S. Obul Reddy, C.J.
1. The facts leading to this reference under Section 25(1) of the Expenditure-tax Act, 1957, at the instance of the assessee are these; the assessee is an erstwhile member of the zamindari family of Bobbili. He filed a return under the provisions of the Expenditure-tax Act, 1957, hereinafter referred to as the Act, showing a taxable expenditure of Rs. 23,097 for the assessment year 1964-65. The Expenditure-tax Officer, by his order dated July 26, 1965, determined the taxable expenditure at Rs. 1,40,375. This amount included a sum of Rs. 99,838 representing the expenditure incurred by the assessee towards maintenance of race horses and racing. In other words, the Expenditure-tax Officer while determining the taxable expenditure rejected the assessee's claim that the expenditure incurred on maintenance of race horses and racing was exempted under the provisions of Section 5(a) of the Act. His appeal to the AAC was also rejected. That led to his filing a further appeal to the Tribunal. Before the Tribunal, the assessee apart from relying upon the exemption provision in Section 5(a) of the Act, also relied upon a circular issued by the CBR dated September 2, 1960, whereby the Board informed the departmental officials that the expenditure on training horses and making them fit for running in races would come under the exemption provisions of Section 5(a) of the Act. The Tribunal, however, did not follow the circular issued by the Board and relying upon certain observations of Justice Braund in Lala Indra Sen, In re : 8ITR187(All) which were quoted with approval by the Madras High Court in Janab A. Syed Jalal Sahib v. CIT : 39ITR660(Mad) dismissed the appeal. Hence, the following question was referred to this court for our opinion.
'Whether, on the facts and in the circumstances of the case, it could be held that the assessee did not spend sums of Rs. 96,500 and Rs. 69,939 for the assessment years 1964-65 and 1965-66, respectively, for the purpose of earning income from any other source ?'
2. It may be stated at the outset that the two decisions relied upon by the Tribunal relate to assessment proceedings under the Indian I.T. Act, 1922. The Tribunal did not examine the question whether the assessee is entitled to exemption in the light of the specific provisions of Section 5(a). While referring to the Allahabad case : 8ITR187(All) the Tribunal, only quoted the words 'business', 'profession', 'vocation' or 'occupation', but failed to notice the last limb of Section 5(a) where the words 'for the purpose of earning income from any other source' occur. Section 5(a) is in these terms :
'5. No expenditure-tax shall be payable under this Act in respect of any such expenditure as is referred to in the following clauses, and such expenditure shall not be included in the taxable expenditure of an assessee- (a) any expenditure, whether in the nature of revenue expenditure or capital expenditure, incurred by the assessee wholly and exclusively for the purpose of the business, profession, vocation or occupation carried on by him or for the purpose of earning income from any other source ;'. The case of the assessee throughout has been that expenditure was incurred by him 'on the maintenance and running of race horses for the purpose of earning income' and, therefore, was exempt under the provisions of Section 5(a) of the Act. Section 5(a) contemplates exemption of any expenditure incurred whether in the nature of revenue or capital expenditure 'for the purpose of earning income from any other source' also. The case of the assessee has been that he was maintaining race horses and running them in races only for the purpose of earning income from horse races. Therefore, the expenditure will fall within the ambit of the last limb of Section 5(a) which provides for earning income from any other source. Lala Indra Sen's case : 8ITR187(All) was a case under the Indian I.T. Act, 1922, and it has no relevance when considered in the light of the language of the exemption provisions of Section 5(a) of the Act. That was a case where the assessee claimed deduction from his assessable income under Section 24 of the 1922 Act, on account of horse racing and betting on his own horses. Section 24 did not provide for deduction from income 'from any other source'. It was, therefore, held by the Allahabad High Court that the maintenance and running in races of race horses and betting by the assessee did not in law constitute 'business', 'profession', 'vocation' or 'occupation'. In the Madras case : 39ITR660(Mad) the question was whether the excess of the receipts over expenditure in the activities of race horses which were owned by the assessee were taxable income or were casual and non-recurring receipts and exempt under Section 4(3)(vii) of the Indian I.T. Act. The view expressed by the Madras High Court was whether the receipts were taxable or not, the amounts constituted the income and that the income, however, was not taxable as it was an income of a casual and nonrecurring nature within the exemption granted under Section 4(3)(vii) of the Indian I.T.Act, 1922. It is manifest from the view expressed by the Madras High Court, that the Madras decision does not in any way support, the view expressed by the Tribunal.
3. The Expenditure-tax Officer, the AAC and also the Tribunal were bound to give effect to the circular issued by the Board. The relevant portion of the circular reads :
'The Board agrees that expenditure on purchase and maintenance of horses, including the medical expenses will be exempt under Section 5(1) of the Expenditure-tax Act. As far as the expenditure on training the horses and making them fit for running races are concerned, the expenditure can be claimed under Section 5(a) of the Expenditure-tax Act. Section 5(a) speaks of 'any expenditure--incurred by the assessee for the purpose of earning income from any other source.' For the purposes of proviso to Section 3(1) of the Expenditure Tax Act, 1957, income earned in any manner is to be included for Section 5(a) also (sic). Therefore, any expenditure incurred for earning income (taxable or non-taxable) must be exempted. The expenditure incurred on the training of horses and other items of expenditure for running any races will also have to be exempted.'
4. The Tribunal was, therefore, in error in not granting the exemption claimed by the assessee under Section 5(a) of the Act. The reference is answered in the negative and in favour of the assessee, but without costs. Advocate's fee Rs. 250.