BANGALORE RACE CLUB Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal, Madras Bench "A". The following two questions of law have been referred for our opinion :

(2.) THE questions relate to the assessment year 1963-64. THE assessee is the Bangalore Race Club Ltd., Bangalore. It was incorporated under the Companies Act, 1956, on 31st March, 1962. It took over the assets and liabilities of the unincorporated club known as the "Bangalore Race Club". THE objects for which the company was established were, inter alia, to carry on the business of a race club in all its branches and to enter into any arrangement with any person, association or company carrying on or engaged in any business or transaction which the assessee is authorised to carry on or engage in. THE assessee entered into an agreement with His Highness the Maharaja of Mysore, dated April 16, 1962, and another agreement dated May 25, 1962, with the Mysore Race Club. THE net effect of these two agreements was that the assessee undertook to conduct races at Mysore and to bear the losses, if any. During the relevant accounting period the assessee paid a sum of Rs. 24,222 to the Mysore race Club as loss incurred in running races at Mysore. THE assessee claimed deduction of the said sum of Rs. 24,222 paid to the Mysore Race Club as an item of expenditure deductible from the gross profits of the assessee. THE said claim was rejected by the assessing authority, the Appellate Assistant Commissioner and the Tribunal. THE Tribunal has rejected the claim for deduction of the amounts paid to the Mysore Race Club on the ground that it was a gratuitous payment and that the activity of running races at Mysore through the Mysore Race Club was beyond the scope of the objects of the assessee-company. On the first question that is referred for out opinion, whether the assessee is exempt from tax under section 11 of the Income-tax Act, the Tribunal has held that the business of racing conducted by the assessee does not fall within the scope of section 11 because conduct of races is not a charitable purpose as defined in sub-section (15) of section 2 of the Act. In paragraph 24 of the order, the Tribunal has stated that in their opinion the object of the club is only to encourage sports and to provide recreation to a few individuals. THE Tribunal relied on the decision in Cricket Association of Bengal v. Commissioner of Income-tax, wherein it was held that mere promotion of the practice of the game of cricket in general either for the entertainment of the public or for the advancement of the game itself was not a charitable purpose. In Simon's Income Tax, volume I, page 455, this is what is stated :

(3.) WITH regard to the second question, the Tribunal, in our opinion, was not right in the view it has taken that the payment to the Mysore Race Club was a gratuitous payment and that the payment was beyond the scope of the objects of the assessee. In Company Petition No. 13 of 1967 on the file of this court, the learned company judge before whom some of the members of the assessee-company had challenged the payment to the Mysore Race Club, has held, on a consideration of the memorandum and articles of association of the assessee-company that the payment was within the scope of the objects of the company. In paragraphs 27 and 28 of the order of the learned company judge, this is what has been stated :