Either the turf authorities haven’t understood the gravity of the problem or they just don’t care. The Income Tax department has been hammering the Bangalore Turf Club and Mysore Race Club with various claims which if complied with will result in seriously impairing the finances of the clubs and crippling their activities. The same claims will reach the doors of other turf clubs in India if it has not already jolted them.

The Turf Authorities of India, who recently met at Kolkata in the first week of March, glossed over the subject stating each turf authority should handle the problems on its own, little realizing that the problem is common to all and a collective approach will give a forceful thrust instead of individual attempts by each of the turf clubs. It is akin to not reacting if the neighbour’s house is on fire till it spreads it one’s own house.

The tax problems confronting the club are:

1.The demand for payment of TDS at the rate of 30 per cent on stake money. This demand has been made with retrospective effect from 2005-06. The club has got temporary reprieve with the High Court staying the demand for retrospective payment. However, the club has been ordered to pay the amount henceforth pending disposal of the case. The club believes that it is for the owners to continue the battle as they are the aggrieved lot.

The club has run into income tax authorities who are hell bent on raising their revenue supposedly by plugging loopholes but refusing at the same time to consider the club’s representations and accepted definitions. The income tax authorities are reluctant to come to realistic assessment probably because they have been given additional targets. They were earlier accepting the club’s stand about not deducting TDS on stake money. The Income Tax authorities now are refusing to concede that stake money is different from winnings and cannot be equated with winning lottery or game shows. Under an existing CBDT (Central Board of Direct Taxes) circular, stake money is not subject to TDS. However, Income Tax department now has taken a different view and is claiming that stake money is subject to TDS under section 194. It is only now that Income Tax department is changing its interpretation. Incidentally, very few race horse owners file returns which compound the problem. Owning a horse is no doubt a losing proposition for the majority but by not filing returns, they have complicated the problem for the club and for themselves.

2.The club has also been slapped with notice for non-deducting of TDS on dividend distributed on tote. The Income Tax department has arrived at a rough figure (approximately Rs 500 crores) to determine the amount. It has taken into account whatever dividend is distributed as the basis for arriving at the grossly exaggerated figure. Traditionally income tax is deducted when the payment exceeds Rs 5,000 (earlier Rs 2500) as per the act. The records are maintained on this score but income tax department wants aggregation of all payments. This means the club has to keep track of all individual winnings. Given the nature of activity, it is difficult to maintain track of every payment. The Royal Calcutta Turf Club and Hyderabad Race Club have got relief from the respective Tribunals but it may only be temporary.

Now with technology advancement and higher collection on totes, the income tax department is now contending that all payments should be aggregated once it exceeds Rs 5,000 and TDS deducted on total winnings irrespective of individual payments however cumbersome it may be. The High Court has given stay on aggregation and the matter is likely to be heard very soon. Time is running out for clubs to approach the central government to make them realize the practical difficulty of tracking details of each and every punter and his transactions. The turf clubs must convince the Central Government that the nature of tote betting being what is, it is practically not possible to implement the income tax demand. On every day we have thousands of new comers who just make an appearance for a day and they would be intimidated into putting any money on the official pools as they have to fulfill so many formalities. It is like following KYC (Know Your Customer) norms used for opening a bank account or trading on the stock market.

3.The other problem has arrived at the door steps of Mysore Race Club. This is a claim of Rs 97 crores which has been computed as taxes by disallowing expenditure of payment of dividends. Since there are no receipts to show that the same has been paid to punters, the Income Tax department is disallowing this expenditure as there are no supporting vouchers in the form of details about each individual winner of these tickets. Ironically, wherever payment pertains to over Rs 5,000, that amount has been excluded from the demand as details are available and tax has been remitted.

4.The turf clubs have also been forced to pay service tax of 12.36 per cent on the commission earned on tote as it is deemed that the club is providing a service. BTC is paying the same under protest. Ironically, gambling has been specifically left out of service tax ambit by putting it in the negative list. However, as racing has been defined as a Game of Skill by the Supreme Court in the Madras Race Club case, the club is caught up in the service tax net on its tote commission. The BTC has to cough up an additional Rs 7 to 10 crore on this account alone. There is a possibility if the club switches to fixed odds tote betting with an element of risk to the club, the service tax could be avoided. It is understood that RWITC and Hyderabad Race Club have already complied with this demand of tax authorities.

What are the turf clubs in India doing to tackle the problem? The BTC called for a meeting with club members, professionals and a few others and on the advice from the consultants the club filed writ petitions which have saved them temporarily. Nobody seems to have realized the seriousness of the problem. The Turf Authorities of India has so far not taken a collective approach.

With 30 per cent being cut from stake money for TDS apart and another 27 per cent lost by way of other commission, the club is thinking of cutting two per cent commission from the trainers and jockeys who at present get 10 and 7.5 per cent respectively from the stake money to compensate the owners . The turf club is also planning to cut stake money for the summer season. There is bound to be strife on this score as well.