1995 (4) TMI 27 - HC - Income Tax

Issues Involved:
1. Determination of the "previous year" for assessing race winnings.
2. Applicability of amendments introduced by the Finance Act, 1972.
3. Exercise of option by the assessee regarding the accounting period.
4. Taxability of race winnings for the assessment year 1973-74.

Detailed Analysis:

1. Determination of the "previous year" for assessing race winnings:
The core issue revolves around whether the race winnings of Rs. 42,383 should be considered in the previous year ended on June 30, 1972, relevant for the assessment year 1973-74. The Tribunal noted that under Section 3 of the Income-tax Act, 1961, the "previous year" can be the financial year immediately preceding the assessment year or a different year at the option of the assessee if the accounts are made up to a date within the financial year. The assessee's accounts were made up to June 30, 1972, within the financial year ending March 31, 1973. However, the Tribunal concluded that the assessee did not exercise the option to have the previous year ended on June 30, 1972, for the race winnings. Thus, the only previous year could be the year ended March 31, 1972, relevant to the assessment year 1972-73, during which race winnings were not taxable.

2. Applicability of amendments introduced by the Finance Act, 1972:
The Finance Act, 1972, introduced amendments to include race winnings under taxable income. Section 2(24)(ix) was amended to include winnings from races, and Section 56(2)(ib) was added to tax such income under "Income from other sources." However, Section 59 of the Finance Act, 1972, specified that income falling within Section 10(3) before April 1, 1972, shall not be included in the total income for the previous year relevant to the assessment year commencing on April 1, 1972. Therefore, the race winnings received on February 28, 1972, fell before April 1, 1972, and were not taxable for the assessment year 1973-74.

3. Exercise of option by the assessee regarding the accounting period:
The Tribunal emphasized that the assessee did not exercise the option to treat the period ending June 30, 1972, as the previous year for the race winnings. The return filed by the assessee showed the race winnings under "Other sources not included in total income," indicating they were not taxable. The Tribunal referred to similar cases, including CIT v. B.C. Kothari, where the assessee's conduct and statements in the return indicated the exercise of the option for a different previous year. In this case, the Tribunal found no such indication by the assessee.

4. Taxability of race winnings for the assessment year 1973-74:
The Tribunal concluded that the race winnings were not taxable for the assessment year 1973-74. The race winnings were received before April 1, 1972, and thus fell in the previous year relevant to the assessment year 1972-73, during which such income was not taxable. The Tribunal vacated the Commissioner's order under Section 263, which had sought to include the race winnings in the assessment year 1973-74. The High Court agreed with the Tribunal's view, affirming that the race winnings were not taxable for the assessment year 1973-74 due to the timing of the receipt and the amendments introduced by the Finance Act, 1972.

Conclusion:
The High Court upheld the Tribunal's decision that the race winnings of Rs. 42,383 were not taxable for the assessment year 1973-74. The court emphasized that the assessee did not exercise the option to treat the period ending June 30, 1972, as the previous year for the race winnings, and the winnings were received before April 1, 1972, making them non-taxable for the assessment year 1973-74. The reference was answered in favor of the assessee and against the Revenue.

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