2005 (12) TMI 450 - AT - Income Tax

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Classification of loss incurred on horse breeding versus horse racing under Section 74A of the Income-tax Act, 1961.
3. Treatment of horse breeding and horse racing activities as separate or connected activities.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
During the hearing, it was noticed that the appeal was time-barred by 4 days. The assessee moved an application for condonation of delay explaining the reasons for the delay. Being convinced with the explanation, the delay was condoned, and the appeal was admitted for hearing.

2. Classification of Loss Incurred on Horse Breeding Versus Horse Racing under Section 74A of the Income-tax Act, 1961:
The primary issue on merit was whether the loss incurred on horse breeding should be treated as a loss incurred on running and maintenance of horses as per Section 74A. The Assessing Officer noticed that the assessee had shown two Profit & Loss Accounts from two activities: horse breeding and horse racing, and claimed a loss in horse racing activity to be carried forward under Section 74A. The assessee argued that the expenses related to horse breeding should be treated as a normal business loss and not covered by Section 74A. The Assessing Officer, however, held that horse breeding activity is directly connected with horse racing activities and recomputed the horse racing loss and business income accordingly.

3. Treatment of Horse Breeding and Horse Racing Activities as Separate or Connected Activities:
The assessee contended before the CIT(A) that horse breeding and horse racing are distinct activities, with breeding involving maintenance and production of new horses at stud farms, and racing involving trained horses under registered trainers at race courses. The CIT(A) referred to the judgment of the Calcutta High Court in CIT v. Mrs. Sunita Kumar [1994] 208 ITR 807, which held that horse breeding and horse racing activities are intrinsically connected and cannot be separated. The CIT(A) confirmed the Assessing Officer's order, treating the activities as one and recomputing the losses under Section 74A.

Tribunal's Analysis and Conclusion:
The Tribunal examined the lower authorities' orders and the Calcutta High Court's judgment in Mrs. Sunita Kumar's case. It was found that the provisions of Section 74A make special provisions for losses incurred in the activity of owning and maintaining race horses to be carried forward and set off against income from the same source in subsequent years. The Tribunal noted that the assessee could not produce any contrary judgment from any other High Court. Therefore, following the Calcutta High Court's judgment, the Tribunal decided the issue against the assessee and confirmed the CIT(A)'s order.

Final Judgment:
The appeal of the assessee was dismissed.