TMI Blog1940 (1) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 question 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 question of law, so that this Court may straightaway 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 inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits 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. The Income-tax Officer, relying on the decision of Rowlatt, J., in Graham v. Green, (9 Tax Cas. 311) 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 bookmaker, 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 bookmaker 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 players at cards, who plays every day. He plays to-day 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 ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner 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. 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 reframe the questions referred by the Commissioner. To this effect is the decision of their Lordships of the Privy Council in Commissioner of Income-tax, Bihar and Orissa v. Maharaja- dhiraja of Darbhanga [1933] (1 I.T.R. 94). Their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Act to accrue, or arise, or to be received in British India . The following provision is then made by Section 6:- 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:- (i) Salaries. (ii) Interest on securities. (iii) Property. (iv) Business. (v) Professional earnings. (vi) Other sources. 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) . 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, 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. D. 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. 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 cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the 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 nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hips in the Privy Council in Commissioner of Income tax, Bengal v. Shaw Wallace Company, (1932 A.L.J. 588 at page 590), furnish an in- fallible 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 Company, Limited, (1920, 1 K.B. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness . The question what amounts to a profession , was considered in Commissioners of Inland Revenue v. Maxse, (1919, 1 K.B. 647) 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 if any manual skill, as in painting and sculpture, or surgery, skill controlled 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 . It would appear from this observation that the word occupation is a word of wider import than the word profession . In Partridge v. Mallandaine, (18 Q.B.D. 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 occ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 connection 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 connection 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. Even if the maintenance of race horses did not in the present case amount to business it did certainly amount to the exercise of v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s case is not beyond dispute. For the reasons given above point No. 2 must also be decided in favour of the assessee. 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 heads 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nafter appearing, namely:- (i) Salaries. (ii) Interest on securities. (iii) Property. (iv) Business. (v) Professional earnings. (vi) Other sources. This assessee made profits in money-lending and in precious stones but in the racing account he lost ₹ 7,454 on betting and ₹ 610 in running horses. It is conceded that out of this latter sum, ₹ 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 ₹ 7,879. 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 diffi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount. The horses account is a very bald one. It relates to the purchase of three horses, one for ₹ 1,000, the second for ₹ 1,400 and the third for ₹ 1,800 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 ₹ 4,200 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. 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 connection 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 mere ly by keeping a stable and betting on horses . After having said the above the Assistant Commissioner quotes the observations of Mr. Justice Rowlatt in Graham v. Green, (1925, 2 K.B. 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 of the Indian 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 was considered by the Court of Appeal in Cooper v. Stubbs, (1925, 2 K.B. 753), and at page 769 Warrington, L.J., says: I desire to reserve for consideration, when, if at all, it ever comes before this Court, the question whether betting transactions wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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 scientifictest 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 . 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 any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missioner. BRAUND, J.-This is a case stated by the Commissioner of Income-tax of the Central and United Provinces and referred to us under Section 66 of the Indian 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 1932-1933 the assessee was minded to buy three race horses at an aggregate capital cost of ₹ 4,200. These horses he trained, or had trained for him, for racing. During the year ending the 31st March 1933, the assessee ran these horses in various races as a result of which he received in stake-money a sum of ₹ 4,747 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 ₹ 5,272. In the result, therefore, there was a loss on this account (which is called the racing account ) of ₹ 425. The assessee, however, made bets during the year of assessment both on his own horses and upon horses not his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the case of Commissioner of Income-tax, Madras v. R. Panchapakesa Iyer, (A.I.R. 1932 Mad. 424), 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-taxAct 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 . 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 respect 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 reframing the questions asked by the Commissioner. It is intended to explain them as a preliminary to answering them. Tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 commonsense 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. In this case, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not constitute his 'occupation' in the sense in which in my judgment that expression is in its context, used in this Act. 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 state under Section 66(4). 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 for 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' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f, 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, in that case the same result follows. 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 race-horses by the assessee 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) of the 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 o ..... 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