Online RMGs tell SC bet money is not taxable income under Income Tax Act

Business Standard

5 days ago

The bet money placed by users in online real-money games (RMG) is neither accrued nor received by casinos and, therefore, should not be considered as income under the Income Tax Act, RMG intermediaries told the Supreme Court on Tuesday.
As per the Income Tax Act, a consideration is defined by law as any sum or value that is either received or recoverable from a user or a client in return for a service that has either been provided or will be provided. Since online RMGs do not accrue or receive the monies deposited by users for themselves, it cannot be considered taxable income, the counsel for the companies told the Court.
He further explained that when people play against the casinos, they settle with the winners and losers and then take whatever is left as surplus.
"We are not valuing the bet but the right to win. It's a different concept from bet value....As far as the face value of the bet is concerned, it belongs to the winner," he said. The court will continue hearing online RMGs' arguments until Friday.
In the last hearing, the companies had argued that the GST provisions before October 2023 were inadequate to impose a 28 per cent tax on online gaming operators in the manner attempted by the authorities. The government's reliance on Rule 31A of the GST Rules (value of supply in case of lottery, betting, gambling, and horse racing), introduced in 2018, was challenged because it lacked statutory authority under the Central GST (CGST) Act, the companies had said.
On Tuesday, online RMGs also contended that attempts to tax actionable claims like betting and gambling as 'goods' by amending the Goods Rate Notification were flawed. Until October 1, 2023, there was no entry for actionable claims in the Customs Tariff Schedule, making their classification as goods unsustainable under GST.
The petitioners (online gaming companies) explained to the court the distinction between platform fees, on which GST is already paid, and prize pool contributions made by players, which are held in trust and returned to winners. They claimed that prize pool contributions do not constitute consideration and thus cannot be taxed under GST.
In the case of online games, they argued that these games are played against each player, with the online gaming operator merely providing platform services, and that the platform operator, as the supplier of platform services, has discharged GST during the relevant period at the specified rate.
The division bench of Justices J B Pardiwala and R Mahadevan is hearing the case, which deals with the absence of clear taxing provisions to enforce tax collection before the October 2023 overhaul. The case, with an estimated financial impact of Rs 2.5 trillion, is one of the biggest tax battles in India's history. The matter will continue on Wednesday.