1967 (4) TMI 32 - HC - Income Tax

Activities of the assessee on the New York Cotton Market - whether constituted business within the meaning of section 2(4) of the IT Act, 1922, and the income therefrom taxable - Held, no

Issues Involved:
1. Whether the activities of the assessee on the New York Cotton Market constituted "business" within the meaning of section 2(4) of the Income-tax Act, 1922, and the income therefrom taxable under the Act.
2. If the answer to question No. 1 is in the negative, whether the income on New York cotton betting is exempt from tax as "casual and non-recurring" under section 4(3)(vii) of the Income-tax Act.

Issue-wise Detailed Analysis:

Issue 1: Whether the activities of the assessee on the New York Cotton Market constituted "business" within the meaning of section 2(4) of the Income-tax Act, 1922, and the income therefrom taxable under the Act.

The court examined whether the regular dealings of the assessee in the American cotton price differences, based on the opening and closing rates of the New York Cotton Exchange, amounted to "business" under section 2(4) of the Income-tax Act. The Tribunal had concluded that these activities were a well-known form of speculation and, despite being illegal in India, did not cease to be business. The Tribunal did not accept the contention that the winnings from American Cotton futures were accidental and non-recurring.

The court referred to judicial interpretations of "business" and noted that it connotes a "real, substantial and systematic or organised course of activity or conduct with a set purpose." The court stated that the term "business" involves the continuous exercise of an activity, as elucidated in cases like Income-tax Commissioner v. Shaw Wallace & Co. and Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax.

The court concluded that the dealings of the assessee in "brackets" were akin to gambling, relying on chance rather than organised skill or activity. Therefore, these activities did not constitute "business" within the meaning of section 2(4) of the Act.

Issue 2: If the answer to question No. 1 is in the negative, whether the income on New York cotton betting is exempt from tax as "casual and non-recurring" under section 4(3)(vii) of the Income-tax Act.

Since the court determined that the activities did not amount to "business," it then considered whether the income derived from these activities was of a "casual and non-recurring nature" under section 4(3)(vii) of the Act. The court referred to various judicial precedents, including the Full Bench decision of the Allahabad High Court in In re Lala Indra Sen and the Madras High Court decision in Janab A. Syed Jalal Sahib v. Commissioner of Income-tax.

The court observed that receipts from gambling or betting, which depend purely on chance, do not involve a continuous exercise of activity or an organised or systematic effort. Such receipts are typically considered casual and non-recurring. The court agreed with the view that habitual betting does not convert gambling receipts into business income and that such receipts should be considered non-recurring.

The court concluded that the income from the assessee's betting activities on the New York Cotton Market was indeed of a casual and non-recurring nature and thus exempt from tax under section 4(3)(vii) of the Act.

Conclusion:

The court answered the first question in the negative, determining that the activities of the assessee did not constitute "business" under section 2(4) of the Income-tax Act. Consequently, the court answered the second question in the affirmative, holding that the income from New York cotton betting was exempt from tax as "casual and non-recurring" under section 4(3)(vii) of the Act.

The reference was answered accordingly, with costs awarded to the assessee, and an advocate's fee of Rs. 250.

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