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Issues Involved:
1. Whether the profit arising from the sale of horses during the previous year relevant to the assessment year 1980-81 falls under section 74A(2)(c) of the Income-tax Act, 1961. 2. Whether the losses from earlier years related to the activity of dealing in horses can be set off against the current year's profit from the sale of race horses. Detailed Analysis: Issue 1: Classification of Profit from Sale of Horses under Section 74A(2)(c) The Tribunal was tasked with determining if the profit from the sale of horses during the relevant assessment year falls under section 74A(2)(c) of the Income-tax Act, 1961. The Income-tax Officer had initially held that the profit earned on the sale of horses could only be set off against losses suffered on the sale of horses and not against winnings from horse races, which were considered a separate source of income. However, the Tribunal concluded that the profit from the sale of horses should be classified under section 74A(2)(c), which pertains to "races including horse races." This interpretation aligns with the provision that losses from such sources should be set off against profits from the same source. Issue 2: Set Off of Losses from Earlier Years The assessee had suffered losses from the sale of horses in previous years, which were carried forward as per the Income-tax Officer's determination. The Commissioner of Income-tax (Appeals) held that the income from the sale of horses should be treated as business income and set off against these carried-forward losses. The Tribunal upheld this view, agreeing that the losses from earlier years under section 74A(2)(c) should be set off against the current year's profit from the same source. The Tribunal emphasized that the Department could not retroactively argue that there were two distinct sources of income under section 74A(2)(c). Relevant Legal Provisions and Precedents: The judgment referenced section 74A of the Income-tax Act, 1961, which deals with the carry-forward and set-off of losses from specified sources under the head "Income from other sources." Sub-section (3) of section 74A specifically addresses losses incurred by owners of race horses, allowing such losses to be carried forward and set off against income from the same source in subsequent years, up to a period of four years. The Tribunal also noted that decisions like Janab A. Syed Jalal Sahib v. CIT [1960] 39 ITR 660 (Mad) were rendered irrelevant due to changes in the law brought by the Finance Act, 1972. Conclusion: The Tribunal ruled in favor of the assessee, affirming that the profit from the sale of horses falls under section 74A(2)(c) and that the losses from earlier years should be set off against the current year's profit from the same source. The question referred to the court was answered in the affirmative, supporting the assessee's position. The judgment underscores the interpretation of section 74A(2)(c) and (3) as allowing the set-off of losses from the activity of owning and maintaining race horses against income from the same source, including profits from the sale of horses. No order as to costs was made, and the judgment was concurred by both judges.
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