COMMISSIONER OF INCOME-TAX VS K. S. VENKATASUBBIAH REDDIAR
1997 P T D 1521
[221 ITR 18]
[Madhya Pradesh High Court (India)]
Before Abdul Hadi and Sathasivam, JJ
COMMISSIONER OF INCOME-TAX
Versus
K.S. VENKATASUBBIAH REDDIAR
Tax Case No.624 and Reference No.244 of 1980, decided on 18/01/1996.
(a) Income-tax---
----Business---General principles---Racing---Assessee acquiring race horses, training them and using them regularly for racing---Activities of assessee constituted business---Indian Income Tax Act, 1961, Ss.2(13) & 28.
(b) Income-tax---
----Loss---Business---Racing business ---Assessee entitled to deduction of loss.
(c) Income-tax---
----Business expenditure---Animals becoming useless---Racing business-- Death of race horses ---Assessee entitled to deduction under S.36(1)(vi)-- Indian Income Tax Act, 1961, S.36(1)(vi).
The Income Tax Act defines the term "business" only inclusively. The two essential requirements for an activity to be considered as "business" are: (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive.
The activities carried on by the assessee consisted of acquiring race horses, maintaining and training them and employing them in different races conducted in different centres, after taking necessary assistance from other persons for running the said horses in the races and after paying requisite fees to the race clubs, which conducted the races and invited betting from the members, of the public. In the accounting year relevant to the assessment year 1972-73 two of the horses of the assessee became useless and, hence, deduction of Rs.18,750 under section 36(1)(vi) had been claimed. That apart general loss was also claimed, with reference to the abovesaid activities, to the extent of Rs.42,029. The total loss thus claimed was Rs.60,779. The Income-tax Officer held that the assessee's activities could not be treated as "business"- The first appellate authority and, subsequently, the Tribunal held that the said activities would constitute "business" and that, hence, the assessee's claim should be accepted. On a reference:
Held, (i) that the assessee could be stated to be carrying on a business in racing. Admittedly, for all the six or seven earlier assessment years, similar activities of the assessee had been treated by the Department itself only as "business" and his income or loss was assessed only as profits and gams of business or profession The activities of the assessee constituted business in the assessment year 1972-73;
(ii) that the assessee was entitled to a deduction of a sum of Rs.60,779 from the total income for the assessment year 19.72-73.
CIT v. Thagarajan tS.S.) (1981) 129 ITR 115 (Mad.); Jaralr A.Syed Jalal Sahib v. CIT (1960? 39 ITR 660 (Mad.) and Lala Indra Sea: In re (1940) 8 ITR 187 (All.) distinguished
CIT v. Shaw Wallace & Co. (1932) 2 Comp. Cas. 276; AIR 1932 PC 138; 1932 AW 588 (PC); Rogers Pyatt Shellac & Co. v. Secretary of State for India ILR 52 Cal 1; 1 ITC 363; AIR 1925 Cal. 34 and State of Andhia Pradesh v II. Abdul Bakshi & Bros. (1964) 15 STC 644 (SC) ref.
V. Subramaniam for the Commissioner
Nemo for the Assessee.
JUDGMENT
ABDUL HADI, J--In this tax case by the Revenue under section 256(1) of the Income Tax Act, 1961, the questions of law referred to us are as follows:
"(1) Whether, on the facts and in the circumstances of the case, the assessee could be stated to be carrying on a business in racing?
(2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to a deduction of a sum of Rs.60,779 from the total income for the assessment year 1972-73?"
In other words, the real question that has to be considered is whether the activities carried on by the respondent/assessee Hindu undivided family would constitute a "business" as defined under section 2(13) of the Income Tax Act, 1961. Even according to learned counsel for the Revenue, the activities carried on by the assessee consist of acquiring race horses, maintaining and training them and employing them in different races conducted in different centres, after taking necessary assistance from other persons for running the said horses in the races and after playing requisite fees to the race clubs, which conduct the races and invite betting from the members of the public. Further, according to him, when the assessee's horse or horses win in the races, the assessee would get prize money, which would be a substantial one, and when the assessee's horses do not win, the assessee would not get such, prize money and for the various expenditures incurred by it for maintaining and training horses and making them run in the races there may not be any return.
In the present case, two such horses of the assessee became useless and, hence, deduction of ks.18,750 under section 36(1)(vi) has been claimed. That apart, general loss is also claimed, with reference to the abovesaid activities, to the extent of Rs.42,029. The total loss thus claimed is Rs.18,750 + Rs.42,029, namely, Rs.60,779. The abovesaid deduction of Rs.18,750 could be claimed under the Income Tax Act, 1961, only if the assessee's income or loss comes under the head "Profits and gains of business or profession". Likewise, with reference to the abovesaid loss of, Rs.42,029 according to counsel, carry forward could be claimed under the said Act only if it comes under the said head. So, the assessee claimed that his activities constitute "business". On the other hand, the contention of the Revenue is that they do not constitute "business" and the income or loss of the assessee would only fall under the head "income from other sources". .
The case before us is with reference to the assessment year 1972-73. Admittedly, for all the six or seven earlier assessment years, similar activities of the assessee have been treated by the Department itself only as "business" and his income or loss was assessed only under "profits and gains of business or profession".
In the assessment year 1972-73, though originally the Income-tax Officer has held that the assessee's activities could not be treated as "business", the first appellate authority and, subsequently, the Tribunal have held that the said activities would constitute "business" and that, hence, the assessee's claim should be accepted.
Learned counsel for the Revenue also relied on the decisions of (i) Lala Indra Sen, In re: (1940) 8 ITR 187 (All.) (1711); (ii) Janab A. Syed Jalal Sahib v, CIT (1960) 39 ITR 660 (Mad.); and (iii) CIT v. S.S. Thiagarajan (1981) 129 ITR 115 (Mad.) in support of his contention.
The respondent remains unrepresented.
It is clear to us that the abovesaid decisions, cited by learned counsel for the Revenue, would not support his contention. Before referring to those decisions, we shall first refer to the definition of the term "business" under section 2(13) of the Act It runs thus; '
"'business' inc uses any trade, commerce or manufacture or any adventure or concern in the nature of trade commerce or manufacture."
Thus, the Act defines the term "business" only inclusively. We also find similar definition under section 2(d) of the Tamil Nadu General Sales Tax Act prior to the amendment made in 1964, which runs as follows:
"'business' includes any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture, whether of not any profit accrues from such trade, commerce, manufacture or adventure or concern. "
Similar definitions were also found in other State enactments, dealing with sales tax.
In that connection, while dealing with the same question under the Hyderabad General Sales Tax Act, the Supreme Court in State of Andhra.
Pradesh v. H. Abdul Bakshi and Brothers (1964).15 STC 644, observed as follows (headnote):
"The expression 'business' though extensively used is a word of indefinite import. In taxing statutes it is used in the sense of an occupation or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business, there must be a course of dealings either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure. "
It is, therefore, clear that the two essential requirements for an activity to be considered as "business" are: (i) it must be a continuous course of activity; and (ii) it must be carried on with a profit motive. In the present case, admittedly, the assessee carried on continuous course of activity, not only in the assessment year in question, but also in the earlier assessment years.
In this connection, paragraph 24 onwards of the order of the Tribunal makes it clear that the assessee carries on a continuous course of activity in carrying on his avocation of employing horses in races as stated above. No doubt, regarding the abovesaid profit motive, there is no express reference in the Tribunal's order, but it could be easily implied from the order of the Tribunal that the abovesaid activities were carried on only with a profit motive. In this connection, the following observations of the Tribunal may be looked into:
"Looking to the nature of the activities, which does not include betting, and is only confined to racing, the number of horses purchased, sold and the average size of the stable, the number of events in which the horses have participated and the number of centres in which they have run, the quantum of sake money received from year to year and the manner in which the assessee has found finances for carrying on the activity, we consider that while do one feature may be conclusive, the sum total of all factors leaves the clear impression that the racing activity of the assessee as far as the facts show is clearly a business activity." Emphasis supplied.
Since the Tribunal has held in the passage extracted above, that the activity of the assessee is clearly a business activity, it could be easily inferred that the profit motive element was also there, particularly when it i4 nobody's case that the assessee carried on the said activities for sport or pleasure.
Now, we shall refer to the decisions cited by learned counsel for the Revenue. In Janab A. Syed Jalal Sahib's case (1960) 39 ITR 660 (Mad.), the real question was whether the relevant amounts indicated therein were taxable income or were casual and non-recurring receipts and, therefore, exempt from tax under section 4(3)(vii) of the old Income Tax Act and this Court answered the said question by holding that the amounts indicated were only casual and non-recurring receipt and hence exempted from tax. In that case, the assessee carried on the business of manufacturing and selling bee dies. In addition, he also attended horse races regularly every year and indulged in betting and acquired horses of his own and some of them in partnership with others. From the abovesaid facts and on the actual question involved therein, it is clear that the said decision is distinguishable and cannot be applied to the present case. Further, the following observation therein is also significant (page 672):
"We have no hesitation in holding that there was no material on record which would justify a conclusion, that it was income from the business of the assessee. " (Emphasis supplied).
On facts, it was found therein that the activity in question was not "business".
Likewise, the decision in S.S. Thiagarajan's case (1981) 129 ITR 115 (Mad.) is also distinguishable. There, the assessee was maintaining race, horses for the purpose of running them at horse races, winning stake money and breeding race horses. He was also spending money on feeding the horses and training them in training establishments run commercially. The horses were sent by the assessee to the stud for being reared. He also bet on horses occasionally, but the result thereof was a small loss. In respect of the racing activities, the assessee incurred losses during the assessment years in question and claimed deduction of the loss from his income from other sources. This claim was disallowed by the officer on the ground that the assessee was indulging in the racing activity only as a hobby or sport and not as a business proposition. The Tribunal, however, held that the income referable to this activity would be "income from other sources" and hence the losses might be set-off against the income arising from other sources in each of the years. On a reference, this Court held that though the receipts arising from betting and racing would be income falling under the head "other sources" they would be of a casual and non-recurring nature exempt from taxation during the relevant years and that since the income was not taxable, the losses arising from such activity could not also be set-off against income from a different source under a different head. It must also be noted here that in the abovesaid decision, the assessee himself did not claim that the income in question was from any "business". So, strictly speaking the present question did not arise there.
Even the decision in Lala Indra Sen: In re (1940) 8 ITR 187 (All.) (1713), will not help the Revenue in the present case. The majority judgment, no doubt, held on the facts found that the maintenance, management and running in races of race horses by the assessee during the year of assessment and the betting of the assessee during that year did not in law constitute "business" of the assessee. On the other hand, the majority judgment therein held that there was no material on the record on which it could be found that: (a) the maintenance of the racing stable; and (b) the series of betting transactions did constitute the business of the assessee. The majority judgment also referred to the decisions of the Privy Council in CIT v. Shaw Wallace,& Co. (1932) AU 588; AIR 1932 PC 138; (1932) 2 Comp. Cas. 276 and Rogers Pyatt Shellac & Co. v. Secretary of State for India (1925) ILR 52 Cal. 1, which emphasises that the word "business" means "almost anything which is an occupation or a duty requiring attention as distinguished from sport or pleasure and is used in the sense of an occupation continuously carried on for the purpose of profits". Further, the said minority judgment also observed (page 204):
"It would appear from these judicial pronouncements that the word 'business' has been used in the Act to denote the continuous and systematic exercise of an occupation or profession with the object of making income or profit..."
These pronouncements in the abovesaid minority judgment and Rogers Pyatt Shellac & Co. v. Secretary of State for India (1925) ILR 52 Cal. 1 and CIT v. Shaw Wallace & Co. (1932) 2 Comp. Cas. 276; 1932 AU 588 (PC) are also thus in consonance with the decision of the Supreme Court, referred to above.
The net result in the questions referred to us are answered in the affirmative and against the Revenue. No costs.
M. B. A./1193/FCReference answered.