P S VARIER Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is an Ayurvedic physician. He carries on an extensive business in the manufacture and sale of Ayurvedic medicines at Kottakal, Palghat and Calicut. In addition to the income which he derives from the manufacture and sale of medicines and from the practice of his profession, he derives income from property and sundry other sources. One of his other activities is the maintaining of a dramatic troupe which gives public performances in the Malabar District, Cochin and Travancore at certain seasons of the year. At Kottakkal, Palghat and Calicut the assessee is the owner of premises in which he sells his medicines. At each place, adjoining the premises used by him for the sale of his Ayurvedic medicines, is a hall in which the assessees dramatic troupe also gives performances. At all the performances prices for admission are charged. For the Year 1937-38 the assessees returned an income of Rs. 18,651-4-11 and sought to deduct a sum of Rs. 3,475 as loss incurred by him in that year in the maintenance of the dramatic troupe. THE Income-tax Officer refused to allow the deduction. THE ground for refusal was that the maintenance of this dramatic troupe really amounted to a hobby of the assessee and therefore could not be classified as a business. This order of the Income tax officer was confirmed by the Commissioner on appeal. THE assessee then asked the commissioner on appeal. THE assessee then asked the commissioner to state a case on the ground that the refusal to allow the deduction involved a question of law. THE Commissioner rejected the application, and in consequence the assessee applied to this court for an order compelling the Commissioner to make a reference. This Court agreed with the assessee that a point of law was involved and accordingly directed the Commissioner to make a reference on the following question :

(2.) THE assessee has maintained this dramatic troupe for many years, and in the statement of the case made by the Commissioner the profits and losses for the years from 1922-23 to 1933-34 are set out. In 1922-23 there was a profit of Rs. 997 and in 1928-29 a profit of Rs. 1,820. It is common ground that when these profits were made the Income-tax authorities assessed them to income-tax. In the other years mentioned they were losses and up to and including the year 1934-35 the Income-tax authorities allowed deductions for the losses when assessing the assessee to income-tax. It is difficult to see how they could do otherwise seeing that they had insisted on taxing the assessee when he had made profits. THE Income-tax Officer, Palghat, who made the assessment for the year 1935-36, however, decided that the assessee should not be allowed to deduct the loss of Rs. 3,475 which admittedly he had suffered in that year in this connection. THE only ground that the Income-tax Officer advanced for disallowing this loss was that the dramatic troupe was a hobby and therefore could not become a source of income. That was his opinion and as already indicated it was concurred in by the Commissioner.