1969 (11) TMI 17 - HC - Income Tax

Business of a race club - claim for deduction from the gross profits u/s 11 - It cannot be said that betting on horses is beneficial to the public - exemption not allowed

Summary

Issues:
1. Whether the income of the assessee was exempt under section 11 of the Income-tax Act?
2. Whether the assessee was entitled to the deduction of the loss in running the races at Mysore?

Analysis:
1. The case involved a reference under section 256(1) of the Income-tax Act, 1961, by the Income-tax Appellate Tribunal, Madras Bench "A" regarding the exemption of income under section 11 of the Act. The assessee, a race club, claimed exemption, but the Tribunal held that the business of racing conducted by the assessee did not qualify as a charitable purpose under section 11. The Tribunal relied on precedents to establish that racing, involving betting on horses, did not confer public benefit. The court agreed with the Tribunal's opinion, distinguishing the case from precedents that promoted economic prosperity for the general public. Thus, the court ruled against the assessee on the exemption issue.

2. The second issue pertained to the deduction of the loss incurred in running races at Mysore. The Tribunal rejected the claim for deduction, deeming the payment to the Mysore Race Club as gratuitous and beyond the scope of the assessee's objects. However, a separate judgment in Company Petition No. 13 of 1967 established that the payment was within the scope of the company's objects. The court concurred with this judgment, emphasizing that the payment was a legitimate expenditure incurred for the racing activity. As the assessee undertook to conduct races at Mysore and bear any losses as per agreements, the payment was not gratuitous but a business-related expense. Consequently, the court ruled in favor of the assessee on the deduction of the loss issue.

In conclusion, the court determined that the income of the assessee was not exempt under section 11 of the Income-tax Act, 1961, while also affirming that the assessee was entitled to the deduction of the loss incurred in running races at Mysore. The judgment directed the parties to bear their own costs.