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TMI Blog1940 (1) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... Act are involved, is in a large measure attributable 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 statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 24(1) of the Act which provides that "where any assessee sustains a loss of profits 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any finding on the question as to on how many occasions did the assessee offer bets in races during that period.They treated the question of set-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the series of betting transactions, do not constitute business or, was that finding based on no evidence. It is needless to observe that this was a matter for the Commissioner 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 Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to "all income, profits or gains, as described or comprised in Section 6, from whatever source derived, accruing or arising, or received in British India or deemed under the provisions of 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 prec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ....." This clause was considered by this Court in the matter of Chuni Lal Kalyan Das, (I.L.R. 47 All. 368) and it was held that the clause exempts from liability to income-tax only receipts of a casual and non-recurring nature, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing stables is a matter of frequent occurrence and such receipts cannot, therefore, be characterized as of a non-recurring nature. In every race the stakes money must be paid to the owner of at least one of the horses that took part in the race. In short, the receipt 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 individua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mercial and limited sense. There is, however, no warrant in the Act to give the words "Profession", "vocation" or "occupation" a limited meaning. The words "business", "profession" and "vocation" have been interpreted in some English decisions and though those decisions cannot, in view of the observations of their Lordships 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occupation or profession with the object of making income or profit, and where the element of continuity is wanting in a particular activity that activity cannot be characterized as "business" within the meaning of the Act. "Profession" or "occupation" can amount to business only if it is continuously and systematically exercised. It follows that the words "profession" and "occupation" are words of wider import than the word "business". 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 obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the object of earning money. I find it impossible to lay it down as a general proposition of universal application that, in all cases where an element of sport or amusement is involved, a particular activity, howsoever systematically and continuously exercised, cannot amount to business. The question in each case must be what was the dominant intention. If the dominant intention was to get income or make profits or gains the activity of the description referred to above must amount to "business". It may be assumed that the assessee in the present case is a man in very affluent circumstances and he could afford to spend substantial amount for mere sport and pleasure but, this 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, that the winnings from the same cannot amount to profits or gains chargeable to income-tax. The decision in Graham's case was cited in Cooper v. Stubbs, (1925, 2 K.B. 753), and Warrington, L.J., made the following observations as regards the proposition laid down in that case: "I desire to reserve for consideration, when, if at all, it ever comes before this Court, the question of whether betting transactions which produce a revenue to the person who engages in them may not result in profits which are assessable to tax. That question when it arises, will have to be decided on the facts of the particular case". Similar observations were also made by Atkin, L.J. These observations show that the authority of Graham'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 tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear in dispute? The assessee is a money-lender and deals also in precious stones. For the assessment year 1933-34 he claimed a deduction of ₹ 8,064 on account of loss in what he described as the racing account. This deduction was claimed under Section 24 of the Act which provides that " where any assessee sustains a loss of profits 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". Section 6 of the Act says: "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." 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer and the Assistant Commissioner were concerned. I shall, however, out of deference to the wishes of my learned brethren constituting the Bench, not adopt the drastic measure of refusing to answer the questions of law or of sending back the case to the learned Commissioner because I feel that no fresh facts can probably come to light and we can only in a general manner decide the questions of law. The facts that have been ascertained by the Income-tax Officer after an examination of the accounts in his second report may be briefly stated. In the books of the assessee there are two accounts for racing in the year in question; one is the horses account and the other is the racing account. 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 raci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act. The loss claimed by him on this account is, therefore, disallowed". The learned Assistant Commissioner appears to have mixed up the two accounts and observes as follows:- "I do not think the efforts of the appellant in maintaining horses and betting on them and others, howsoever systematically organized they may be, constitute a business. A stable might be kept in an organized manner, but this by itself does not constitute a business. There is no system in betting nor can it be called organised. A person who bets may think that he does so systematically, but actually it is not the case for there is no element of trade or business or even vocation in it. Betting is only a hobby which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of racing establishment might in certain cases come within the head of 'business' and in certain other cases come within the head of 'other sources' and the exemption clause Section 4(3)(vii) might not apply.) The racing establishment consisting of the expenses incurred on moneys paid to the secretaries of the race clubs in the form of entry fee, jockey fee, pay of servants, travelling charges, etc., on the debit side and of the stakes money on the credit side stands on a different footing. This might be indulged as a hobby and a pastime or might be conducted on business lines which involves an element of commercial enterprise. In every case it will be a question of fact, the fact to be determined from 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 mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential ingredient of 'income' under the Income-tax Act." Applying, therefore, this definition of income to receipts from racing establishment or from betting, I am prepared to hold that it is possible to conceive of a case where receipts from either of these sources might come within the definition and the exemption contained in Section 4(3)(vii) might not apply, and in that case the assessee might be entitled to claim a set off under Section 24 of the Act if a loss ensues there. Coming to the facts of the present case which are ever so meagre my view is that the assessee is not entitled to claim a set off of losses either on the racing establishment account or on the betting account, and this is my general answer to the questions formulated by the learned Commissioner. 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 ston ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regards both they were carried on "as a hobby and not by way of business". I think he was right. The actual question referred to us is in these terms:- "(1) Was there any material on which it could be found that (a) the maintenance of the racing stable, and (b) the series of betting transactions did not constitute 'business' of the assessee?" "(2) If so, was the assessee in the face of such a finding entitled to have the loss either (a) of ₹ 425 in the racing account or (b) ₹ 7,458 in the betting account, or both losses, deducted from his assessable income for the year in dispute". It will, perhaps, be convenient before discussing the form of and deciding, the questions which the Commissioner has framed to refer to the relevant provisions of the Income-tax 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der any 'assessable' head mentioned in the Act-that any question of a set off of losses can arise. The only head of sub-section (3) of Section 4 of the Act which can possibly catch this case is head (vii), the effect of which is that:- "(3) This Act shall not apply to the following classes of income: ............................................................................................................ (vii) Any receipts, not being receipts 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 an employee". The question whether by virtue of this clause the 'income' in dispute in this case in one to which the Act applies at all is, to my mind, the only material question involved in this reference, because, in itself, it embraces both the 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 eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fession', 'vocation' or 'occupation' is, because it is a matter which, to my mind, must necessarily depend in every case upon the circumstances of the assessee the particular things he does and the degree to which, and the object with which, he does them. A philatelist collects stamps for his own entertainment. A stamp dealer collects them for his profit. A country gentleman maintains a garden for his pleasure, while a market gardener or a florist does so for his profit. And yet in neither case would it be right to say that either the desire, for, or an indifference to, profit, as the case might be, was an exhaustive test, for business and pleasure may well be combined. And still less is it possible to my mind to say that an actual profit would necessarily convert what was primarily a hobby or a pastime into a business. For I do not doubt that many stamp and curio collectors entertain a secret hope that they may one day by good chance and to their profit acquire a rare and valuable 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however irrational it may be, gambling in some form is, neverthe- less, for some people a means of livelihood. In Cooper v. Stubbs, (1925, 2 K.B. 753 at pp. 769, 776), the English Court of Appeal, notwithstanding that Graham v. Green was cited to them, expressly guarded themselves from deciding the question whether betting transactions which produce a revenue to the person who engages in them may not result in profits which are assessable to tax. I do not myself think that Graham v. Green is necessarily an authority which ought to be relied upon in India on a matter arising under the Indian Income-tax Act. For these reasons, in my opinion, 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 a 'vocation'; 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. A more difficult question, however, arises when we come to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not, in my opinion, apply to a mere bet. As to the management and running by the assessee of race horses, I think that exactly that same considerations apply. It was, in my view, a pastime, which mighty or might not-and probably would not yield a profit. It was in this particular case, I think, a pastime which has not been proved to have been even designed to yield a profit. The assessee has certainly not, on the facts we have, proved in my opinion that it was for him more than a mere amusement, notwithstanding that his losses have been noted in his books. It was, I think, a mere 'hobby' as the Com- missioner has described it and, inasmuch as each race in which the assessee engaged his horse, was in itself a separate venture, I see nothing in any receipt derived from it that was not "of a casual and nonrecurring nature". It should of course, be observed that it is the "receipts" which are by the Act required to be casual and nonrecurring and not the occupation. I think, however, myself, 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 fol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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