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CMA Intermediate · Direct and Indirect Taxation · Income from Other Sources

Kavita, who owns racehorses maintained for running in races, received Rs 5,00,000 as prize money from a race on which betting is lawful, and spent Rs 1,20,000 on the horses' upkeep and Rs 40,000 on her travel to place a bet on another race where she won Rs 2,00,000. Which statement is correct under section 94 of the Income-tax Act, 2025?

Under section 94, expenditure related to betting winnings is not deductible, so the Rs 40,000 travel is disallowed against the Rs 2,00,000. Section 94(5) exempts the horse owner's activity of owning and maintaining racehorses from that bar, so upkeep can be considered there.

  1. AUpkeep cost is not deductible against the Rs 2,00,000 betting winnings, but section 94(4) does not bar it in computing her income from owning and maintaining horsesCorrect
  2. BThe Rs 40,000 travel cost is deductible against the Rs 2,00,000 betting winnings
  3. CNo expense is deductible against any of her income because she is a horse owner
  4. DUpkeep cost is deductible only against betting winnings, not against owning activity income

Explanation

Section 94(5) lifts the bar of sub-section (4) for the owner's income from owning and maintaining horses for races, so upkeep can be considered there. Betting winnings fall under sub-section (4), so the Rs 40,000 travel cost cannot be deducted from the Rs 2,00,000. Option 2 ignores this bar.

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