Iqbal Ahmad and Bajpai JJ.
1. The questions that arise for decision in the present case, which is a reference by the Income-tax Commissioner under Section 66(2), Income-tax Act, are of such general importance and are beset with such difficulties that we consider it desirable that they be decided by a Full Bench. Lala Inder Sen Raizada, the assessee, is a money-lender and deals in precious stones. He also owns some horses, keeps a stable and runs the horses in races. He also bets in races on his horses and other horses. An account styled as the 'racing account' is maintained by the assessee in his account books. That account shows that in the 'previous year,' which was the accounting year, the assessee suffered a total loss of Rs. 8064. Out of this amount, the loss incurred in betting was Rs. 7454 and the loss in running horses at the races was Rs. 610. It may here be mentioned that out of this sum of Rs. 610, Rs. 185 were spent in purchasing a stop-watch, and it is agreed on all hands that this amount cannot be treated as a loss. The assessee claimed deduction of the amount of the loss incurred by him in the computation of his income for the purposes of assessment to income-tax. The claim of the assessee was however overruled by the Income-tax Officer and his decision was affirmed on appeal by the Assistant Commissioner. The Commissioner of Income-tax also agreed with the decision of the Assistant Commissioner.
2. The Income-tax authorities relying on the decision of Rowlatt J. in Graham v. Green (1925) 2 KB 37 held that the loss incurred in betting could not be taken into account in determining taxable income of the assessee. So far as the loss incurred by the assessee in maintaining the horses owned by him and running them in races was concerned, the Income-tax Officer held that the assessee indulged 'in this hobby by way of pastime and it is not done in the nature of profession.' He therefore held that the loss incurred by the assessee 'or the income made in pursuance of this pastime do not attract the provisions of the Income-tax Act.' On appeal the Assistant Commissioner did not differentiate between the loss incurred in betting and in maintaining the horses and held as a matter of law that 'the efforts of the appellant in maintaining horses and betting on them and others howsoever systematically organized they may be' do not 'constitute a business.' The Income-tax Commissioner expressed the same view as the Assistant Commissioner. In the present reference it is maintained by the learned Counsel for the assessee that the maintenance of horses with a view to run them in races constituted 'business' within the meaning of the Act and, as such, the loss incurred by the assessee in that connexion should be set off against his income under any other head as provided for by Section 24, Income-tax Act. He also argues that the loss incurred in betting should on similar ground have been set off against the assessee's income, in view of the provisions of Section 4(3)(vii) of the Act which provides that the Act shall not apply to
any receipts not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature....
3. It is argued that the income from betting was not of 'a casual and non-recurring nature' and as such, the loss incurred in betting came within the purview of Section 24 of the Act. In the course of his argument, the learned Counsel placed reliance on a case reported in In the matter of Chunni Lal Kalyan Das : AIR1925All469 and on a case reported in In the matter of Chunni Lal Kalyan Das : AIR1925All287 . It was held in the former case that Clause (vii) of Section 4(3), Income-tax Act, exempts only receipts of a casual and non-recurring nature, which are not receipts from business or the exercise of a profession or occupation by an assessee. The latter case is an authority for the proposition that the profits or losses arising from wagering contracts are to be taken into account in assessing income-tax. It is contended on the authority of these decisions that the loss incurred by the assessee in betting should have been taken into account.
4. The learned Advocate-General on the other hand maintains that the receipts arising from betting are not receipts arising 'from business or the exercise of a profession, vocation or occupation' as held by Rowlatt J. in the decision quoted above. He also contends that such receipts are of a casual and non-recurring nature and therefore cannot be taken into account in making the assessment, and in support of this contention he places reliance on the decision of the Judicial Committee in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co. and contends that receipts from betting are not taxable income in accordance with the provisions of the Act. It has been brought to our notice that on the question of the loss incurred in the maintenance of horses the department has taken contradictory views. For the reasons stated at the inception of this judgment, we direct that the case be laid before the Hon'ble the Chief Justice with the request for the constitution of a Full Bench.
Iqbal Ahmad, J.
5. The following questions have been referred to this Court for decision by the Commissioner of Income-tax under Section 66(2), Income-tax Act (11 of 1922):
(1) Was there any material on which it could be found that (a) the maintenance of the racing stable, and (b) the series of betting transactions did not constitute 'business' of the assessee?
(2) If so, was the assessee in the face of such a finding entitled to have the loss either (a) of Rupees 425 in the racing account, or (b) Rs. 7458 in the betting account, or both losses, deducted from his assessable income for the year in dispute?
6. I confess I have had considerable difficulty in dealing with the present reference and the difficulty, though partly due to the obscurity in which the relevant provisions of the Income-tax Act are involved, is in a large measure attributable to the slipshod manner in which the matter under consideration has been investigated and dealt with by the Income-tax authorities, and in particular to the extremely unsatisfactory form in which the questions referred have been formulated by the Commissioner. It is obvious that only questions of law can be referred to this Court for decision under Section 66, and the reference under that Section must be accompanied by 'a statement of the case' by the Commissioner. The 'statement' must contain a full and exhaustive narration of the facts giving rise to the questions of law, so that this Court may straightway proceed to apply the law to the set of facts stated and be relieved from the necessity of enquiring as to what the real facts are. In the present case, what the Income-tax Officer and the Assistant Commissioner actually did was to decide the question of law without deciding the requisite questions of fact, and the statement of the case by the Commissioner is also conspicuous by an absence of a narration of such facts as would have greatly facilitated the answer to the questions stated above. Indeed the statement of the case by the Commissioner is so unsatisfactory that, at the inception of the hearing of the reference, I was tempted to refer the case back to the Commissioner under Clause (4) of Section 66 with the direction to re-state the case. But, after hearing the arguments of both sides, I have come to the conclusion that, in all the circumstances, it is desirable to decide the questions of law that arise in the case, even though the available materials are scanty and it would have been more satisfactory if the facts were ascertained in greater detail. The dispute in the present case is with respect to the assessment year 1933-34 and it is about time that dispute is set at rest. Further it was stated at the bar that the very questions of law that arise in the present case did arise in connexion with the assessment of the income of the assessee in the subsequent years and the assessments for those years have not been finally made in view of the pendency of the present reference. I therefore proceed to answer the questions of law raised in the present reference.
7. The facts stated by the Commissioner are as follows: Raizada Inder Sen, the assessee, is a money-lender and deals in precious stones. He also owns three horses, maintains racing stable and runs the horses in races. He bets in races on his horses and other horses. The assessee keeps account books in the regular course of business and in those books an account styled as the 'racing account' is maintained. In the racing account the stakes money received from the Race Clubs and the amounts won on his bets by the assessee are entered on the credit side and the losses in betting and the expenses incurred in the maintenance of horses and the racing stable are entered on the debit side. The stakes money represents the prize paid to the assessee as the owner of the horses which won the races. In the 'accounting year,' according to the entries in the account book, the assessee suffered a loss of Rs. 7458 in betting and Rs. 425 in running the horses at the races, but made profit in money-lending business and in the purchase and sale of precious stones. During the assessment year 1933-34 the assessee claimed set-off with respect to the losses incurred by him in the maintenance of racing stable and on bets against the profits made by him in accordance with the provisions of Section 24(1) of the Act which provides that:
Where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year.
8. The Income-tax Officer, relying on the decision of Rowlatt J. in Graham v. Green (1925) 2 KB 37, declined to allow set-off as regards the losses in betting and, in the course of his order, quoted the following observations made by Rowlatt J. in his judgment:
Now we come to the other side, the man who bets with the book-maker, and that is this case. These are mere bets. Each time he puts on his money at whatever may be the starting price,I do not think he could be said to organize his effort in the same way as a book-maker organizes his. I do not think the subject-matter from his point of view is susceptible of it. In effect all his doing is just what a man does who is a skilful player at cards, who plays every day. He plays today and he plays tomorrow and he plays the next day, and he is skilful on each of the three days, more skilful on the whole than the people with whom he plays and he wins. But I do not think that you can find, in his case, any conception arising in which his individual operations can be said to be merged in the way that particular operations are merged in the conception of a trade. I think all you can say of that man in the fair use of the English language, is that he is addicted to betting. It is extremely difficult to express, but it seems to me that people would say he is addicted to betting, and could not say that his vocation is betting. The subject is involved in great difficulty of language which I think presents great difficulty of thought. There is no tax on habit. I do not think 'habitual' or even 'systematic' fully describes what is essential in the phrase 'trade, adventure, profession or vocation.' All I can say is that in my judgment the income which this gentleman succeeded in making is not profits or gains.
9. The Income-tax Officer also declined to allow set-off as regards the loss incurred by the assessee in the maintenance of horses and running them in races on the ground that the loss did not arise in the course of a vocation or profession.' In this connexion he remarked that:
The assessee indulges in this hobby by way of pastime and it is not done in the nature of profession. The loss sustained by him or the income made in pursuance of this pastime do not attract the provisions of the Income-tax Act.
10. On appeal by the assessee the Assistant Commissioner upheld the order of the Income-tax Officer. The Assistant Commissioner did not differentiate between the loss incurred in betting and the loss in the maintenance of the racing stable and held as a matter of law that 'the efforts of the appellant in maintaining horses and betting on them and others, howsoever systematically organized they may be' do not 'constitute a business.' He held that the keeping of a stable 'in an organized manner...does not constitute a business.' He went on to observe that 'betting is only a hobby which does not amount to business.' He also quoted in extenso the observations of Rowlatt J., noted above.
11. Neither the Income-tax Officer nor the Assistant Commissioner took trouble to ascertain or to find as to in how many races the assessee's horses ran in the course of the accounting year, nor did they record any finding on the question as to on how many occasions did the assessee offer bets in races during that period. They treated the question of set-off raised by the assessee as an abstract question of law, and the fundamental idea underlying their decision is that the maintenance of racing stable and betting on the race course can, under no circumstances, fall under any of the heads of income enumerated in Section 6 of the Act.
12. Being aggrieved by the decision of the Assistant Commissioner, the assessee filed a joint application under Section 33 for review and under Section 66(2) for reference of questions of law to this Court, and the prayer contained in the application was that, in the event of the Commissioner refusing to exercise the power of review vested in him by Section 33, he may refer the following question for decision to this Court:
Whether the profit or loss of racing and betting is taxable;
(a) when a heavy investment has been made with an intention to earn regular profits from this line;
(b) when the line is a well established one and profit and losses are running side by side throughout the year.
13. The application of the assessee was first considered by Mr. Kher, the then Commissioner, and he called upon the Income-tax Officer to submit a report showing (a) what amount was invested by the assessee in keeping a racing stable; and (b) whether the loss suffered by the assessee was on betting on his own horses or on horses belonging to others also. The Income-tax Officer then reported that in the year in question the assessee invested a sum of Rs. 4200 in the purchase of three horses and two of those horses ran at the various races. He further reported that 'the racing account contains a consolidated record for bettings and stakes,' and that the assessee incurred loss in betting on his own horses and on horses belonging to others.
14. Mr. Kher was succeeded by Mr. Verma who has made the present reference. The opinion expressed by Mr. Verma in the course of the reference is that 'except in the case of the professional trainer and the bookmaker' the presumption is that racing and betting 'are undertaken merely as a hobby' and the profit made or losses incurred in racing and betting cannot be taken into account in making the assessment under the Act. The questions that the Commissioner has referred for decision to this Court have been set out at the inception of this judgment, and the obvious comment that question 1 provokes is that the assumption underlying that question is that maintenance of racing stable and betting transactions do or at any rate may constitute 'business' within the meaning of the Income-tax Act, even though that was the most debatable question in the case. Further it is manifest from the facts stated by the Commissioner that the questions of law that arose in the case were, whether the income accruing from (a) maintenance of racing stable, or (b) betting at the race course, comes within the purview of any of the clauses of Section 6. If it does, it is obvious that the loss resulting from such a venture is to be set off in accordance with the provisions of Section 24. The Commissioner however framed these questions in most involved language and question 1 was in particular so framed as to make it doubtful whether it was a question of law. That question in effect amounted to an invitation to this Court to decide, whether there was any evidence to support the finding of the Assistant Commissioner that the maintenance of the racing stable and the series of betting transactions do not constitute business or, was that finding based on no evidence. It is needless to observe that this was a matter for the Commissioner to decide while exercising the power of review under Section 33 and was hardly a matter for the decision of this Court. While making these observations I am alive to the well established proposition of law that the question of the accuracy or otherwise of an inference from proved facts is always a question of law and if the Commissioner had stated the proved facts and had asked this Court to decide as to whether on those facts the conclusion arrived at by the Assistant Commissioner was correct in law, the question raised would undoubtedly have been a question of law. But this the Commissioner did not do.
15. I am constrained to make these observations as to the form of the questions in view of the limited jurisdiction given to this Court by Clause (5) of Section 66 which provides that 'the High Court upon the hearing of any such case shall decide the questions of law raised thereby.' In view of this provision it is not permissible for this Court to re-frame the questions referred by the Commissioner. To this effect is the decision of their Lordships of the Privy Council in Commissioner of Income-tax, B. & O. v. Maharajadhiraja of Darbhanga . Their Lordships in that case made the following observations:
The Commissioner unfortunately omitted to formulate any question of law arising out of this transaction. The duty of the High Court under Section 66, Sub-section 5, is to 'decide the questions of law raised' by the case referred to them by the Commissioner and it is for the Commissioner to state formally the questions which arise. Here the High Court itself formulated the question to be decided as being.... Their Lordships deprecate this departure from regular procedure, but in the circumstances have not thought it proper to decline to express their view on the question thus informally presented.
16. The unsatisfactory nature of the questions also inclined me to the view, at one stage of the arguments, to call upon the Commissioner to re-frame the questions. But, having regard to the wide scope of question 2, and primarily with the object of expediting the settlement of a dispute that dates back to the year 1934, I decided to answer the question of law that arises in the case. After all the real question in the case is whether the losses suffered by the assessee can be set off under Section 24 and this question comes within the purview of question 2 framed by the Commissioner. I am therefore in a position to decide the question of law raised without reframing the questions formulated by the Commissioner and this I proceed to do. In order to entitle an assessee to have the amount of the loss suffered by him in any particular year set-off against his income, profits or gains in that year it is necessary, in accordance with the provisions of Section 24, that the loss must be 'under any of the heads mentioned in Section 6.' The decision of the reference, therefore, depends on the answer to the following question:
17. Does the income accruing from (a) maintenance of racing stable; or (b) betting at the race course, fall under any of the heads mentioned in Section 6? In order to satisfactorily decide this question it is necessary to keep in view the scope and the scheme of the Income-tax Act. By Section 4(1) the Act is subject to the provisions contained in the Act, made applicable to
all income, profits or gains, as described or comprised in Section 6, from whatever source derived, accruing or arising, or received in British India or deemed under the provisions of this Act to accrue, or arise, or to be received in British India.
18. The following provision is then made by Section 6:
Save as otherwise provided by this Act, the following heads of income, profits and gains shall be chargeable to income-tax in the manner hereinafter appearing namely: (1) Salaries. (2) Interest on securities. (3) Property, (4) Business. (5) Professional earning. (6) Other sources.
19. A reference to these Sections puts it beyond doubt that the Act is of very wide application and subject to the exemptions contained in the Act, all income (barring allowable deductions in the computation thereof) from whatever source derived is chargeable to income-tax. This is further made clear by Section 12(1) which enacts that
the tax shall be payable by an assessee under the head 'other sources' in respect of income, profits and gains of every kind and from every source to which this Act applies (if not included under any of the preceding heads).
20. This Section is so framed as to make the sixth head in Section 6, namely, 'Other Sources,' a true residuary group embracing within it all sources of income, profits and gains. These provisions are, however, subject to sub-s, (3) of Section 4 which makes the Act inapplicable to the classes of income specified therein. It follows that all income from whatever source derived is chargeable to income-tax unless it falls under any of the classes of income detailed in Sub-section (3) of Section 4. In other words, taxation under the Act is the rule and exemption the exception. All income from whatever source derived must, therefore, be chargeable to income-tax, and the burden of proving Graham v. Green (1925) 2 KB 37 that a particular class of income is not so chargeable must necessarily lie on the person claiming exemption from the liability to pay income-tax. The view that I take is in consonance with the decision in Commissioner of Income-tax, Madras v. Panchapakesa Iyer : AIR1982Mad424 . It was held in that case that Section 12 of the Act is sufficiently wide to bring into its net income, profits or gains from whatever source derived and it is for the person who receives the same to show that it is exempt from payment of income-tax and this can be done only by showing that the income is of a class specified in Section 4(3) of the Act.
21. The maintenance of racing stable, or betting at the race course, does in some, if not in most, cases result in income, profits and gains and the argument is, therefore, available to the assessee in the present case that the 'income, profits and gains' from these sources fall within one of the heads mentioned in Section 6 or, at any rate, come under the omnibus head 'other sources.' He is, therefore, entitled to claim exemption for the loss sustained by him in the year in question in accordance with the provisions of Section 24, unless the department succeeds in showing that the income from these sources falls in any of the classes of income enumerated in Sub-section (3) of Section 4. Reliance has been placed on behalf of the department on Clause (vii) of Sub-section (3) of Section 4 which provides that the Act shall not apply to
any receipts not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature....
22. This clause was considered by this Court in In the matter of Chunni Lal Kalyan Das : AIR1925All469 , and it was held that the clause exempts from liability to income-tax only receipts of a casual and non-recurring nature, which are not receipts from business or the exercise of a profession, vocation or occupation by an assessee. It is argued by the learned Advocate-General that the receipts from the maintenance of racing horses and racing stable or bets at the race course are of a casual and non-recurring nature and are not 'receipts arising from business or the exercise of a profession, vocation or occupation,' and, therefore the Act has no application to such receipts. Mr. Pathak, the learned Counsel for the assessee, on the other hand maintains that the receipts from the maintenance of racing horses and racing stable, or receipts from bets at the race course (a) are not of a casual and non-recurring nature, and (b) even if such receipts are of a casual and non-recurring nature they arise from business or the exercise of a profession, vocation or occupation; and, as such, Clause (vii) of Sub-section (3) of Section 4 has no application to the case.
23. The arguments of the learned Counsel for the parties necessitate the consideration of the following points: (1) whether receipts arising from the maintenance of racing stable and running the horses in races, or betting at the race course are of a casual and non-recurring nature; and (2) are receipts from the sources mentioned in the preceding question, receipts arising from business or the exercise of a profession, vocation or occupation? If either of these points is decided in favour of the assessee be would be entitled to the set-off claimed by him on account of the losses incurred in the year under consideration. I proceed first to deal with point 1 noted above. Neither the word 'casual' nor the word ''non-recurring' has been defined in the Act and these words must therefore be construed in their plain and ordinary sense. In Murray's Dictionary the word 'casual' is said to mean:
(1) Subject to, depending on, or produced by chance; accidental, fortuitous.
(2) Occurring and coming out at uncertain times; not to be calculated on, uncertain, unsettled.
(3) Subject to chance or accident.
24. The word 'recurring' connotes the idea of repetition and of occurring more than once. The winning of a particular horse in a particular race or the winning of bets at the race course is undoubtedly uncertain and a matter of chance, and the receipts from these sources are, in my opinion therefore casual. But in order to attract the provisions of Clause (vii) the receipt must be both casual and non-recurring. If the receipt, though casual, is recurring, Clause (vii) can have no application and it is therefore necessary to decide whether or not receipts from the sources under consideration are of a non-recurring nature. Receipts from these sources are, in my judgment, not of a non-recurring nature. A person who maintains race horses and habitually runs them at the race course does so in the expectation of winning the races and getting stakes money and the receipt of stakes money, in most cases, may recur. It is to be remembered in this connexion that the words used in the Act are of 'a casual and non-recurring nature.' In view of these words, it is the nature of the receipt irrespective of the facts of a particular case, that is to be the guiding factor. The receipt of stakes money by owners of racing stables is a matter of frequent occurrence and such receipts cannot therefore be characterized as of a non-recurring nature. In every race, the stakes money must be paid to the owner of at least one of the horses that took part in the race. In short, the receipt of stakes money is not a phenomenon of rare occurrence, but is bound to follow every race. Similarly, bets yield receipts to bettors on horse racing and if a particular bettor wins on repeated occasions it is impossible to say that the receipts arising from bets in his case were not of a recurring nature. It is true that the winning of bets is a matter of chance, but this fact by itself does not make receipts from betting of a non-recurring nature. To put the matter in another way, bets on horse racing do bring receipts, though at irregular intervals, and such receipts are therefore of a recurring nature. To my mind, the volition of a particular individual in making bets on numerous or few occasions is immaterial for the decision of the question under consideration. Either receipts from bets are of a recurring nature or they are not. If they are of a recurring nature they must be so even in the case of an individual who offered bets on very few occasions. Persons who enter into forward contracts or speculate at the Stock Exchange may not make profit or gain in most of the transactions entered into by them; nonetheless, income accruing from these activities is of a recurring nature for the simple reason that such transactions do at times result in profit. The loss incurred by some of such persons must result in corresponding gain to the rest and, therefore, recurring loss and recurring profit must be the outcome of such activities. A fortiori, receipts from bets, irrespective of the frequency of the bets offered, are receipts of a recurring nature.
25. In the view that I take, point 1 must be decided in favour of the assessee. Before parting with point I noted above, I must observe that, from the facts available to us, the conclusion is irresistible that the assessee maintained racing stable on a systematic and commercial basis and habitually indulged in betting in horse racing. The amounts spent by him in purchasing horses and maintaining them and in making bets were entered in the account books in the regular course of business and so were the receipts made by him. The case before us is not a case of an individual who once or twice in the course of the year took his horses to the race course or offered bets on rare and isolated occasions. The loss incurred by the assessee in betting was in the neighbourhood of a sum of Rs. 8000 and this must have been due to habitual and systematic betting at horse racing in the city of Meerut. I now proceed to deal with point 2 noted above. The words 'profession,' 'vocation' or 'occupation' have not been defined in the Act. By Section 2(4)
'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
26. This is also not an exhaustive definition of the word 'business.' The Act is, therefore, of no assistance in the determination of the question whether a particular activity or course of conduct constitutes business or the exercise of a profession, vocation or occupation, and the question must be answered by giving these words their plain and ordinary meaning. But, having regard to the provisions of Section 2(4), it may be assumed that the word 'business' has been used in the Act in a commercial and limited sense. There is, however, no warrant in the Act to give the words 'profession,' 'vocation' or 'occupation' a limited meaning. The words 'business,' 'profession' and 'vocation' have been interpreted in some English decisions and though those decisions cannot, in view of the observations of their Lordships of the Privy Council in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co. , furnish an infallible guide, they are of assistance in interpreting the words under consideration. The word 'business' has also been interpreted in two decisions under the Indian Income-tax Act. In Commissioners of Inland Revenue v. Marine Steam Turbine Co. Ltd. (1920) 1 KB 193, it was observed by Rowlatt J. that the word
'business' in whatever sense it be understood, is undoubtedly an elastic word capable of wide extension; but it must be borne in mind that it is also a word which has two virtually distinct meanings. It may mean any particular matter or affair of serious importance. This meaning of the word may be illustrated by a few examples. When a private person goes to consult professionally his banker or his solicitor it may properly be said that he goes to see him on business. In the same way any serious matter affecting the resources of a trust, a school, a church or a charity may be spoken of as business relating to the particular institution, and a person dealing with any matter of that kind is dealing with a matter of business. To take a further example from the present case, if a director of the respondent company were to go to its premises for the purpose of doing some purely formal act, or, if a shareholder were to go to the premises for the purpose of looking into the accounts relating to these royalties, he would no doubt be attending there on a matter of business. The word 'business' however is also used in another and a very different sense, as meaning an active occupation or profession continuously carried on, and it is in this sense that the word is used in the Act with which we are here concerned.
27. In Commissioner of Income-tax, Bengal v. Shaw Wallace & Co. , their Lordships of the Privy Council observed that though the words used in Section 2(4) are wide,
but underlying each of them is the fundamental idea of the continuous exercise of an activity. Under Section 10 the tax is to be payable by an assessee under the head 'business' in respect of the profits or gains of any business carried on by him. Again, their Lordships think, the same central idea: the words italicized, are an essential constituent of that which is to produce the taxable income: it is to be the profit earned by a process of production.
28. In Rogers Pyatt Shellac & Co. v. Secretary of State : AIR1925Cal34 , Mukerji J. relying on certain English decisions held that
the word 'business' is one of large and indefinite import and connotes something which occupies attention and labour of a person for the purpose of profit. The word means almost anything which is an occupation or a duty requiring attention as distinguished from sports or pleasure and is used in the sense of an occupation continuously carried on for the purpose of profits.
29. 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, and where the element of continuity is wanting in a particular activity, that activity cannot be characterized as 'business' within the meaning of the Act. 'Profession' or 'occupation' can amount to business only if it is continuously and systematically exercised. It follows that the words 'profession' and 'occupation' are words of wider import than the word 'business.' The question what amounts to a 'profession,' was considered in Commissioners of Inland Revenue v. Maxse (1919) 1 KB 647 at p. 657 and Scrutton L.J. observed that
it seems to me...that a 'profession' in the present use of language involves the idea of an occupation requiring either purely intellectual skill, or of manual skill controlled, as in painting and sculpture, or surgery, by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production or sale or arrangements for the production or sale of commodities. The line of demarcation may vary from time to time.
30. It would appear from this observation that the word 'occupation' is a word of wider import than the word 'profession.' In Partridge v. Mallandaine (1887) 18 QBD 276, the word 'vocation' was held to be 'analogous to 'calling', a word of wide signification, meaning the way in which a man passes his life.' No reported case has been cited by the learned Counsel on either side in which the word 'occupation' used in Section 4(3)(vii) may have been interpreted. But, in Murray's Dictionary the meaning given to the word 'occupation' is as follows:
The being occupied, or employed with, or engaged in something; that in which one is engaged; employment or business.... A particular action or course of action in which one is engaged, especially habitually or statedly.
31. It is obvious that the words 'business,' 'profession,' 'vocation' and 'occupation' have been used in Section 4(3)(vii) in contradistinction to each other and, having regard to the scheme of taxation underlying the Act, the conclusion is irresistible that the word 'profession' is of wider import than the word 'business' and the word 'vocation' is of wider import than the word 'profession' and lastly 'occupation' is a word of wider signification than the word 'vocation.' In other words, what may not amount to business may amount to profession and what may not amount to profession may amount to vocation and what may not amount to vocation may amount to occupation within the meaning of the Act.
32. Whether the maintenance of a racing stable does or does not in a particular case amount to 'business' must depend on the facts and circumstances of each case. A company may be formed or a partnership may be entered into for maintaining race horses and for systematically running the same in races with the object of making money. In such a case the maintenance of race horses would, in my opinion, amount to business within the meaning of the Act. What difference does it then make if the same sort of activity with the same object is continuously carried on by an individual? The mere fact that the maintenance of race horses involves an element of sport cannot exempt it from the category of 'business' if the activity is continuous and is carried on with the object of earning money. I find it impossible to lay it down as a general proposition of universal application that, in all cases where an element of sport or amusement is involved, a particular activity, howsoever systematically and continuously exercised, cannot amount to business. The question in each case must be what was the dominant intention. If the dominant intention was to get income or make profits or gains the activity of the description referred to above must amount to 'business.'
33. It may be assumed that the assessee in the present case is a man in very affluent circumstances and he could afford to spend substantial amount for mere sport and pleasure, but this circumstance, in my opinion, cannot affect the answer to the question under consideration. The maintenance of race horses, though providing pleasure and sport and possibly securing to the assessee the satisfaction of possessing splendid specimen of such horses, was also calculated to bring income to the assessee and, having regard to the method adopted by the assessee in the maintenance of the racing stable and running the horses in races, it is fair to assume that the assessee pursued this activity with the object of making money. The activity therefore amounted to 'business' within the meaning of the Act. It is to be noted in this connexion that it is not the case that only in the year under consideration the assessee maintained the horses. It has been pointed out above that it was stated at the Bar that questions similar to the questions that arise in the present reference have arisen in connexion with the assessment for the subsequent years, and this shows that the horses have been maintained and run in races by the assessee year after year.
34. Even if the maintenance of race horses did not in the present case amount to business it did certainly amount to the exercise of 'vocation' or 'occupation' within the meaning of the Act. In arriving at this conclusion, I have not ignored the fact that the assessee carries on money-lending business and deals in precious stones. But a man may very well have more than one vocation or occupation. I have already pointed out that the words 'vocation' and 'occupation' are words of very wide import and they, in my judgment, embrace the systematic maintenance of racing stable such as we have in the present case. The question of betting by the assessee however stands on a slightly different footing. That betting is done by every individual with the object of making money is an axiomatic truth, and, as such, it must be assumed that the assessee offered bets with that intention. There is however not enough material upon the record to show that the bets were offered by the assessee with such continuity and frequency as to amount to business, nor am I prepared to hold, on the available materials, that betting constituted profession in the present case. But, having regard to the enormous loss sustained by the assessee under this head, I am of the opinion that the assessee must have offered bets on numerous occasions and that betting, in the case of the assessee, did certainly constitute his vocation or occupation
35. The decision in Graham v. Green (1925) 2 KB 37on which reliance was placed by the income-tax authorities was strongly pressed upon us by the learned Advocate General. With all respect to the eminent Judge who decided that case I am not prepared to hold that betting, under no circumstances, can constitute vocation or occupation of a particular individual and, that the winnings from the same cannot amount to profits or gains chargeable to income-tax. The decision in Graham's case Graham v. Green (1925) 2 KB 37 was cited in Cooper v. Stubbs (1925) 2 KB 753 94 LJKB 903. and Warrington L.J. made the following observations as regards the proposition laid down in that case:
I desire to reserve for consideration, when, if over, it comes before this Court, the question whether betting transactions which produce a revenue to the person who engages in them may not result in profits which are assessable to tax. That question, when it arises, will have to be decided on the facts of the particular case.
36. Similar observations were also made by Atkin L.J. These observations show that the authority in Graham v. Green (1925) 2 KB 37 is not beyond dispute.
37. For the reasons given above point 2 must also be decided in favour of the assessee.
38. To sum up, my reasons for arriving at the conclusions stated above are as follows: (1) In order to entitle an assessee to have the loss suffered by him set-off against his income the loss must be under one of the beads mentioned in Section 6. (2) Section 6 is exhaustive and embraces income from all sources whatsoever barring those classes of income which are specified in Section 4(3) of the Act. (3) The income from betting or horse racing must therefore fall under one of the heads of income specified in Section 6 unless it comes within the purview of Section 4(3)(vii) of the Act. (4) The burden of proving that the income from horse racing or betting comes under the exception clause, viz. Section 4(3)(vii), is on the department. (5) There are no materials upon the record to justify the conclusion that the income from horse racing or betting in the case of the assessee could not constitute his business, vocation or occupation, or that the income from these sources was both of a casual and of a non-recurring nature. (6) It follows that the burden that lay on the department in the present case was not discharged.
39. For the reasons given above I Would answer the questions referred as follows:
1(a). There was no material on which it could be held that the maintenance of the racing stable did not constitute the business of the assessee.
(b) There was no material on which it could be held that the series of betting transactions by the assessee did not constitute his business.
2(a). The assessee was entitled to have the loss of Rs. 425 deducted from his assessable income for the year in dispute.
(b) The assessee was entitled to have the loss of Rs. 7458 in the betting account deducted from his assessable income for the year in dispute.
40. On an application made by the assessee Raizada Lala Inder Sen, head and representative of a Hindu undivided family, resident at 291 Clement Street, Meerut, under Section 66(2), Income-tax Act (11 of 1922), the Commissioner of Income-tax, Central and United Provinces, has stated a case and referred two questions of law said to arise out of the appellate order of the Assistant Commissioner for our decision. The questions of law formulated by him are as follows:
(1) Was there any material on which it could be found that (a) the maintenance of the racing stable, and (b) the series of betting transactions did not constitute 'business' of the assessee? (2) If so, was the assessee in the face of such a finding entitled to have the loss either (a) of Rs. 425 in the racing account, or (b) Rs. 7458 in the betting account, or both losses, deducted from his assessable income for the year in dispute
41. The assessee is a money lender and deals also in precious stones. For the assessment year 1933-34 he claimed a deduction of Rs. 8064 on account of loss in what he described as the racing account. This deduction was claimed under Section 24 of the Act which provides that
where any assessee sustains a loss of profits or gains in any year under any of the heads mentioned in Section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year.
42. Section 6 of the Act says:
Save as otherwise provided by this Act, the following heads of income, profits and gains shall be chargeable to income-tax in the manner hereinafter appearing, namely:
(ii) Interest on securities.
(v) Professional earnings.
(vi) Other sources.
43. The assessee made profits in money-lending and in precious stones, but in the racing account he lost Rs. 7454 on betting and Rs. 610 in running horses. It is conceded that out of this latter sum, Rs. 185 was spent in purchasing a stop-watch and that therefore this sum could not possibly be claimed as a deduction and the loss is thus reduced to Rs. 7879. I have had the advantage of reading the judgments of my learned brethren Iqbal Ahmad and Braund, and I am definitely of the opinion that the questions of law have not been properly formulated by the learned Commissioner. The orders of the Income-tax Officer and the Assistant Commissioner as printed on our paper book are scrupulously barren of facts and the assessee's contentions seem to have been decided more or less as questions of law. The learned Commissioner, to whom a combined application under Section 33 of the Act for review by him and under Section 66(2) of the Act for reference to this Court was made felt this difficulty and by his order dated 17th May 1936 called for a report from the Income-tax Officer, and the Income-tax Officer submitted his report on the 22nd of May 1936 after examining the account books of the assessee for the year ending 31st March 1933 in the light of the observations made by the Commissioner in his order dated the 17th of May 1936, and some facts for the first time seem to have been ascertained by the Income-tax Officer and were stated in his report.
44. The Assistant Commissioner, when he passed his appellate order dated the 8th of February 1936, had, as far as I can see, only the original order of the Income-tax Officer dated the 26th of February 1935 and he does not seem to have examined the account books of the assessee and anticipating the reasons, which I shall give later on, I feel inclined to say on the first question formulated by the Commissioner that there was no material, at least none has been mentioned in the appellate order of the Assistant Commissioner, on which he could find that (a) the maintenance of the racing stable and (b) the series of betting transactions did not constitute business of the assessee. It is clear that under Section 66(2), a question of law should arise out of the appellate order of the Assistant Commissioner and out of the materials which the Assistant Commissioner had before him when he passed his order; and I have already said before that the facts came to be investigated for the first time in some details-scanty as they are even now for deciding this particular case-when the Commissioner for his own benefit called for a report from the Income-tax Officer after the assessment was complete so far as the Income-tax Officer and the Assistant Commissioner were concerned.
45. I shall, however, out of deference to the wishes of my learned brethren constituting the Bench, not adopt the drastic measure of refusing to answer the questions of law or of sending back the case to the learned Commissioner because I feel that no fresh facts can probably come to light and we can only in a general manner decide the questions of law.
46. The facts that have been ascertained by the Income-tax Officer after an examination of the accounts in his second report may be briefly stated. In the books of the assessee there are two accounts for racing in the year in question; one is the horses account and the other is the racing account. The horses account is a very bald one. It relates to the purchase of three horses, one for Rs. 1000, the second for Rs. 1400 and the third for Rs. 1800 and all of them were purchased between the 19th of October 1932 and the 20th of February 1933. The total price of the three horses comes to Rs. 4200 which represents the assessee's investment for the year under consideration. Only the first two of the above horses ran at the various races in that year.
47. The racing account contains a consolidated record for bettings and stakes. The winnings on account of betting as well as stakes money received from the race clubs have been credited to it and the losses due to bettings and expenses incurred in connexion with the maintenance of horses, like bills for forage, money paid to the secretaries of the race clubs in the form of entry fee, jockey fee, servants pay, etc. have been debited to the account. The bets include bets on the assessee's own horses as well as on those belonging to others and it was not possible from the account to give separately the losses suffered due to betting on his own horses and on horses belonging to others, because no details were kept in the books. In the betting account the winnings are Rs. 3910 and the losses are Rs. 11,364. Thus, the net loss is Rs. 7454. In the racing account the profits as represented by the stakes money come to Rs. 4747 and the losses are Rs. 5357. Thus, the net loss is Rs. 610. Out of this should be deducted a sum of Rs. 185 debited to the price of a stop-watch which obviously is inadmissible, being a capital expense, and the loss is thus reduced from Rs. 610 to Rs. 425 on this head. The question that emerges out of these facts is whether the assessee is entitled to claim a deduction under Section 24 of the Act on account of the above losses. I would like to divide the racing account into two heads, one consisting of the maintenance of the racing stable and the other consisting of the betting transactions, although the two may be said to be intimately connected, for experience shows that a horse owner who maintains a racing stable can rarely escape the temptation of betting. The Income-tax Officer and the Assistant Commissioner have quoted the observations of Rowlatt J. in Graham v. Green (1925) 2 KB 37 in extenso, and the Income tax Officer has disallowed the set-off claimed on betting by an implicit reliance on the above English case, and as for the loss due to the maintenance of horses and running them in the various races he says that
it does not arise in the course of a vocation or profession. The assessee indulges in this hobby by way of pastime and it is not done in the nature of profession. The loss sustained by him or the income made in pursuance of this pastime do not attract the provisions of the Income-tax Act. The loss claimed by him on this account is, therefore, disallowed.
48. The learned Assistant Commissioner appears to have mixed up the two accounts and observes as follows:
I do not think the efforts of the appellant in maintaining horses and betting on them and others, howsoever systematically organized they may be, constitute a business. A stable might be kept in an organized manner, but this by itself does not constitute a business. There is no system in betting nor can it be called organized. A person who bets may think that he does so systematically, but actually it is not the case, for there is no element of trade or business or even vocation in it. Betting is only a hobby which does not amount to business. The appellant is not a bookmaker whose efforts are organized and systematic and consequently the former cannot be said to be carrying on trade or business merely by keeping a stable and betting on horses.
49. After having said the above the Assistant Commissioner quotes the observations of Mr. Justice Rowlatt in Graham v. Green (1925) 2 KB 37. Now it is clear that the observations of Rowlatt J. relate only to betting and have no bearing on the question of a racing establishment. With great respect to that learned Judge, I am afraid, I am not prepared to go to the extent to which he has gone and to say that it is not possible under any circumstance to bring the income from betting under the six heads given in Section 6, Income-tax Act, for, apart from the more or less well-defined first five clauses there is the sweeping sixth clause, namely 'other sources.' Graham v. Green (1925) 2 KB 37 was considered by the Court of Appeal in Cooper v. Stubbs (1925) 2 KB 753 94 LJKB 903, and at page 769 Warrington L.J. says:
I desire to reserve for consideration, when, if ever, it comes before this Court, the question whether betting transactions which produce a revenue to the person who engages in them may not result in profits which are assessable to tax. That question, when it arises, will have to be decided on the facts of the particular case:
and Atkin L.J. at page 776 says:
Like my brother Warrington I desire to reserve the question of what the position would be if these transactions had turned out to be bets; but if the bets had been proved to be as continuous as these particular bets were, I express no opinion about it. I suppose the matter may some day arise in the Courts.
50. It is obvious that the English Court of Appeal in the above case was not quite happy about the decision of Rowlatt J., in Graham v. Green (1925) 2 KB 37, and I can conceive of a case where a person might be making his livelihood by bettings alone, or in addition to other sources of livelihood might be making an income out of bettings as well. Such a person might get into touch with the various racing establishments, might try to find out the capabilities of various horses maintained in those racing establishments and might evolve some system for betting and in any event might be known by the general public as a person who indulges constantly in bets, maintains a regular record of them and depends for his livelihood solely or mainly on betting. Like the two learned Judges Warrington L.J. and Atkin L.J. I would reserve the consideration of the question when a proper case arises and content myself by saying for the present that Graham v. Green (1925) 2 KB 37 should not be considered by the income-tax authorities in this country as a case of universal application. The income from the maintenance of a racing establishment might in certain cases come within the head of 'business' and in certain other cases come within the head of 'other sources' and the exemption clause Section 4(3)(vii) might not apply.
51. The racing establishment consisting of the expenses incurred on moneys paid to the secretaries of the race clubs in the form of entry-fee, jockey-fee, pay of servants, travelling charges, etc. on the debit side and of the stakes money on the credit side stands on a different footing. This might be indulged as a hobby and a pastime or might be conducted on business lines which involves an element of Commercial enterprise. In every case it will be a question of fact, the fact to be determined from surrounding circumstances, the surrounding circumstances being invoked in order to determine the underlying intention of the person concerned. I am aware of the danger of what I am saying. This might vest the income-tax authorities with undesirable powers but I am not prepared to assume that they will exercise these powers arbitrarily and it might further be possible in an extreme case to hold that the power was not judicially exercised and the question was a mixed question of fact and law. If however experience shows that there has been an abuse of such powers it will be time for the Legislature to step in to remedy the abuse, but I am convinced that we as Judges should not try to lay down any scientific test or tests. The Income-tax Act has not attempted to define 'income' and could not possibly define or describe 'other sources.' 'Business' has only been described as including
any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture.
52. What other things it includes the Income-tax Act does not say, nor have the words 'profession, vocation or occupation' occurring in Section 4(3)(vii) been defined anywhere in the Act; much less the words 'casual and non-recurring nature' also occurring there. A common sense working definition or description will have to be adopted in each particular case. Their Lordships of the Privy Council in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co. say:
The object of the Indian Act is to tax 'income,' a term which it does not define. It is expanded, no doubt, into 'income, profits and gains' but the expansion is more a matter of words than of substance. Income, their Lordships think, in this Act connotes a periodical monetary return 'coming in' with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be' one whose object is the production of a definite return, excluding anything in the nature of a mere windfall.
53. In the Full Bench case in A.U. John v. Commissioner of Income-tax : AIR1938All464 , to which I was a party, it was held that
the observations of the Judicial Committee with regard to the question as to what amounts to income under the Income-tax Act in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co. referred to above, were not intended by their Lordships to be confined to the particular facts and the circumstances of the case which their Lordships were considering. Their Lordships intended to indicate that the element of periodical receipt or regularity or expected regularity of money return was an essential ingredient of 'income' under the Income-tax Act.,
54. Applying, therefore, this definition of income to receipts from racing establishment or from betting, I am prepared to hold that it is possible to conceive of a case where receipts from either of these sources might come within the definition and the exemption contained in Section 4(3)(vii) might not apply, and in that case the assessee might be entitled to claim a set-off under Section 24 of the Act if a loss ensues there. Coming to the facts of the present case which are ever so meagre my view is that the assessee is not entitled to claim a set off of losses either on the racing establishment account or on the betting account, and this is my general answer to the questions formulated by the learned Commissioner.
55. This is a case stated by the Commissioner of Income-tax of the Central and United Provinces and referred to us under Section 66, Income-tax Act, 1922. The facts, so far as they are available to us, are very simple. The assessee is one Raizada Lala Inder Sen. He is the head of a joint Hindu family which carries on business in Meerut as money-lenders and dealers in precious stones. In the course of the financial year 1932-33, the assessee was minded to buy three race horses at an aggregate capital cost of Rs. 4200. These horses he trained, or had trained for him, for racing. During the year ending 31st March 1933, the assessee ran these horses in various races as a result of which he received, in stake-money a sum of Rs. 4747 from various racing clubs in Northern India. The expenses however of the training, upkeep and running of the horses, as adjusted by the Income-tax Officer, amounted to Rs. 5272. In the result therefore there was a loss on this account (which is called 'the racing account') of Rs. 425.
56. The assessee however made bets during the year of assessment both on his own horses and upon horses not his own. We are given no facts relating to the volume or frequency of this betting, its distribution between bets made by the assessee on his own and upon other horses nor the size of the bets made, except that the nett result of these betting operations during the year of assessment was that they showed a nett loss of Rs. 7454. The assessee appears to have entered these transactions in his books of account under two headings, namely 'Horses Account' to which he debited the purchase price of the horses and 'Racing Account' to which he debited his outgoings in respect of training, upkeep etc. and in which he also entered his losses and gains in respect of the bets he made.
57. These are the whole of the facts. To put the point in issue in its simplest terms, the assessee has claimed in respect of the year of assessment (1933-34) to be allowed a deduction of Rs. 8064(the aggregate of Rs. 425 and Rs. 7454) under Section 24, Income-tax Act, upon the footing that it represents a loss of profits or gains in the year of assessment under one of the heads mentioned in Section 6 of the Act. Both the Income-tax Officer and the Assistant Commissioner of Income-tax decided against the assessee. The present case has been stated to us by the Commissioner who has expressed his own opinion to be that the assessee is entitled to the relief he seeks neither in respect of the loss of Rs. 425 incurred by him in maintaining his stable and running his horses nor in respect of the loss of Rs. 7454 incurred by him on betting. He has taken the view that as regards both they were carried on 'as a hobby and not by way of business.' I think he was right. The actual question referred to us is in these terms:
(1) Was there any material on which it could be found that (a) the maintenance of the racing stable, and (b) the series of betting transactions did not constitute 'business' of the assessee? (2) If so, was the assessee in the face of such a finding entitled to have the loss either (a) of Rs. 425 in the racing account or (b) Rs. 7,458 in the betting account, or both losses, deducted from his assessable income for the year in dispute
58. It will, perhaps, be convenient before discussing the form of, and deciding, the questions which the Commissioner has framed to refer to the relevant provisions of the Income-tax Act itself. It is obvious that to be assessable under the Act at all the 'income' to be assessed must be such 'income' as the Act applies to. What 'income, profits and gains' are to be reached by the Act is to be found in Section 4(1), as further 'described' in Section 6 of the Act. And what 'income' is not to be reached by the Act is to be found in Section 4(3) which sets out various classes of 'income' to which the Act does not apply at all. It has to be noticed that by Sub-section (3) of Section 4 certain classes of 'income' are declared not to be affected by the Act at all and, for myself, I find it difficult to reconcile the view of the Madras High Court expressed in Commissioner of Income-tax, Madras v. Panchapakesa Iyer : AIR1982Mad424 to which my learned brother has referred, either with the well-known principles for the construction of fiscal statutes or with the fact that, upon its face, the Income-tax Act is not made applicable to all income but only to those classes of income which by its own terms are not exempted. The words 'profits and gains' which appear in the general charging Section (Section 4(1)) are not to be found in Sub-section (3) of Section 4. But, in my view, the word 'income' as used in the Sub-section (3) of Section 4 embraces every form of receipt of the kind which but for the exemption would, or might, have been embraced by the words 'income, profits or gains' in Section 4(1). As has been pointed out by the Judicial Committee of the Privy Council in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co. .
The object of the Indian Act is to tax 'income' a term which it does nut define. It is expanded, no doubt into 'income, profits and gains', but the expansion is more a matter of words than of substance.
59. It seems to me, therefore, that the words 'profits' and 'gains' in reality add nothing to the expression 'income' and that an incoming receipt of any of the classes exempted in Section 4,. Sub-section (3) of the Act is one to which the Act does not, and never did apply.
60. The real question, therefore, which falls to be determined on this reference is whether any receipts (a) by way of stake money derived from the running of the assessee's horses in races and (b) from betting, or from either of those sources, subject of course to all proper adjustments in respect of outgoings or losses, would have been assessable to Indian income tax under the Act if a profit had been shown on these accounts respectively. For, under Section 24(1) it is only in such a case-that is to say, in the case of a loss of profits or gains under any 'assessable' head mentioned in the Act-that any question of a set-off of losses can arise
61. The only head of Sub-section (3) of Section 4 of the Act which can possibly catch this case is head (vii), the effect of which is that:
(3) This Act shall not apply to the following classes of income:
* * * * *
(vii) Any receipts, not being receipts from business or the exercise of a profession, vocation or occupation, which, are of a casual and non-recurring nature, or are not by way of addition to the remuneration of an employee.
62. The question whether by virtue of this clause the 'income' in dispute in this case is one to which the Act applies at all is, to my mind, the only material question involved in this reference, because, in itself, it embraces both the questions, first whether the assessee in doing what he did was exercising a 'business,' 'profession,' 'vocation' or 'occupation' and, secondly whether, if he was not exercising any of those things, the classes of receipts with which we are dealing, or either of them, were or was 'of a casual and non-recurring nature.'
63. Before giving what is, in my opinion, the proper answer to this question, I desire to say that I agree with what has been said as to the form of question propounded to us by the Commissioner. It is an unhappy form of question which I have met with before in cases of this kind. The question really is, as I have said, whether, on the facts as found by the Income-tax Officer, he was correct in law in holding (a) that the assessee was not carrying on a 'business,' 'profession,' 'vocation' or 'occupation' in the respects or either of them in reference to which he claims relief and (b), if he was not, whether any 'receipts' in those respects were in law, on the facts found, 'casual and non-recurring.' I do not think that this criticism amounts to re-framing the questions asked by the Commissioner. It is intended to explain them as a preliminary to answering them.
64. Though it appears to have been assumed throughout these proceedings, both before the Income-tax authorities and here, that the maintenance and training of the three horses ought to be treated as a separate transaction from the assessee's betting, I desire to say for myself that I am not altogether sure that on the facts is the right way of looking at it. I think they may just as easily, if not better, be regarded as one and the same activity. If in the result they should be held to constitute 'business', I should myself think that they are one business and not two. And whether they are held to be an enterprise productive of receipts which are 'casual and non-recurring' or not, I should prefer to regard them in this case as one enterprise and not as two. But it makes no difference to the conclusion I have come to and I do not, therefore, propose to depart from what has been hitherto accepted as the right view.
65. In my judgment, neither the assessee's ownership, management and running of his three racehorses nor his betting transaction can, in this case and on such facts as have been disclosed to us by him, be said to constitute his 'business,' his 'profession,' his 'vocation' or his 'occupation.' I should, for myself, be very unwilling to try to lay down any general definition of what a 'business,' 'profession,' 'vocation' or 'occupation' is, because it is a matter which, to my mind, must necessarily depend in every case upon the circumstances of the assessee, the particular things he does and the degree to which, and the object with which, he does them. A philatelist collects stamps for his own entertainment. A stamp dealer collects them for his profit. A country gentleman maintains a garden for his pleasure, while a market gardener or a florists does so for his profit. And yet in neither case would it be right to say that either the desire for, or an indifference to, profit, as the case might be, was an exhaustive test, for business and pleasure may well be combined. And still less is it possible to my mind to say that an actual profit would necessarily convert what was primarily a hobby or a pastime into a business. For I do not doubt that many stamp and curio collectors entertain a secret hope that they may one day by good chance and to their profit acquire a rare and valuable specimen. And I think they would be surprised to know, if that were to happen, that they had been carrying on a 'business.' The truth I think is in this, as in so many other cases, that no exhaustive test can be applied but that all the surrounding circumstances must be considered and common sense applied. If there is one test which is, as I think, more valuable than another, it is to try to see what is the man's own dominant object, whether it was to conduct an enterprise of a commercial character or whether it was primarily to entertain himself. If the latter was his real objective, I do not think that the circumstance that his hobby might possibly yield him a reward is conclusive of this question whether what he is doing constitutes a 'business,' 'profession,' vocation' or 'occupation' within the meaning of this Act.
66. In this case, the assessee was, as far as we can tell, a man well able to afford the pleasure both of keeping racehorses and of betting. I think that in India, as in England men of means take a pride in possessing racehorses and in exhibiting their horses, and themselves, on race courses. And the instinct to gamble is not the perquisite alone of a man of business. Prima facie, I think that, where the only facts known are that a well-to-do man owns and runs three horses and bets on them and other horses, he does so for his pleasure, even though that pleasure costs him Rs. 7000 odd in a year. And nonetheless is this so by reason of the fact that he makes a note in his books of account what his pleasure costs him. Many men of method do that. And, indeed, one cannot dismiss from one's mind the possibility that such entries may be made for the very purpose of raising a claim such as the assessee is now making. Though I express this view, I do not desire it to be thought that, in my opinion, there are no circumstances in which a man can ever be said to be an owner of racehorses, or a gambler, as a business proposition. I think that would be going much too far. I think that it may well be that there are cases in which by the scale on which he conducts his racing or his gambling (whether on horses or in other ways), by the commercial methods adopted, by his declared intention or by the absence of any other means of livelihood, he may make it clear that his object is to make a 'business' of it. With great respect to that learned Judge, I am doubtful whether the decision of Rowlatt J. in Graham v. Green (1925) 2 KB 37 really faces the fact that however irrational it may be, gambling in some form is, nevertheless, for some people a means of livelihood. In Cooper v. Stubbs (1925) 2 KB 753 94 L J K B 903 at pp. 769 and 776 the English Court of Appeal, notwithstanding that Graham v. Green (1925) 2 KB 37 was cited to them, expressly guarded themselves from deciding the question whether betting transactions which produce a revenue to the person who engages in them may not result in profits which are assessable to tax. I do not myself think that Graham v. Green (1925) 2 KB 37 is necessarily an authority which ought to be relied upon in India on a matter arising under the Income-tax Act.
67. For these reasons, in my opinion, neither the assessee's activities on the racecourse itself nor his betting can, on the facts of this case, so far as we know them, be held to constitute a 'business.' They certainly do not, in my opinion, constitute a 'profession' or a 'vocation;' and though in a sense they engage part of their owner's time, they equally do not, constitute his 'occupation' in the sense in which, in my judgment, that expression is in its context, used in this Act.
68. A more difficult question however arises when we come to consider whether such profits (if made) would be of a 'casual and non-recurring nature.' It is to be observed that we are given no information as to the number of races run nor of the number of bets made. But I do not myself think that we ought to, or need, send this case back at this stage under Section 66(4).
69. First, as to the betting, I have discarded the contention of the assessee that in this case he is proved to have been betting as a matter of 'business.' It follows, I think, that the true view is that he made a bet whenever he felt inclined to do so. He was not compelled to and, as far as we know, there was no method in his betting. I think therefore that the right way to look at this is that the assessee, whenever he felt inclined from time to time made a bet and not that he made a series of bets on a prescribed plan. He was free to stop whenever he liked. And if each bet is, as I think, an individual transaction, I can myself see nothing of a 'recurring nature' about it. It was not its nature to recur. If it did in fact recur with great frequency it might on that account become a 'business.' It may be true that, in fact, these bets did recur. But that was not the result of the 'nature' of the transaction but of the mere spasmodic volition of the assessee. They were not, to my mind, of a recurring 'nature' and the assessee has not shown us that in this case they did recur in such a way as to constitute them a 'business.' I think also, upon this line of reasoning, that they were 'casual'-'casual' in the sense that they were merely arbitrary acts dictated by the assessee's mood at the time of making them and following no set course of dealing. Nor can it be denied that whether or not any particular bet yielded a profit was a mere matter of chance. Whether the chance was a good chance or a poor chance (or, in other words whether the odds were short or long), a chance it remained and, in that sense, its proceeds were, I, think, mere 'casual' receipts. I think that the word 'casual' in this Section must be read as meaning the antithesis of that which is governed by something more than mare chance, something out of which, according to the probabilities of business or to the known course of practical experience, a rational expectation of profit arises. And that does not, in my opinion, apply to a mere bet.
70. As to the management and running by the assessee of racehorses, I think that exactly the same considerations apply. It was, in my view, a pastime, which might or might not-and probably would not yield a profit. It was in this particular case, I think, a pastime which has not been proved to have been even designed to yield a profit. The assessee has certainly not, on the facts we have, proved, in my opinion, that it was for him more than a mere amusement, notwithstanding that his losses have been noted in his books. It was, I think, a mere 'hobby' as the Commissioner has described it and, inasmuch as each race in which the assessee engaged his horse, was in itself a separate venture, I see nothing in any receipt derived from it that was not 'of a casual and non-recurring nature.' It should of course, be observed that it is the 'receipts' which are by the Act required to be casual and non-recurring and not the occupation. I think however myself, as I have already said, that the better view of the whole matter is to regard the racing and the betting as one and not as two. And an that case, the same result follows.
71. In the result, I think that the questions referred to us ought to be answered thus: On the facts as found by the Income-tax Officer the maintenance, management and running in races of racehorses by the assesses during the year of assessment and the betting of the assessee during that year did not in law constitute the 'business,' 'profession,' 'vocation' or 'occupation' of the assessee nor any part of such 'business,' 'profession' 'vocation' or 'occupation;' and the receipts by the assessee from the said sources, or any of them, would not, if a profit had been derived therefrom, have in law constituted income, profits or gains of the assessee from 'other sources' within the meaning of Section 6(vi), Income-tax Act 1922; and, accordingly, the assessee is not entitled under Section 24 of the said Act to set off any loss of profits or gains in the year of assessment in respect of the said maintenance, management and running of his racehorses or in respect of the said betting against his income, profits or gains in that year under any other head of assessment.
By the Court.
72. The answers to the questions referred to this Court are as follows:
Iqbal Ahmad, J.
73. (1) 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 not constitute business of the assessee.
(2) The assessee was entitled to have the loss (a) of Rs. 425 in the racing account, and (b) of Rs. 7458 in the betting account deducted from his assessable income for the year in dispute.
Bajpai and Braund JJ.
74. We answer both the questions referred to us together in these words:
75. That upon the materials before us the assessee is not entitled to claim a set-off of losses either on the racing establishment account or on the betting account.
76. The fee of the learned Advocate-General is assessed at a sum of Rs. 200. A copy of our judgments and of the order of the Court under the seal of the Court and the signature of the Registrar shall be sent to the Commissioner of Income-tax. In the circumstances of the present case we direct the parties to bear their own costs.