KAMALA MUTHIA Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessment year with which we are concerned is 1980-81. At the instance of the assessee, the Appellate Tribunal has stated a case and referred the following questions of law for our consideration under Section 256(1) of the Income-tax Act 1961, (hereinafter referred to as "the Act") :

(2.) THE main case of the assessee was that owning of race horses is a hobby and receipts arising from the same are receipts from hobby and not liable to be taxed under the provisions of the Act. She also claimed that even if her case that holding of horses is a hobby is rejected, the income arising from the sale of horses can be assessed only as capital gains, but the charge would fail because the horses were the personal assets of the assessee and not capital assets giving rise to liability of tax under the head, "Capital gains". Her further case was that even if the horses were her capital assets, the charge would still fail because there was no cost of acquisition involved in the purchase of a filly or colt and since there was no question of cost of acquisition, the sale or lease of horses would not result in capital gains. She also contended that the lease income arising from the auction of horses was not assessable in the year of auction, but should be spread over the period of lease and is liable to be assessed in each year of receipt of income.

(3.) THE question whether the income from lease or sale of horses run in horse races amounts to business or not would depend upon the facts and circumstances of the case. THE expression "business" is defined in Section 2(13) of the Income-tax Act, which reads as under :