1978 (3) TMI 8 - HC - Income Tax

Summary

Issues Involved:
1. Whether the losses incurred by the assessee in the maintenance of horses and horse racing should be set off against income from other heads of income.
2. Whether the surplus from the sale of plots of land was includible in the income as profits from an adventure in the nature of trade or any other kind of business.

Summary:

Issue 1: Set-off of Losses from Horse Racing Activities
The assessee incurred losses in the maintenance of race horses and horse racing activities for the assessment years 1963-64 to 1966-67. The Tribunal held that the income from these activities would be income from "other sources" and that the losses could be set off against income from other heads. However, the court referred to the decision in Syed Jalal Sahib v. CIT [1960] 39 ITR 660 (Mad), which held that income from racing and betting activities is of a casual and non-recurring nature and thus exempt from taxation u/s 10(3). Consequently, since the income is not taxable, the losses incurred in such activities cannot be set off against income from other heads.

Issue 2: Surplus from Sale of Plots of Land
The assessee purchased a plot of land and later sold it in parts, realizing a surplus. The revenue contended that this surplus was profit from an adventure in the nature of trade. The Tribunal, however, held that the transaction was not an adventure in the nature of trade but rather a realization of a capital investment. The court supported this view, citing CIT v. Kasturi Estates (P.) Ltd. [1966] 62 ITR 578 and Michael Kallivayalil v. CIT [1976] 102 ITR 202, which emphasized that developing land to realize the best price is consistent with the realization of a capital investment. The court concluded that the transaction was not an adventure in the nature of trade or any kind of business.

Conclusion:
1. The first question was answered in the negative and in favor of the revenue, indicating that the losses from horse racing activities cannot be set off against income from other heads.
2. The second question was answered in the affirmative and against the revenue, confirming that the surplus from the sale of plots of land was not includible as profits from an adventure in the nature of trade or any other kind of business.