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Janab A. Syed Jalal Sahib (Deceased) by Legal Representative Syed Usman Sahib Vs. Commissioner of Income Tax, Madras - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberCase Referred No. 25 of 1955
Judge
Reported inAIR1961Mad21; [1960]39ITR660(Mad); (1961)1MLJ107
ActsIncome Tax Act, 1922 - Sections 4(3) and 6
AppellantJanab A. Syed Jalal Sahib (Deceased) by Legal Representative Syed Usman Sahib
RespondentCommissioner of Income Tax, Madras
Appellant AdvocateK. Srinivasan, Adv.
Respondent AdvocateC.S. Rama Rao Sahib and ;S. Ranganathan, Advs.
Cases ReferredRaghuvanshi Mills Ltd. v. Commissioner of Income
Excerpt:
income-tax act (xi of 1922), section 4 (3) (vii) and 6--assessee acquiring horses of his own and entering for races and betting--separate accounts therefor--excess of receipts over expenditure--income not from business, vocation or profession but from other sources under section 6 of act--income of casual or non-recurring nature--not taxable; the main line of business of the assessee was the manufacture and sale of beedis. he interested himself in horse-riding. at first he contented himself with betting on horses. subsequently he acquired horses of his own, some in partnership with others, which he entered for some of the races. he maintained a separate set of accounts in which he showed the details of monies expended by him and the monies realised by him either from the stakes for which.....1. the main line of business of the assessee, syed jalal sahib, since deceased, was tile manufacture and sale of beedis. he interested himself in horse lacing, and he attended races at a number of centres in south india quite regularly for a number of years. apparently at first he contented himself with betting on the horses in those races. subsequently he acquired horses of his own which he entered for some of the races. some of these horses he owned in partnership with others. when exactly the assessee started entering his horses for races is not clear. the racing horses of course were left in charge of the trainers.the assessee maintained a separate set of accounts, referred to by the income-tax officer as the race book, in which apparently the assessee showed the details of the monies.....
Judgment:
1. The main line of business of the assessee, Syed Jalal Sahib, since deceased, was tile manufacture and sale of beedis. He interested himself in horse lacing, and he attended races at a number of centres in South India quite regularly for a number of years. Apparently at first he contented himself with betting on the horses in those races. Subsequently he acquired horses of his own which he entered for some of the races. Some of these horses he owned in partnership with others. When exactly the assessee started entering his horses for races is not clear. The racing horses of course were left in charge of the trainers.

The assessee maintained a separate set of accounts, referred to by the Income-tax Officer as the Race Book, in which apparently the assessee showed the details of the monies expended by him and the monies realised by him, either from the stakes for which his horses ran or from his successful bets. In the year of account which ended on 31-3-1947 which corresponded to the assessment year 1947-48, the excess of receipts over expenditure amounted to Rs. 44,259. In the next year his own books showed the excess of receipts ovor expenditure as Rs. 11,514.

The Income-tax Officer accepted the book results for the assessment year 1947-48. But for the assessment year 1948-49, he added back a sum of Rs. 1500, which he disallowed from the expenditure incurred by the assessee. The Income-tax Officer computed Rs. 13014 as income from this source for the assessment year 1948-49. The Income-tax Officer treated these items of Rs. 44,259 and Rs. 13014 as income of the assessee from his business. That was confirmed by the Assistant Commissioner, to whom the assessee appealed. The further appeal to the Tribunal also failed, and the contention of the assessee that what he made over racing was not assessable to income-tax in either of the assessment years was again rejected.

2. The following question was referred to this court under Section 66(2):

"Whether on the facts and in circumstances ot the case, the Appellate Tribunal was justified in including in the taxable income of the assessee the sum of Rs: 44259 for the assessment year 1947-48 and the sum of Rs. 13014 for the assessment year 1948-49, being the profits from horse racing and whether the said sums are not exempt from inclusion as being income of a casual and non-recurring nature?"

Before we deal with the contentions of the counsel on either side on the question of law that we have to determine, it should be desirable to set out the findings of the Departmental authorities and the Tribunal.

3. No attempt was made at any time to verify how much the assessee made in each of the two years of account by racing his horses and how much be made out of bets he made. Nor was any attempt made to verify how much of the money he made was out of bets on his own horses. From the order of the Income-tax Ofticer it appears that in the year of account 1946-47, the assessee incurred an expenditure of Rs. 5900. Apparently that was the cost of maintaining the horses he owned and what it cost him to enter the horses for races.

In addition, he incurred an expenditure of Rs. 29555, which apparently was the amount he lost in bets. The receipts for the year totalled Rs. 79714. In the next year the expenses on horses amounted to Rs. 9924; the amount lost on bets was Rs. 40,000; The total receipts that year were Rs. 61438. We have set out these details only to show that this analysis of figures does not help us much.

The Assistant Commissioner and the Tribunal did not apparently concern themselves with these details. They made no difference between what the assessee made or lost on his bets and what he made or expended on his horses. They treated them all as constituting one set of activities which could be comprehensively labelled the "racing activities" of the assessee.

4. In the order of assessment for the first of the years, 1947-48, the Income-tax Officer recorded:

"The assessee is a race horse owner and derives income from this source. The auditor stated that this was casual and non-recurring and in the nature of a hobby, to the assessee. The assessee appeared before me and in a sworn statement declared that he owns four horses at present solely and 3n partnership with others. These horses are trained at Madras and Bangalore by trainers appointed by the assessee. The assessee also keeps a sort of race book showing the profit, losses and expenses with reference to the races in which his horses took part I find this Is a regular line ot 'business for the assessee."

In the order of assessment for the next year the Income-tax Officer stated :

"The assessee's auditor contended that racing was a hobby with the assessee but the circumstances of the case showed that the assessee was doing regu-lar business with a view to profit."

In the order the Income-tax Officer pointed out for about eignt months every year he (the assessee) attends to races leaving his son in charge of the beedi business at Salem." Thus as far as the Income-tax Officer was concerned, in both the years he treated the amount in question as income which the assessee derived from his business.

5. That was confirmed by the Assistant Commissioner, with reference to 1947-48, the Assistant Commissioner recorded :

"Apart from Owning horses and running them in various centres of racing, he has from the very beginning, been a regular punter, i.e., better on horses. By his own admission he has been regularly following this activity."

After referring to the statements recorded from the assessee, the Assistant Commissioner stated:

"So it is clear that the appellant has been racing own horses and betting on horses of others as a regular business or vocation which he has been conducting for a number of years. It is not a mere hobby or pastime with him. Otherwise, he would not spend 7 1/2 months out of a year in various centres of racing in India and leave his beedi business to his son at Salem. That the horse racing including betting has been indulged in by him for profit and not as a hobby or pastime or even as a mere habit, is borne out by his letter, dated 16-5-1947..."

With reference to the letter dated 16-5-1947, the Assistant Commissioner stated: "Clearly he thinks of this as a business proposition". Dealing with the conclusion, "the auditor would like to say that if at all only the profit from the racing of own horses should be included in the assessment," the Assistant Commissioner stated:

"This cannot be done because the appellant started his racing career as a better, and racing with his own horses was a later development in his case.

The Tribunal consolidated the appeals with reference to both the years of assessment and disposed them of by a single order. The reasoning and tile conclusions of the Tribunal were all in paragraph 3 ot the judgment, the whole of which we shall now set out:

"In appeal before us. it is argued that the income from horse racing is not taxable as no business was carried on by the assessee. The learned counsel who appeared for the assessee drew out attention to some observations in the case of Lala Indra Sen, in re, 1940-8 ITR 187 at p. 219: (AIR 1940 All 154 at p. 170) (FB) and also relied strongly on certain observations in Graham v. Green, 1925-2 KB 37: 9 Tax Cas 309 in support of his view that horse racing cannot be called either a vocation, business or profession. It is unnecessary for us in this case to pronounce whether horse racing as such can be considered a business, profession or vocation. As pointed out by the Appellate Assistant Commissioner. in a letter by the assessee to his auditor on 16-5-1947. the assessee has definitely stated that his racing activity is very important and there is every possibility of getting good profit in the race. This is enough to show that he treated this activity of his as a source of profit. Also, on the peculiar facts of the case, it has to be held that the assessee earned profits from horse racing. That is enough to bring them to tax".

The discussion in the appellate judgment which we have extracted above was certainly not elaborate. The Tribunal should certainly have been aware of the difference between the several heads of income listed in Section 6 of the Income-tax Act. These heads are mutually exclusive. The Department treated the income as falling under the head "business" of which the Tribunal was conscious. That was set out in paragraph 2 of its judgment. We are unable to appreciate the view propounded by the Tribunal in paragraph 3 of its judgment, that it was unnecessary to decide whether racing and/or betting--confining the question, of course, to the activities of the assessee -- constituted his business, profession or vocation.

It is not clear whether the receipts were treated as falling under the residuary head, income from other sources to which Section 12 of the Act would apply. The Tribunal did not also deal with the specific plea of the assessee, that in any event the assessee was entitled to exclude these items under Section 4(3)(vii).

6. The Tribunal supplemented in the statement of the case what it had recorded or rather what it had failed to record in its order on appeal. After setting out in paragraph 6 of the statement of the case, the contentions of the assessee before the Tribunal, the Tribunal recorded in paragraph 7:

"The Tribunal found that so far as periodicity, rganised and sustained action went, there was abundant proof and material on record to show that the assessee had carried on the activities in horse racing regularly, in a commercially organised manner and continuously and that be treated this activity as important and indulged in it with a view to getting good profit in races, Therefore, they held that the assessee treated the activity as A source of profit. Further, they held that on the facts of the case, the assessee did earn profits as a fact from horse racing".

Even so, there was no express finding that the receipts from the racing activities of the assessee amounted to income from any business of his. Arter referring to Section 4(3)(vii) of the Act the Tribunal stated in paragraph 8 of the statement of the case:

"Having regard to these essential ingredients of the sub-section and the facts in the case that the assessee treated this activity as important, as a source of profit and that he made profits from horse racing, the Tribunal came to the conclusion that the income was, therefore, neither casual nor non-recurring and it ought to be taxed".

It should be needless to point out that what has been stated in paragraphs 7 and 8 of the statement of the case was not mentioned in the order on appeal. We have also got to point out that there is no reference to the material on record on the basis of which the conclusions set out in paragraphs 7 and 8 were reached, assuming that they had been reached even when the appeals were disposed of.

7. Even at the outset we are constrained to observe that the Tribunal failed in its duty to investigate the facts in full before it gave its decision in the appeal. The attention of the Tribunal was specifically drawn to 1940-8 ITR 187: (AIR L940 All 154) (FB) and the report of that case should at least have impressed on the Tribunal the need for a full investigation of the facts. Paucity of material in 1940-8 ITR 187: (AIR 1940 All 154) (FB) was deplored in no unmeasured terms by each of the three learned Judges of the Allahabad High Court who constituted the Full Bench.

As far as the facts of this case are concerned, we find ourselves in an even worse position than the learned Judges who decided 1940-8 ITR 187: (AIR 1940 All 154) (FB). As we have already pointed out, the Tribunal did not even decide under which of the several heads listed in Section 6 of the Income-tax Act, the assessee could have been taxed. Apparently the Tribunal was of the view that the decision on that point was not necessary. If it was income from business, on that ground alone the application of Section 4(3)(vii) of the Act would have been ruled out.

8. It is on the scanty material furnished to us in the statement of the case that we have to answer the question that has been referred to this court. We shall examine first whether the two sums in question. Rs. 44259 and Rs. 13014, which had been admittedly received by the assessee, constituted income, and if it did constitute income, under which of the mutually exclusive heads enumerated in Section 6 of the Act that income fell.

9. Even before we deal with these questions, we have to point out that with reference to the facts and the circumstances of this case, it is not possible to make any distinction between what the assessee made over the bets and what he made from his ownership of the horses and from the races in which he entered them. In the race book the assessee maintained he himself apparently made no distinction between these two departments of his activities. At the stage of the appeal to the Assistant Commissioner, an attempt appears to have been made to put forward as an alternative argument, that it anything was to be viewed as a business, it could only be the maintenance of race horses, and entering them in races.

The assessee claimed all along that both betting and racing constituted his hobby or pastime, and that he himself did not make any distinction between these two departments of his racing activities. At the stage of the appeal to the Tribunal it did not consider whether the betting transactions of the assessee should be viewed independent of his racing transactions. On the material available to us, and once again we have to point out that it is ever so scanty -- we cannot say that the Tribunal would have been wrong in proceeding on the basis that both belting and racing should be viewed as component parts of a whole as far as the assessee was concerned. In 1940-8 ITR 187: (AIR 1940 All 134) (FB) Braund J. said:

"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 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 were one business, and not two. And whether they are to be 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".

10. On the facts of this case and in the case of the assessee with reference to the assessment years in question, we are of the view that there is no scope for separating the betting from the racing transactions and that they constituted one composite set of activities, whether it was a business as determined by the Department or whether it was a hobby as claimed by the assessee. We are not to be understood as saying that there is and never can be any distinction between betting and racing. All we say is that in the case of the assessee and in the relevant assessment years he himself made no distinction between the fruits of his betting and those of his racing activities.

11. The question is, did the receipts of the assessee from his betting and racing activities constitute income. As has been repeatedly pointed out, income has not been defined by the Income-tax Act, and the scheme of the Act makes it a concept of the widest import. Even a casual and non-recurring item of receipt is income. Only it is excluded from the computation of assessable income by the provisions of Section 4(3)(vii) of the Act. We are referring to this at this stage only to understand what income means.

The source of the income is relevant for determining first whether it is assessable or non-assessable, and if it is not exempt from assessment, for deciding next under which of the heads enumerated in Section 6 the income has to be assessed. It is really in that light we have to understand what the Privy Council stated in Commissioner of Income-tax, Bengal v. Shaw Wallace and Co., ILR 59 Cal 1343: 59 Ind App 206: (AIR 1932 PC 138) which passage was specifically adverted to by Bajpai J. in 1940-8 ITR 187 at p. 213: (AIR 1940 All 154 at p. 167) (FB):

"The object of the Indian Act is to the tax in come, a term which it does not define. It is expanded no doubt into income, pfotits and gains. But the expansion is more a matter of words than of sub stance. Income their Lordships think under this Act connotes periodical monetary return coming in with some sort of regularity or accepted 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 mere windfall".

The Supreme Court has pointed out in Raghuvanshi Mills Ltd. v. Commissioner of Income-tax, that the observations of the Privy Council must be confined to the facts found in 59 Ind App 206: (AIR 1932 PC 138). As we have pointed out, under the scheme of the Act, even a casual receipt, a single item of receipt, would constitute income, independent of the question whether it is assessable income or not. Judged even by the test propounded by the Privy Council in 59 Ind App 206: (AIR 1932 PC 138) it should be clear that the receipts the assessee traced to his betting and racing transactions constituted his income.

That, of course, is independent of the question, whether such a receipt is taxable. No case has been brought to our notice that such receipts did not constitute income at all. No doubt in 1925-2 KB 37: 9 Tax Cas 309, Rowlatt J. held that receipts from betting on horses would not constitute profits or gains for assessment either under Case VI or under Case II of Schedule D under the English Income-tax Act.

We do not understand the learned Judge to have laid down that such receipts would not constitute income at all. Were that the underlying implication of his judgment, we would have ventured to dissent from such a view. At any rate we would have ventured to dissent from such a view. At any rate we would have respectfully declined to accept it as authority for deciding what constitutes income under the scheme underlying the Indian Income-tax Act.

12. The next question we have to consider is, under which of the heads enumerated in Section 6 of the Income-tax Act the receipt of that income fell.

13. 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. That was no doubt the finding of the Department though the Tribunal itself retrained from going into the question and from recording any express finding that it was income from business.

14. In 1925-2 KB 37: 9 Tax Cas 309, Rowlatt J. said this:

"What is a bet? A bet is merely an irrational agreement that one person should pay another person something on the happening of an event. A agrees to pay B something if Cs horse runs quicker than D's or if a coin comes one side up rather than the other side up. There is no relevance at all between the event and the acquisition of property. The event does not really produce it at all. It rests, as I say, on a mere irrational agreement".

We are in respectiul agreement with these obserations. To these observations we can add: when a person places a bet and loses it that money is gone; if he wins the bet he gets his own money plus what the other party has lost as his bet; in neither case canthe placing of a bet be equated to an investment or even an expenditure to produce an income or receipt.

15. What that learned Judge said about the realisation of successful bets would also apply, at any rate, as far as the assessee was concerned, to his receipts of price money or stakes from racing his horses. The success of a given horse, so much dependent on chance, to which both betting and racing have to be correlated, was not the event which itself produced the income. That of course is not conclusive in deciding the question, whether betting and racing could ever be viewed as constituting a business. A bookmaker's is an obvious case of betting being his business.

It is not necessary for us to decide in this case whether as far as the punter is concerned, betting could ever be viewed as constituting his business, and whether the principle was laid down correctly in 1925-2 KB 37: 9 Tax Cas 309, that under no circumstances betting, from the point of view of the punter, could ever constitute a business. Ours is a more limited question whether there was material on which it could be found that the racing and betting transactions of the assessee constituted a line of his business. It was certainly not his sole means of livelihood.

It is doubtful if it could be viewed as an additional means of livelihood in his case. He was a successful businessman with a lucrative line of business, manufacture and sale of beedis. We are only eferring to the factual position of the assessee. We are not to be understood as laying down that, if the receipts from the racing activities had constituted the sole or the main means of livelihood of the asses-see, that with nothing more would have sufficed to establish that such receipts constituted income or profits of the business of the assessee.

Apart from the fact that the assessee was not dependent on his income from his racing activities for his living, we have to point out that a business certainly postulates activities on a commercially organised basis. Even an adventure in the nature of a trade needs such a commercial organisation and activities. That was wholly lacking in this case, even as it was found to be lacking in 1940-8 ITR 187: (AIR 1940 All 154) (FB).

16. At page 219 of the report (ITR): (at p. 170 of AIR) in 1940-8 ITR 187; (AIR 1940 All 154) (FB) Braund J. observed:

".....the assessee was, as far as we can tell, a man well able to afford the pleasure both of keeping race horses and of betting. I think that in India, as in England, men of means take a pride in possessing race horses and in exhibiting their horses, and themselves, on race courses. And the instinct to gamble fs not the perquisite alone of 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 of what his pleasure costs him. Many men of method do that".

We are in respectful agreement with these observations of Braund J. To adapt the words of Braund J. where the only facts known are that a well-to-do man like the assessee owns horses and bets on them and other horses the prima facie view-should be that he does so for his pleasure, even though that pleasure brought him substantial sums of money. Obviously it is not the ultimate success or failure from a pecuniary point of view that really decides whether a given set of activities constituted the business of a person. If the racing and betting activities of the assessee constituted his business, it would continue to be his business whether he made profits or sustained losses in any given year or even over a series of years.

The amount won or lost in a given period again may not he a relevant factor in deciding whether it was his business. The activities organised on normally accepted commercial lines constitute the essence of any business; and, as we have pointed out, there was no evidence of that at all in the case of the assessee. There was nothing to rebut what Braund J. held should be a prima facie view of such racing activities, that a person of comparative affluence and means undertakes them for his pleasure. To that must be added the further factor to which we have already adverted, the very nature of a bet, with something wholly irrational about its results as pointed out by Rowlatt J. Again we have to guard ourselves against being understood to say that gambling could never be organised on a commercial basis and could never constitute a business.

All we need say, and do say in this case, is that prima facie at least gambling by betting on horses cannot be viewed as a business, though a person indulges in it liabitually and even makes money by it, Strong evidence would be needed to establish that racing and betting activities constituted a business or One of the lines of business of a person. That evidence is lacking in this case.

17. No doubt, in the statement of the case submitted by the Tribunal, it recorded in paragraph 7:

"The Tribunal found that so far as periodicity; organised and sustained action went, there was abundant proof and material on record to show that the assessee had carried on the activities in horse racing regularly, in a commercially organised manner and continuously and that he treated this activity as important and indulged in it with a view to getting good profit in races".

The finding that the assessee conducted his activities in a commercially organised manner was not correlated to any evidence, whether disclosed in the printed book or otherwise. It should be remembered there was no reference to any such commercial organisation of the assessee's activities in the orders of the Departmental officers or in the appellate order of the Tribunal.

18. We can sum up this part of the case by pointing out that there was no evidence to sustain the finding of the department, that the racing and betting activities of the assessee constituted his business.

19. Neither the Department nor the Tribunal considered whether, if these racing activities did not constitute the business of the assessee, they could be viewed in the alternative as constituting his profession or vocation. The learned counsel for the department urged that the racing activities of the asses-see could be brought under either of the heads profession or vocation.

20. Much of what we said in holding that there was no material on record to justify a finding, that such activities constituted the business of the assessee, would also apply in considering whether they constituted his profession or vocation. Whether or not betting could be organised on commercial lines by a punter to constitute a business of his, it is virtually impossible to look upon gambling by betting or racing, i.e. entering horse for races, or a combination of both, as constituting a profession or vocation. Vocation may be an expression of much larger import than profession.

But that makes no difference to what we have. stated. No doubt, the expression professional gamb-ler has the sanction of usage, but it only implies that he is a habitual gambler who hopes to make, and possibly does make, money by his gambling activities. That obviously is not enough to hold that gambling is his profession or even vocation, as these expressions have to be understood in the context of the Income-tax Act. After all, even a person who bets on horses for his pleasure or prestige also hopes to win his bet. Neither such hope nor the actual realisation of that hope by a habitual gambler could suffice to divest the gambling transaction of its essence of irrationality. A habitual indulgence in such irrational activities could not be viewed as constituting a profession or vocation. Even if the money made over such transactions furnished the sole or main means of livelihood, that would not establish that gambling was a profession or vocation.

21. At page 219 of the report (ITR): (at p. 170 of AIR) in 1940-8 ITR 187 : (AIR 1940 All 154) (FB), Braund J. said :

".....in my opinon, neither the assessee's activities on the race course 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 'vacation'; 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."

All these observations, with which we respectfully agree, apply also to the assessee in this case. His racing and betting did not constitute the business, profession or vocation, of the assessee or even his occupation.

22. Of the cases cited before us, only two, (1925) 9 Tax Cas 309 and 1940-8 ITR 187: (AIR 1940 All 154) (FB) deal directly with the question, whether the receipts from successful bets constituted taxable income. We have not therefore referred in this judgment to the other cases cited by either side during the course of the arguments. The learned counsel for the Department drew our attention to passages at pages 179 and 180 of Gunn's Commonwealth Income-tax Law and Practice, 4th Edn. But the reports themselves from which the extracts were quoted by the learned author are unfortunately not available to us.

We have said enough to make it clear that it is not as an abstract question that we can consider whether betting can be a business, profession, vocation, or even occupation. The question will have to be answered in each case with reference to the facts disclosed by evidence in that case. We have therefore refrained from making use of the passages extracted by the learned author, Gunn, to which our attention was drawn.

23. Since we have held that the receipts of the assessee constituted his income, and since it was not income from any business, profession or vocation of the assessee, it could only be brought under the residuary head in Section 6 of the Income-tax Act, income from other sources.

24. The next question is, whether that income of the assessee was exempt from taxation, and whether it satisfied the requirements of Section 4(3)(vii) of the Income-tax Act, which runs:

"Any income, profits, or gains falling within the following classes shall not be included in the total income of the person receiving them.....(vii) Any receipts not being capital gains chargeable according to the provisions of Section 12-B and not being receipts arising from business, or the exercise of profession, vocation, or occupation which are of a casual and nonrecurring nature or are not by way of addition to the remuneration of an employee".

The receipts of the assessee did not fall into any of the excepted classes, capital gains chargeable under Section 12-B of the Act, or addition to the remuneration of an employee. We have also held that they were not receipts from any business conducted by the assessee or from the exercise of a profession or vocation of the assessee. Occupation as used in Section 4(3)(vii) is no doubt of larger import than vocation. But we have held that the racing activities of the assessee could not even be viewed as his occupation.

Therefore what remains to be considered is, whether the receipts were of a casual and nonrecurring nature. If that test is satisfied, the income from the racing activities of the assessee would be exempt from taxation. All the three learned Judges who decided 1940-8 ITR 187: (AIR 1940 All 154) (FB) held that such income from the racing activities of an assessee was casual. Braund J. pointed out at page 220 (of ITR): (at pp. 170-171 of AIR):

"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 mere 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".

The success of a horse or that of a bet is obviously uncertain and wholly a matter of chance, and the receipts dependent on such a chance can never be anything but casual. Whether a person made Rs. 40,000 over one bet or over a series of bets in a year could make no difference. The total would still bp. a total of casual receipts. What Section 4(3)(vii) of the Act requires is that the receipts should not only be a casual but it should also be non-recurring. Casual and non-recurring is the requirement of the statutory provision. In 1940-8 ITR 187: (AIR 1940 All 154) (FB), Iqbal Ahmed J. held that the test that it should be non-recurring was not satisfied. Braund J. with whom Bajpai J. was in substantial agreement held that the receipt was both casual and non-recurring. At page 220 of the report (of ITR): (at p. 170 of AIR) Braund J. said:

".....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' ....."

What Section 4(3)(vii) requires is that the receipts should be non-recurring. Braund J. was alive to that, as he pointed out at page 221 of the report (of ILR) : (at p. 171 of AIR). In the case of gambling by betting and racing, even as in the case of gambling with dice or cards, the habit of gambl ing, or the habitual indulgence in gambling is not enough to show that the receipts, when they do materialise are of a recurring nature. In the case of such receipts from betting, what suffices to esta blish that they were casual, should, to a large extent, suffice also to establish that they were non-reourring "Non-recurring" does not imply that, if a person makes more than one successful bet of gamble an his life, the receipt from each such gambling includ ing the first is of a recurring nature. Let us take the familiar example afforded by prizes won at lotteries. Winning a prize is usually wholly depen dent on chance. If a person wins a prize in a lottery, that transaction is never likely to recur, as pointed out by Braund J.

In another lottery the same person may win another prize. It is not a recurrence either of the transaction, or even of a receipt of the prize. Could it be said that because a man won two prizes, either in the same lottery or in more than one lottery in the course of a short time or a long time, the receipts of prizes were of a recurring nature and therefore fell outside the scope of Section 4(3)(vii) of the Act.

That is why we said that the very nature of a receipt from a gambling transaction should show that a successful gambling which brings in a receipt of money, even if repeated a number of times, will not make the receipts from such gambling transactions receipts of a recurring nature to take them outside the scope of Section 4(3)(vii) of the Act. We are clearly of opinion that receipts even from habitual betting are non-recurring receipts, which fell within the scope of the exemption for which Section 4(3)(vii) of the Act provides.

25. We find ourselves in respectful agreement with the conclusion reached by the majority of the Judges in 1940-8 I. T. R. 187: (AIR 1940 All 154) (FB), that such receipts are both casual and nonrecurring. We also find ourselves in agreement with much of the reasoning of Braund J. in that report on the several points which we have had to consider in this case.

26. Our conclusions are : The receipts of the assessee from his racing and betting activities in the two years in question constituted his income, but it was not income from any business, profession or vocation of his. It was income from other sources within the scope of Section 6 of the Act. It was however not taxable income as it was income of a casual and non-recurring nature within the scope of the exemption granted by Section 4(3)(vii) of the Act.

27. We answer the question in the negative and In favour of the assessee. The assessee's legal representative will be entitled to the costs of this reference. Counsel's fee Rs. 250/-.


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