TMI Blog1967 (4) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-56 and 1956-57 for which the relevant accounting years are the official years ending with March 31, 1954, March 31, 1955 and March 31, 1956, respectively. The assessee filed a voluntary return in respect of the assessment year 1954-55 and in respect of the other two years he filed returns in response to notices issued under section 34 by the Income-tax Officer. In all these returns, the assessee admitted income from property and from business, which comprises of selling soda water, maintaining "killi" shop and plying a motor lorry. In addition to this income, he showed in Section D of the return under which an assessee is required to show "any income, profits or gains which are not included in sections A, B and C but which the assessee claims to be not taxable for any reason such as..........." a sum of Rs. 5,850, Rs. 9,400 and Rs. 24,460 for the three years respectively. Before the Income-tax Officer it was admitted that the assessee carried on business, commonly known as "bracket business" which consisted of betting on the New York cotton rates. No accounts were maintained by the assessee in respect of this transaction. In the absence of accounts, the Income-tax Officer determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon him to prove that it is from one particular source and not the other. If that is not done and if the assessee is to be permitted to contend that the income does not arise from business, income having once been admitted to arise, it must be held as income from an undisclosed source. In that view, therefore, we think we must accept the contention of the department that if the income is not from business as originally admitted by the assessee, it must be held to be income from an undisclosed source............Therefore, in our view, on this short ground alone the assessee's contention in respect of his additional ground that the income is exempt under section 4(3)(vii) would fall to be dismissed." Mr. Kondaiah for the department also takes the stand that as the assessee while making the return stated that the income was from the business of New York cotton futures, he cannot now say that it was not from business. We cannot accept this contention. The mere fact that the assessee has not raised this contention before the Income-tax Officer or the Appellate Assistant Commissioner would not, in our opinion, bar him from raising the same before the Tribunal. It has been held times wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(4) of the Act. If the answer to this question is that it is not business, then the other question that arises for consideration is whether the income derived therefrom is of a casual and non-recurring nature as provided in section 4(3)(vii) of the Act. It is necessary to read these two provisions which are as under: " 2. (4) 'business' includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. 4. (3) 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 12B and not being receipts arising 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 any employee." It may be observed that under section 4(1) of the Act, subject to the provisions of the Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived, while sub-section (3) of section 4 exempts certa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of compensation paid by the respondents to various employees, leaving a balance of Rs. 9,83,361 which he included in the total income of the respondents found assessable for the year 1929-30. The questions which their Lordships had to consider were (i) whether the amount of Rs. 9,83,361 constituted a capital receipt and therefore not income, profits or gains within the meaning of the Income-tax Act; and (ii) if it could be said to be income, profits or gains within the meaning of the Act, was it liable to be assessed under either of the sections 10 and 12 of the Act, inasmuch as (1) it was not the profits or gains of any business carried on by the assessees within the meaning of section 10 of the Act, nor (2) income, profits or gains from other sources within the meaning of section 12 of the Act? They had also to consider in the alternative whether the payment of Rs. 9,83,361 was not an ex gratia payment in the nature of a present from the oil companies, and was it not, therefore, exempt under section 4, sub-section (3)(vii) of the Act? The High Court returned an answer to question (1), viz., whether it was a capital receipt. It thought that the other question fell within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, that 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" it was further observed: " Again, their Lordships think, the same central idea: the words italicised 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. And this is borne out by the provision for allowances which follows." Their Lordships considered the provisions of section 4(3)(v), which is now omitted by section 3 of the Income-tax (Amendment) Act (22 of 1947), but which before its amendment provided that the Act shall not apply to the following classes of income: viz., " Any capital sum received in commutation of the whole or a portion of a pension, or in the nature of consolidated compensation for death or injuries, or in payment of any insurance policy, or as the accumulated balance at the credit of a subscriber to any such provident fund." and held, repelling the contention that the word "income" in the Act has wider significance than would ordinarily be attributed to it, in that the receipts mentioned in the sub-section (v) of section 4(3) are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no question of the assessee not being liable to tax. If it is not, then there is the further question whether it is of a "casual and non-recurring nature". The learned advocate for the assessee contends that receipts from these transactions are similar to receipts from a game of card or betting on horse races which do not involve the continuous exercise of activity or an organised or systematic effort or enterprise on the part of the assessee. From the nature of the transaction it is clear to our minds that the winning or losing does not depend on any skill or enterprise, much less on any organised skill or activity. It is a mere game of gambling and guess work. What would be the figure with which the New York Cotton Stock Exchange opens on any particular day and closes, is a gamble. It may be a sheer coincidence if the figures given by the assessee tally with the opening and closing figures. The probability of winning is a mere chance. No doubt, a Full Bench of the Allahabad High Court in In re Lala Indra Sen said that the test 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 prima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivities. The excess of the receipts over the expenditure in these activities amounted to Rs. 44,259 for the accounting year ending March 31, 1947 and Rs. 13,104 for the accounting year ending March 31, 1948. Neither the assessee nor the department made any difference between what the assessee made or lost on his bets and what he made or expended on his horses. The question was whether those amounts were taxable income or were casual and non-recurring receipts and exempt from tax under section 4(3)(vii) of the Income-tax Act. Rajagopalan J., who delivered the judgment of the Bench, held that gambling by betting on horses cannot be viewed as a business, though a person indulges in it habitually and even makes money by it; and that 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. It is virtually impossible, the learned judge said, to look upon gambling by betting or racing, i.e., entering horses for races, or a combination of both, as constituting a profession or vocation. These observations were in accord with those of Braund J. in In re Lala Indra Sen. At page 674, Rajagopalan J. sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." It may be noted that in the Full Bench case of the Allahabad High Court, Braund J., with whom Bajpai J., was in substantial agreement, pointed out that what section 4(3)(vii) of the Act requires is that the receipts should not only be casual but they should also be non-recurring. Iqbal Ahmed J., however, dissented and in his opinion the test that it should be non-recurring was not satisfied. The observations of Braund J. at page 220, which were cited by Rajagopalan J. with approval, are as follows: " . . . 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 natur ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
