Few provisions of the Income Tax Act have caught more ordinary taxpayers off guard than Section 115BB. It taxes "winnings" from lotteries, crossword puzzles, card games and "other games of any sort" at a flat 30%, and it sits alongside Section 58(4), which bars any deduction of expenditure against such winnings. For a lottery ticket that costs Rs 100 and wins Rs 10 lakh, that is perfectly fair. But what happens when the "game" is online rummy, played thousands of times a year, where every hand requires a fresh buy-in, and where the player's total deposits exceed the total prizes credited back to him?
That is the question the Hyderabad Bench of the Income Tax Appellate Tribunal, comprising Vice President Vijay Pal Rao and Accountant Member Manjunatha G., answered in the case of Emdarapu Kumaraswamy. Its answer — that "winnings" under Section 115BB must be read as net winnings — deletes a Rs 3.54 crore addition. But, as we explain below, it is not the last word: a coordinate Hyderabad bench has taken the diametrically opposite view. Both cannot be right, and the issue is now ripe for a larger bench or the High Court.
The Facts: A Rs 30 Lakh Loss Taxed as a Rs 3.54 Crore Win
The Assessing Officer received information from Gameskraft Technologies Pvt. Ltd. — the operator of popular real-money rummy platforms — that the assessee had been credited gross winnings of Rs 3.54 crore during the year. Treating that figure as "winnings from other games" taxable under Section 115BB, the AO added the entire Rs 3.54 crore to the assessee's income and taxed it at 30%. The CIT(A) / NFAC confirmed the addition.
The assessee's answer was arithmetical and, frankly, unanswerable on the facts. The transaction statement from the platform itself showed:
- Total buy-ins / deposits paid into the game: Rs 3.84 crore;
- Gross winnings credited back: Rs 3.54 crore;
- Net position for the year: a loss of Rs 30.43 lakh.
In other words, the player put more money into the platform than he ever took out of it. To tax the Rs 3.54 crore of gross prizes — while ignoring the Rs 3.84 crore it cost to win them — is to levy 30% tax on a real cash loss. The assessee argued that Section 115BB, read sensibly, taxes the net gain from the activity, not each individual prize credit stripped of its cost.
The Tribunal's Holding: "Winnings" Means Net Winnings
The Hyderabad Bench accepted the assessee's position. The essence of its reasoning is that the word "winnings" is not the same as "receipts." You have not won anything unless what comes back exceeds what you staked. The buy-in is not a deductible "expense" incurred to earn income in the Section 58(4) sense — it is the stake itself, an inseparable part of the very transaction that produces the winning. Netting the stake against the prize is therefore not a "deduction" at all; it is how you identify the winning in the first place.
The winnings from any game referred to under Section 115BB must be understood in the context of the net winnings from the game — that is, the gross amount won as reduced by the amount the assessee paid to participate in the game.
On the facts, once the Rs 3.84 crore of buy-ins was set against the Rs 3.54 crore of gross prizes, there were no net winnings at all — only a loss. There being nothing to tax under Section 115BB, the Tribunal deleted the entire Rs 3.54 crore addition. (A separate, minor issue — a Rs 5.71 lakh disallowance of Chapter VI-A deductions and interest under Section 24(b) — was remanded to the AO for verification against fresh documentation.)
The Statutory Backdrop: Two Regimes, Two Definitions of "Winnings"
To understand why this issue is genuinely contested, one has to see how Parliament itself changed course. There are now two regimes for taxing gaming income, and the dividing line is Assessment Year 2024-25.
The Old Regime — Section 115BB read with Section 58(4)
For years up to AY 2023-24, online gaming winnings fell under the general Section 115BB. That section speaks of "winnings," and Section 58(4) expressly prohibits deduction of any expenditure or allowance in computing income by way of such winnings. The Revenue's reading is literal: the platform credits a "winning," Section 115BB taxes it at 30%, and Section 58(4) forecloses any set-off of stakes or losses. Gross in, gross taxed.
The New Regime — Section 115BBJ, Section 194BA and Rule 133
The Finance Act, 2023 inserted a dedicated code for online games, effective from AY 2024-25:
- Section 115BBJ — taxes "net winnings from online games" at 30%;
- Section 194BA — requires TDS on the "net winnings" in a user's account; and
- Rule 133 and CBDT Circular 5/2023 — prescribe the precise formula, in which the opening balance, deposits and withdrawals are all factored in, so that only the genuine net gain is taxed.
Crucially, Parliament used the words "net winnings" in the new code — words it did not use in the old Section 115BB. That drafting choice is the fault line on which the two Hyderabad orders diverge.
The Split: A Coordinate Hyderabad Bench Says the Opposite
This is the part every practitioner must know before relying on the Emdarapu order. In a separate Hyderabad ITAT order (reported as ABCAUS 4708 (2025)), involving a salaried employee who had also incurred a net loss on the "Rummy Culture" platform, the Tribunal reached the opposite conclusion. There, the Bench:
- Upheld taxation on gross gaming receipts under Section 115BB;
- Denied set-off of platform losses, applying Section 58(4); and
- Held that Section 115BBJ — the provision that expressly allows a net-winnings computation — is a new substantive provision operative only from AY 2024-25, and cannot be "given retrospective effect" to import a net-winnings concept into the old Section 115BB.
Section 115BBJ, being a new section introduced from AY 2024-25, cannot be given retrospective effect. Unless a statute expressly so provides or necessarily requires it, retrospective operation should not be read into it.
So we have two orders of the same Tribunal, at the same station, on the same issue, reaching opposite results. One reads "winnings" in Section 115BB as inherently net; the other reads it as gross and treats "net winnings" as a concept that Parliament introduced only prospectively in 2023. This is precisely the kind of intra-tribunal conflict that, left unresolved, invites a Special Bench reference or an appeal to the jurisdictional High Court.
Analysis: Which View Is Right?
The Case for "Net" (the Emdarapu View)
The strongest argument for the assessee is conceptual, not concessional. "Winnings" is an ordinary English word that presupposes a gain. A player who stakes Rs 100 to win a Rs 90 pot has not "won" Rs 90 — he has lost Rs 10. On this reading, netting the stake is not a Section 58(4) "deduction of expenditure" at all; it is the measurement of the winning itself. Section 58(4) bars deducting collateral expenses (electricity, subscription fees, a computer) — not the stake that is intrinsic to the game. Read this way, Section 115BBJ did not change the law; it merely clarified and codified what "winnings" always meant, adding a machinery (Rule 133) to compute it. A clarificatory provision is not truly retrospective.
The Case for "Gross" (the Contrary View)
The Revenue's argument is textual and structural. Section 115BB says "winnings," full stop; Section 58(4) says "no deduction … in respect of any expenditure or allowance." If "winnings" already meant "net winnings," then the insertion of the words "net winnings" in Section 115BBJ — a deliberate legislative choice — would be surplusage. Parliament's decision to spell out "net winnings" only in the 2023 code, and to build an elaborate Rule 133 machinery to compute it, strongly implies that the earlier regime did not permit netting. On this view, the pre-AY 2024-25 taxpayer is stuck with gross — a harsh result, but a deliberate one that Parliament fixed only prospectively.
Where the Balance Lies
Both positions are respectable. The Emdarapu view is the more just and, we would argue, the more principled — taxing a man on a loss offends the basic premise that income tax is a tax on income. But the contrary view has real textual force, and the "surplusage" argument is not easily brushed aside. What is certain is that, for pre-AY 2024-25 years, the matter is genuinely open, and a taxpayer who relies solely on the Emdarapu order without preparing for the contrary line does so at his peril.
Why This Order Matters
1. It Reframes "Winnings" as a Net Concept
For the large population of recreational and semi-professional online-gaming players who received AIS / SFT-driven notices for AY 2020-21 to AY 2023-24 — often for eye-watering gross figures that dwarf their actual gains — the Emdarapu order is the first substantive authority that says: bring the buy-ins on record, and you are taxed only on what you actually won.
2. It Turns on Evidence, Not Sympathy
The Tribunal did not delete the addition out of compassion. It did so because the platform's own transaction statement established the buy-ins and the prizes with precision. The lesson is unmistakable: the case is won or lost on the completeness of the platform data. A partial statement, or one that omits deposits, will sink the assessee.
3. It Exposes a Live Conflict Practitioners Must Navigate
Until a Special Bench or High Court settles it, both views are "available" at the ITAT level. Advisers must plead the issue fully — statutory text, the clarificatory-versus- substantive character of Section 115BBJ, and the ordinary meaning of "winnings" — rather than assume the Emdarapu order is binding. It is persuasive, not conclusive.
Practical Takeaways
- Reconstruct the full-year ledger. Do not fight a Section 115BB gaming addition on the gross figure. Obtain the platform's complete transaction statement — opening balance, every deposit / buy-in, every winning credit, and every withdrawal — and prove the net position from source data.
- Frame netting as measurement, not deduction. Anticipate the Section 58(4) objection. Argue that setting the stake against the prize is how "winnings" is computed, not a prohibited deduction of "expenditure." This is the doctrinal hinge on which the Emdarapu view rests.
- Deploy Section 115BBJ as a clarification, not just a later law. Argue that the 2023 "net winnings" code codified the correct meaning of "winnings" and is therefore clarificatory — meeting the Revenue's "prospective-only" argument head-on.
- Cite the conflict candidly. Put both Hyderabad orders before the Bench. A tribunal deciding a contested point is far more comfortable following the better- reasoned of two known views than being ambushed later with the contrary authority.
- For the Revenue side: the sustainable position for pre-AY 2024-25 years is the textual one — "winnings" in Section 115BB is gross, Section 58(4) bars set-off, and Section 115BBJ's "net winnings" is a conscious, prospective innovation. Anchor the case in the surplusage argument and the deliberate legislative sequencing, not in the equities.
- From AY 2024-25 onwards, the fight is largely over. Section 115BBJ read with Section 194BA, Rule 133 and Circular 5/2023 mandates a net-winnings computation. The controversy is confined to the legacy years.
Case Details
Case: Emdarapu Kumaraswamy v. Income Tax Officer (via CIT(A) / NFAC)
Forum: Income Tax Appellate Tribunal, Hyderabad Bench
Bench: Shri Vijay Pal Rao (Vice President) and Shri Manjunatha G. (Accountant Member)
Date of Pronouncement: 24 June 2026
Amount in Issue: Rs 3.54 crore addition under Section 115BB (deleted); Rs 5.71 lakh Chapter VI-A / Section 24(b) disallowance (remanded)
Provisions: Section 115BB, Section 58(4), Section 115BBJ, Section 194BA — Income Tax Act, 1961
Platform Data Source: Gameskraft Technologies Pvt. Ltd. (online rummy)
Outcome: Gross winnings held taxable on a net basis; net loss established; Rs 3.54 crore addition deleted
Contra: ABCAUS 4708 (2025) (Hyderabad ITAT) — gross winnings under Section 115BB upheld; Section 115BBJ held prospective from AY 2024-25 only