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Commissioner of Income-tax Vs. G.R. Karthikeyan - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 330 of 1976
Reported in(1980)17CTR(Mad)301; [1980]124ITR85(Mad)
ActsIncome Tax Act, 1961 - Sections 2(24)
AppellantCommissioner of Income-tax
RespondentG.R. Karthikeyan
Appellant AdvocateA.N. Rangaswamy and ;Nalini Chidambaram, Advs.
Respondent AdvocateK.R. Ramamani and ;S.V. Subramaniam, Advs.
Cases ReferredBolani Ores Ltd. v. Slate of Orissa
direct taxation - non-recurring receipt - section 2 (24) of income tax act, 1961 - assessee (director of x company) - derived its income from salary and other modes - received certain amount from winning in motor rally - whether aforesaid amount would be taxed under section 2 (24) (ix) - amount gained from winning can only be taxed when winning made without effort and without exercising any skill - exhibition of skill and effort involved in winning prize - held, amount not liable to be taxed. - .....(obs. or dial.) in mod, use chiefly applied to money won by gaming or betting.'11. for the word 'winnings', the oxford dictionary refers to law reports, namely, bridger v. savage [1885] w.n. 145; [1885] 15 qbd 363 in which the following passage occurs :' the defendant having won on those bets received the winnings from the persons with whom he had betted.'12. this shows that the word is used in association with chance rather than skill.13. there is a singular form of ' winning ' and the meaning assigned to to this expression is:' 1. the act of a person or thing that wins. 2. usually, winnings--that which is own especially money.' (see the random house dictionary of the english language, college edn., at page 1510.) in websters' third international dictionary, the word ' winning '.....

Sethuraman, J.

1. The Appellate Tribunal has referred the following question at the instance of the Commissioner under Section 256(1) of the I.T. Act, 1961:

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the total sum of Rs. 22,000 received by the assessee from the Indian Oil Corporation and All India Highway Motor Rally should not be brought to tax '

2. The assessee, an individual, is a director of Karthikeyan Spinning and Weaving Mills P. Ltd. He derives income by way of salary from the said mills, from house property, from a business in the name of Ramaswamy and Co. and from interest and dividends. In the present reference, we are concerned with the assessment year 1973-74. He participated in an All India Highway Motor Rally, an event jointly sponsored by the Automobile Association of Eastern India and the Indian Oil Corporation, and supported also by other regional automobile associations as well as the Federation of Indian Motor Sports Clubs and the Federation of Indian Automobile Associations. The event was restricted to private motor cars. The length of the rally route was approximately 6,956 kilometers. The race was divided into four legs, (1) Northern Leg, Calcutta to Delhi; (2) Western Leg, Delhi to Bombay; (3) Southern Leg, Bombay to Madras; and (4) Eastern leg, Madras to Calcutta. According to Rule (2) of the regulations, the emphasis was on endurance driving and it was designed as a reliability test for automobiles. The race was to be run having due regard to the traffic regulations at the different places, as well as to the regulations laid down by the Rally Committee. The start could be from one of the four points, namely, Calcutta, Delhi, Bombay or Madras and the finishing was in the anti-clockwise direction, that is, the person starting from Calcutta was to complete the rally at Calcutta in the anti-clockwise direction and he would have to return to the starting point. The prizes were to be awarded on the basis of the success among all the participants. The first prize was Rs. 20,000. It was to be ascertained by adopting a system of penalty points for various violations of any traffic rule or regulation. The competitor with the least penalty points was adjudged as successful among the participants. For instance, vehicles up to 1,000 cc were assigned 5 marks, between 1,001 cc and 1,500 cc 15 marks, between 1,501 cc to 2,000 cc 20 marks and over 2,000 cc 25 marks. Using reverse gear at any point before time control or finishing control was assigned 200 marks. For the horn riot working or missing, the point allotted was 30 marks. There are other similar marks assigned for other defects. The assessee had the least of the penalty marks, and he was, therefore, awarded the first prize of Rs. 20,000 by the Indian Oil Corporation and he got another sum of Rs. 2,000 in respect of the same performance from the All India Highway Motor Rally. The result was, he received a total sum of Rs. 22,000.

3. The question before the ITO was, whether this amount was liable to be taxed in the light of Section 2(24)(ix). The ITO was of the view that the amount of Rs. 22,000 represented winnings from race. The assessee appealed to the AAC who held that the contest was not a race, that speed was not the essence of the race and that in the present case every competitor had to drive carefully. In his view, the sum of Rs. 22,000 could not have been taxed under the said provisions. The department appealed to the Tribunal. The Tribunal held that the contest would not be a race and that it was predominantly a test of skill and endurance as well as reliability of the vehicle. In the view of the Tribunal, the event was not a game also within the meaning of Section 2(24)(ix) of the Act. The Tribunal held also that the receipt was casual, but nevertheless was not income, and that it would fall outside the provisions of the Act and, therefore, not liable to be taxed. The construction placed on the section having regard to the phraseology used was that the games in question should involve some sort of gambling or betting and that in this case there is no such gambling or betting. It is this order of the Tribunal that is now the subject-matter of challenge in the present reference.

4. Section 2(24)(ix) was introduced into the statute by the Finance Act of 1972. Section 3(b)(ii) of the Act provided :

' After sub-clause (viii), the following sub-clause shall be inserted, namely,--

(ix) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature whatsoever.'

5. It is this provision that is relied on in the present case. The attempt of the revenue is to bring the case within the scope of the expression ' any winnings from ......races......and other games of any sort......' In order to get a proper background of this provision, it would be necessary to refer to the other amendments made to the Act. Section 4 of the Finance Act, 1972, substituted Clause (3) of Section 10 in the place of old Clause (3). The new provision, in so far as it is material, runs as follows :

' Any receipts which are of a casual and non-recurring nature, not being winnings from lotteries, to the extent such receipts do not exceed one thousand rupees in the aggregate :......'

6. There is a proviso to this Clause (3). It is unnecessary to refer to it for our purpose.

7. Section 11 of the Finance Act, 1972, introduced Section 74A into the Act, and the said provision runs as follows :

' (1) Where the net result of the computation made for any assessment year in respect of any source falling under the head ' Income from other sources' and being a source specified in Sub-section (2), is a loss, such loss shall not be set off except against income, if any, from the same source.

(2) The sources referred to in Sub-section (1) are-

(a) lotteries ; (b) crossword puzzles ; (c) races including horse races; (d) card games; (e) other games of any sort; (f) gambling or betting of any form or nature whatsoever not falling under any of the foregoing clauses.'

8. It may be seen that Section 74A, Sub-section (2), is more or less a reproduction of Section 2(24)(ix) broken into different components. The idea behind this provision is that if a person sustained losses, e.g., in horse racing, then such losses could be set off only against the income from the same source. There is no interchangeability of items (a) to (f). Each is a separate source by itself.

9. We are now concerned with finding out whether there are any winnings from races or other games of any sort. The word ' winnings ' has been given the following meaning in the Universal Dictionary of English Language by Henry Ceicil Wyld, Rentledge and Kagan Paul Ltd., London, 1952 Edn.

' Amount won, esp. money won in betting '

10. In the Oxford English Dictionary (Compact Edn., Vol. II, p. 178, Col. 3, Item 4), the word ' winnings ' is given the following meaning;

'Things or sums gained, gains, profits, earnings (obs. or dial.) in mod, use chiefly applied to money won by gaming or betting.'

11. For the word 'winnings', the Oxford Dictionary refers to Law Reports, namely, Bridger v. Savage [1885] W.N. 145; [1885] 15 QBD 363 in which the following passage occurs :

' The defendant having won on those bets received the winnings from the persons with whom he had betted.'

12. This shows that the word is used in association with chance rather than skill.

13. There is a singular form of ' winning ' and the meaning assigned to to this expression is:

' 1. The act of a person or thing that wins.

2. usually, winnings--that which is own especially money.'

(See the Random House Dictionary of the English Language, College Edn., at page 1510.) In Websters' Third International Dictionary, the word ' winning ' is given this meaning : ' Something one wins esp, the money won by success in competition. '

14. It is clear from the above dictionary meanings that there are two forms in the expression ' winning ', one in singular and the other in plural. As far as the plural form is concerned, it is given a specific meaning in the Oxford Dictionary. Especially, in current or modern usage, it is chiefly applied to ' money won by gaming or betting '. Though the expression would in olden days comprehend all things or sums gained, gains, profits, earnings, still its modern usage is confined to money won by gaming or betting.

15. In the present case, as already seen, the assessee participated in a race which involved skill in the performance of driving of the vehicle. He had to cover a very long distance and had to qualify by getting the least of the penalty points. The idea obviously is to encourage the motorists to comply with all the regulations. It is not mere speed that counts. Perhaps, in the present case, speed would be only a secondary thing for winning the race, in the sense that he had to complete the race within the particular time but the emphasis is on the least number of penalty points being incurred by the motorists concerned.

16. The Supreme Court in State of Bombay v. R.M.D. Chamarbaugwala [1957] 2 MLJ (SC) 87 was concerned with the validity of the Bombay Lotteries and Prize Competitions Control and Tax Act (LIV of 1948) as amended by Act XXX of 1952. The question was, whether the Act fell within entry 34, List II, viz., ' gambling '. It is unnecessary for our present purpose to go into the details of that case. During the course of the judgment, Das C. J. referred to the dictum of Lord Hewart C.J. in Coles v. Odhams Press Ltd. [1936] 1 KB 416 to the effect, ' the competitors are invited to pay certain number of pence to have the opportunity of taking blind shots at a hidden target '. In the context of finding out the meaning of ' gambling ', their Lordships referred to the nature of the competition that was involved in that case. At page 95, it was pointed out that even if a scintilla of skill was required for success the competition could not be regarded as of a gambling nature. Judged by this test in this case, the present would not be a case of winnings of income from gambling or betting of any form. As pointed out earlier, the winnings being from some sort of skill in the performance of driving, the ordinary use of the expression 'winnings ' would not comprehend the ' winning of a prize ' in a case of this kind.

17. The learned counsel for the revenue drew our attention to two other decisions to emphasise the point that merely a dictionary meaning of the word should not be made to govern the interpretation of a provision of this kind. The first case cited was Kanwar Singh v. Delhi Administration, : [1965]1SCR7 . It is unnecessary to refer to the actual details of that case. It is enough for our purpose to advert to what the Supreme Court stated as a rule of construction for the courts in construing a statute at page 874:

'It is the duty of the court in construing a statute to give effect to the intention of the legislature. If, therefore, giving a literal meaning to a word used by the draftsman, particularly in a penal statute would defeat the object of the legislature, which is to suppress a mischief the court can depart from the dictionary meaning or even the popular meaning of the word and instead give it a meaning which will ' advance the remedy and suppress the mischief'.'

18. In Pyarali K. Tejani v. Mahadeo Ramchandra Dange, : 1974CriLJ313 , the Supreme Court was concerned with the meaning of the word supari in the context of the provisions of the Prevention of Food Adulteration Act. In the course of the judgment, in para. 10, at page 233, Section 2(v) of the Act then under construction was referred to and it was pointed out:

' He who runs and reads the definition in Section 2(v) of the Act will answer back that supari is food. The lexicographic learning, pharmacopic erudition, the ancient medical literature and extracts of encyclopaedias pressed before us with great industry are worthy of a more substantial submission. Indeed, learned counsel treated us to an extensive study to make out that supari was not a food but a drug...In the field of legal interpretation, dictionary scholarship and precedent based connotations cannot become a universal guide or semantic tyrant, oblivious of the social context, subject of legislation and object of the law.'

19. Again reference was also made to Bolani Ores Ltd. v. Slate of Orissa, : [1975]2SCR138 , the following passage occurs :

'As usual references have been made to the dictionaries but quite often it is not possible to hold a dictionary in one hand and the statute tobe interpreted in the other for ascertaining the import and intent of the word or expression used by the Legislature. The shade of meaning of a word, its different connotations and collocations which one finds in a dictionary does not relieve us of the responsibility of having to make the ultimate choice of selecting the right meaning. We choose that meaning which is most apt in the context, colour and diction in which the word is used. The use of a dictionary ad lib without an analysis of the entire Act, its purpose and its intent, for ascertaining the meaning in which the legislature could have used the word or expression may not lead us to the right conclusion.'

20. These pronouncements of the Supreme Court were relied on for the purpose of showing that we must not be unduly guided by the meaning given in the dictionary for a word. We are unable to accept this submission of the learned counsel. Though an overemphasis of the dictionary meaning is discouraged in all these cases and a contextual meaning envisaged, still courts cannot take leave of the dictionary completely. If this were to be done, then practically the problem of interpretation would land us in wilderness. What is emphasised in all these judgments, as we read the passages set out above, is to show that we have to give a proper, and not necessarily a literal, meaning to the words used in a statute. The meaning of the word takes its colour from the context in which it is used. If the context shows that a particular expression is used in a manner which is not the same as the meaning given in the dictionary, then the dictionary meaning may have to be discarded and the contextual meaning adopted. The purpose of interpreting a particular provision is to give effect to the intention of the Legislature to the extent manifested by the words. We have to consider the question in the present case in this background.

21. The Oxford English Dictionary has given a modern usage of the expression 'winnings'. We cannot proceed on the assumption that the draftsman was not aware of the meaning given to this word in its modern sense. A statute cannot be taken to use words in their archaic sense. The modern usage is to show that the winnings are to be taken as applied only to money won by chance as a kind of windfall as in a lottery, a horse race, gambling or betting. Though a prize is won, all winnings cannot be equated to prizes. If counsel were right, prizes won, say, in a garden competition, would have to be taxed. We do not find this to be the legislative intent. The learned counsel for the Commissioner pointed out that if the above construction was correct or was intended by Parliament, then the words, ' any winnings from gambling or betting of any form or nature whatsoever ' would be tautologous and would not find a place in the provision. His point was that tautology should not. be attributed to the Legislature. It may be that the draftsman was overanxious not to miss by any chance the gambler and his kind in the extended net of taxation. Hence, he made clear the intention by including the obvious also.

22. It has to be remembered that this provision was introduced with a view to counteracting the evasion of tax. This is brought out in the memorandum explaining the provisions of the Finance Bill, 1972, and this memorandum is to be found in volume 83 of the Income-tax Reports (Statutes) at page 177. The following background is given as and by way of explanation to the introduction of the provisions under the Finance Act:

'13. Under the existing provisions of the Income-tax Act, receipts which are of a casual and non-recurring nature are exempt from tax except where the receipts constitute capital gains or arise from a business or the exercise of profession, vocation or occupation or are by way of additions to the remuneration of an employee. In view of this exemption, no tax is currently chargeable in respect of winnings from lotteries, crossword puzzles, races, card games or from gambling or betting. The exemption from tax of such receipts is not in keeping with the principle of taxing equally persons with equal capacity to pay. The exemption also provides scope for tax evasion and conversion of ' black ' money into 'white' by ascribing income which would normally be taxable to winnings from lotteries, races, card games, etc. The Bill seeks to make the following amendments to the Income-tax Act with a view to withdrawing the exemption currently available in respect of casual and non-recurring receipts. '

23. Prior to this amendment, the persons who had this kind of windfall from lotteries, races, card games, etc., were completely free from having to pay any tax, while the persons who earned by the sweat of their brow had to pay the tax levied under the Act. This was an anomaly especially in an egalitarian society. This is also inconsistent with the cardinal doctrine of taxation based on ability to pay. Bearing these aspects in mind, Parliament has brought in the relevant provisions so as to tax receipts by chance winnings or windfalls. In doing so, Parliament virtually introduced a statutory fiction so as to enlarge the concept of taxable income by including the winnings in races, etc., which are not ordinarily regarded as income. In the context of this legislative intent and in the light of the meaning given in the dictionary to the word 'winnings', it would be clear that what was intended to be taxed was only a windfall that reached persons without any effort on their part, without any skill being exhibited by them. This is a case, as we have already seen, where there was an exhibition of skill and there was an element of effort in getting the prize and, therefore, there is no scope for such receipt being considered as falling under the above provision. Thus considered in the light of the above background, we are satisfied that the word 'winnings' should be assigned the meaning of chance winning and not winning a prize.

24. Section 74A simultaneously introduced as part of the scheme of taxation of such windfalls, emphasises the meaning that we have given above. It contemplates some kind of losses being liable to be incurred by the person, whose income includes the amount taxable under Section 2(24)(ix). There is no likelihood of any loss being incurred by a person who enters into a contest for a prize. For instance, gambling or betting may even be a habit so that a person who habitually indulges in it may sometimes receive income and may also incur losses. In such a case, the legislature did not want to tax only the winnings leaving alone the losses. Winning prizes of this kind cannot be a habit. There is no possibility of such an adjustment for loss in a case of this kind. Section 74A thus supports the construction placed above.

25. Reliance was placed during the course of the argument on Section 10(3) on behalf of the revenue. It does not appear to support the contention put forward. That is a provision which exempted the receipts of casual or non-recurring nature to the extent such receipts did not exceed one thousand rupees in the aggregate. However, even the exemption of one thousand rupees would not apply to winnings from lotteries. Therefore, the use of the expression ' not being winnings from lotteries ' does not in any manner suggest that the other kinds of winnings are brought within the scope of taxation. It would be incongruous to infer a liability to tax from the language employed in a provision granting exemption.

26. The only other contention that was put forward was that the receipt cannot be said to be of a casual or non-recurring nature so as to be completely exempted from assessment. An exemption would be ordinarily necessary only if it is otherwise taxable. Only if there is a charge or its possibility, there would be need to see how far the exemption provision applies. When there is no charge as seen above, there is no need to go into any question of exemption.

27. The result is, we answer the question referred in the affirmative and in favour of the assessee. The assessee will be entitled to his costs. Counsel's fee Rs. 500.

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