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Issues: Validity of clause (ix) of section 2(24) of the Income-tax Act, Legislative competence of Parliament to levy tax on income from winnings in horse races.
Analysis: The petitioner, a businessman, challenged the addition of his horse race winnings to his income by the Income-tax Officer for the assessment year 1973-74. The key issue was the validity of clause (ix) of section 2(24) of the Income-tax Act, which includes winnings from races, including horse races, as taxable income. The petitioner argued that Parliament lacked legislative competence to enact this clause, contending that only State legislatures could tax income from winnings in horse races under List II of the Seventh Schedule of the Constitution. The High Court analyzed the legislative powers of Parliament and State legislatures under the Constitution. It noted that Parliament has exclusive authority under List I to levy taxes on income other than agricultural income, as per entry 82. Additionally, the residuary entry 97 empowers Parliament to legislate on matters not covered in List II or List III. In contrast, State legislatures, under List II, have the power to impose taxes on luxuries, including entertainments, amusements, betting, and gambling, as per entry 62. The court highlighted the distinction between taxing betting and gambling tickets by State legislatures and taxing income from betting and gambling by Parliament. The court addressed the petitioner's argument that "income" should be steady and recurring, not windfall gains like horse race winnings. It referred to relevant case law and emphasized that the term "income" should be interpreted broadly, especially in the absence of a specific definition in the Constitution. Drawing parallels with a Supreme Court decision on capital gains taxation, the court concluded that Parliament had the legislative competence to enact clause (ix) of the Income-tax Act. Referring to a similar case where the Allahabad High Court upheld the validity of clause (ix), the court dismissed the petitioner's contention and affirmed Parliament's competence to levy tax on winnings from horse races. Ultimately, the court dismissed the petition and ordered costs to be paid by the petitioner.
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