COMMISSIONER OF INCOME-TAX Vs. INDRA SEN RAIZADA

JUDGEMENT

(1.) The questions that arise for decision in the present case, which is a reference by the Income-tax Commissioner under Section 66(2), Income-tax Act, are of such general importance and are beset with such difficulties that we consider it desirable that they be decided by a Full Bench. Lala Inder Sen Raizada, the assessee, is a money-lender and deals in precious stones. He also owns some horses, keeps a stable and runs the horses in races. He also bets in races on his horses and other horses. An account styled as the "racing account" is maintained by the assessee in his account books. That account shows that in the "previous year," which was the accounting year, the assessee suffered a total loss of Rs. 8064. Out of this amount, the loss incurred in betting was Rs. 7454 and the loss in running horses at the races was Rs. 610. It may here be mentioned that out of this sum of Rs. 610, Rs. 185 were spent in purchasing a stop-watch, and it is agreed on all hands that this amount cannot be treated as a loss. The assessee claimed deduction of the amount of the loss incurred by him in the computation of his income for the purposes of assessment to income-tax. The claim of the assessee was however overruled by the Income-tax Officer and his decision was affirmed on appeal by the Assistant Commissioner. The Commissioner of Income- tax also agreed with the decision of the Assistant Commissioner.

(2.) The Income-tax authorities relying on the decision of Rowlatt J. in Graham v. Green (1925) 2 KB 37 held that the loss incurred in betting could not be taken into account in determining taxable income of the assessee. So far as the loss incurred by the assessee in maintaining the horses owned by him and running them in races was concerned, the Income-tax Officer held that the assessee indulged "in this hobby by way of pastime and it is not done in the nature of profession." He therefore held that the loss incurred by the assessee "or the income made in pursuance of this pastime do not attract the provisions of the Income-tax Act." On appeal the Assistant Commissioner did not differentiate between the loss incurred in betting and in maintaining the horses and held as a matter of law that "the efforts of the appellant in maintaining horses and betting on them and others howsoever systematically organized they may be" do not "constitute a business." The Income-tax Commissioner expressed the same view as the Assistant Commissioner. In the present reference it is maintained by the learned Counsel for the assessee that the maintenance of horses with a view to run them in races constituted "business" within the meaning of the Act and, as such, the loss incurred by the assessee in that connexion should be set off against his income under any other head as provided for by Section 24, Income-tax Act. He also argues that the loss incurred in betting should on similar ground have been set off against the assessee's income, in view of the provisions of Section 4(3)(vii) of the Act which provides that the Act shall not apply to any receipts not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non- recurring nature....

(3.) It is argued that the income from betting was not of "a casual and non- recurring nature" and as such, the loss incurred in betting came within the purview of Section 24 of the Act. In the course of his argument, the learned Counsel placed reliance on a case reported in In the matter of Chunni Lal Kalyan Das and on a case reported in In the matter of Chunni Lal Kalyan Das . It was held in the former case that Clause (vii) of Section 4(3), Income-tax Act, exempts only receipts of a casual and non-recurring nature, which are not receipts from business or the exercise of a profession or occupation by an assessee. The latter case is an authority for the proposition that the profits or losses arising from wagering contracts are to be taken into account in assessing income-tax. It is contended on the authority of these decisions that the loss incurred by the assessee in betting should have been taken into account.