraj among others filed a petition challenging the order of the Income Tax department with details of their income tax returns which included income from racing as well. One of the race horse owners K K Belliappa also filed a writ petition. The KROA too filed a petition. All the petitions were brought before a single judge and the matter was heard over a period of more than one year.

Justice Aravinda Kumar had reserved the matter for orders and the same were pronounced on Friday. This was a historic victory for the sport of racing because 30 per cent deduction on stake money was a crippling blow when maintenance cost of horses had gone up steeply and whatever earned was not sufficient to break even. The 30 per cent tax meant that owners who were in the sport for the love of it and not for gambles were under extreme stress. The breeders too had been hit hard as the market was at its lowest ebb for the last two years.

The Bangalore Turf Club was represented by Senior Counsel Naganand. The Karnataka Trainers Association was represented by Kings & Partridge which had Senior Counsel K P Kumar arguing the case in a logical and precise manner. He was assisted by Tanmai and Surya. The KROA was represented by noted tax lawyer Shanker. All of them presented the perspective of these bodies and how stake money did not qualify to be called as windfall income.

The Income Tax lawyer, citing orders of the Supreme Court, had said that racing was a game of skill and stake money earned under this preview. Under this rule, the income earned from racing through stake money constituted windfall income and stake money was thus subject to TDS of 30 per cent under 194 B of the Income Tax Act which refers to winning from lottery and puzzles and any other game. Under this act, the payer is responsible for deduction of TDS. Justice Aravinda Kumar observed that horse racing had separate set of income tax rules which were already in existence which permitted exemption of TDS deduction on stake money.

The order of the High Court will have a huge positive impact on horse racing. For one, genuine race horse owners who were already facing the heat of huge TDS deduction and were either cutting down their string or selling them off will get substantial benefit.

The Income Tax department of Andhra Pradesh has made similar claims of TDS and Hyderabad Race Club has already started the process of paying the huge income tax claim by deducting from the stake money earned from race horse owners. The professionals however were only subjected to 10.30 per cent tax unlike the Bangalore Turf Club which deducted 30 per cent under the windfall income law. The TDS claim of 30 per cent had also been made on Madras Race Club, Mysore Race Club and RWITC. All these clubs were awaiting the outcome of the writ petition before the Karnataka High Court. There should now be a collective sigh of relief.