A Bengaluru taxpayer faced an income tax notice after failing to report ₹2.33 crore in online gaming winnings in his income tax return for AY 2022-23. According to reports from Mint and The Times of India, Arakere Channappa, a resident of Doddakallasandra in Bengaluru, reported a total income of ₹4.32 lakh in his return, which included earnings from house property, business and other sources. The case was picked up for scrutiny by the income tax assessing officer (AO), Bangalore, who received information that Channappa had participated in online gaming activities on "Rummyculture" and "Gamezy" portals operated by Gameskraft Technologies Pvt. Ltd. The assessee reportedly failed to provide evidence or explanation about the funds despite receiving multiple tax notices, leading the officer to conclude that the entire ₹2.33 crore in online gaming winnings should be reported under the head "Income from Other Sources."
The income tax department conducted a search and seizure operation in Gameskraft's offices on March 15, 2022, gathering information about money earned through online gaming portals. As reported by Mint and The Times of India, the AO noted that players used both real money and bonus amounts for gaming, with winnings credited to their wallets after the gaming company deducted its commission. The officer explained that when two players put ₹100 each and the company deducted 10% commission, the balance of ₹180 gets credited to the winner's wallet, representing gross winnings. The AO argued that the entire amount credited to winning players' accounts should be considered taxable income under Section 56(2)(ib), which taxes winnings from lotteries, crossword puzzles, races, card and other games at a flat rate. The officer also relied upon the Finance Act, 1986 commentary and observed that no allowance or deduction is admissible against gross winnings from games. The AO further noted that Section 115BB provides for a flat rate of tax on winnings from lotteries, crossword puzzles, races, card games and other games, irrespective of the taxpayer's normal income-tax slab.
Channappa argued that the online gaming activities resulted in a net loss of nearly ₹27,99,353, according to Mint and The Times of India reports. He noted that Gameskraft's response indicated the total buy-in amount was ₹2.61 crore, whereas gross winnings were ₹2.33 crore. The assessee claimed that the AO's approach is contrary to the basic principle of taxation that only real income can be taxed, arguing that the gross amount was only a movement of money within the gaming wallet and did not represent any real gain. He also pointed out that the AO selectively considered only the gross winning figure and ignored the buy-in amount and the net loss disclosed in the very same information. The assessee argued that the Income-tax Act taxes income and not gross movement of funds or turnover, emphasizing that the gross amount of ₹2,33,52,271 was only a movement of money within the gaming wallet. Chartered Accountant Suresh Surana told The Times of India that the key issue was the transaction data obtained directly from Gameskraft, which showed that Channappa had made buy-ins totalling ₹2.61 crore, while his gross winnings stood at ₹2.33 crore, meaning he had incurred a net loss of approximately ₹28 lakh.
Channappa's appeal to the Commissioner of Appeals (CIT A) was rejected, but he approached ITAT Bangalore, where he won the case on July 23, 2026. According to Mint and The Times of India, ITAT Bangalore ruled that gross winnings from online real money gaming activities should not be taxed and only net profits should be considered for taxation purposes by the income tax department. The tribunal's judgment overturned the tax officer's demand, allowing the assessee to avoid taxation on the entire ₹2.33 crore gaming winnings. The ruling established that the amount that could be brought to tax was the actual net winnings from online gaming, rather than gross credits appearing in a player's wallet or amounts shown as winnings at different stages of the gameplay. The tribunal found that the approach adopted by the lower authority did not align with the basic meaning of "income" under the Income-tax Act, noting that the tax law is concerned with taxing actual income, rather than simply taxing the gross flow, movement or repeated circulation of money. Tax experts noted that the key factor was the difference between the taxpayer's total buy-ins of ₹2.61 crore and gross winnings of ₹2.33 crore, resulting in a net loss of approximately ₹27.99 lakh. The absence of tax deducted at source (TDS) on any net winnings also supported the taxpayer's position.
