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TMI Blog1985 (10) TMI 144X X X X Extracts X X X X X X X X Extracts X X X X ..... d forward to subsequent year for being set off against in come form the same source, namely cl. (c) of sub-s. (2) of s. 74A. The contention of the ld. counsel for the assessee is that under sub-s. (3) in view of the words "subject to other provisions of this Chapter" the assessee would be entitled to first set off the loss against other income and only the balance can be carried forward and set off in subsequent year against income from the same source. Subsequently it is also argued on behalf of the assessee that the loss contemplated in sub-s. (3) is a loss derived from maintenance and ownership of race horse and running them in the race and has to be treated differently form income derived from races including horse races as per cl. (c) of sub-s. (2), which, in his submission, is restricted to loss arising on betting on horses. In this connection, reliance was placed on the Finance Ministers speech in introducing the provision of this section published in (1974) 93 ITR (St.) 121. The ld. Departmental Representative s contention before us was that s. 74A is a specific section providing for treatment of losses arising from races including horse races and it is comprehensive to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) of s. 74A indicate a ban against operation of the provisions of ss. 70 and 71 which would apply to any other loss under the head "income from other sources". so far as the loss arising form the sources enumerated in sub-s(2) is concerned. The carry forward and set off of loss arising in a particular assessment year is permitted only in respect of loss arising form business as contained in s. 72(1) of the IT Act, Therefore in respect of loss arising form sources enumerated under sub-s. (1) and (2) of s. 74A the assessee has neither the benefit of setting off such loss against profit or income arising form any other soured under he head" income form other sources" or income arising under any other head mentioned in s. 14 of the IT Act, nor the benefit of carry forward of such loss. Sub-s. (3) of s. 74A, however, seems to provide for an exception to the operation of the rule contained in sub-ss, (1) and (2) of s. 74A, which bans explicitly the set off of loss arising from sources mentioned in sub-s. (2) against income form any other source assessed under any head and by necessary implication, having regard to the provision of s. 72 the carry forward and set off of such loss in sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d fall under the head specified in cl. (c) of sub-s. (2) but will be eligible for set off against income under the head "income form other source" under any other head in the same year and only when such set off does not fully absorb the loss it can be carried forward in subsequent year. According to the ld. counsel, the words "subject to other provisions of the chapter" refer to the provisions contained in ss. 70 and 71 which provide for set off against income from another source under the same head and or against income under any other head. It was also further considered in the course of discussion that the loss falling under cl. (c) of s. 74A (2) would only consist of the profit or loss arising form betting on horses and not the profit or loss arising form the ownership and maintenance of horses and running them in races and receiving stake money where they win the races. Such a loss arising from ownership and maintenance of horses for running the horses will have to be considered apart from the prohibition contained in s. 74A and will be governed by the general provisions of the Act. The crucial question that arises for consideration, according to us in this case is whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation in respect of source specified in cl. (c) of sub-s. (2), under the herding "Races including horse races", and (2) the amount of loss incurred by the assessee in the activity of coming and maintaining race horses. Has is contemplates, in our view, a case where and assessee owning and maintaining race horses for the purpose of running in there races has also income falling within the source specified in cl. (c) of sub-s. (2), i.e. on wagering or betting on horses. In such a case, all that the section provides is that the loss contemplated by cl. (c) of sub-s. (2) will be computed separately and the loss arising form the ownership, maintenance and running of the horses in the races will be computed separately. Then the loss computed in his case under cl. (c) of sub-s. (2) upto a limit of the loss computed form his activity of maintaining and running the horses is entitled, subject to other provisions of the Chapter mentioned therein, to be carried forward to the following assessment year for set off against the income from the identical source. In our view, so far as the loss that arise from the activity of owning and maintaining the horses and running them in the races is con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he will not be allowed to carry forward such loss to be set off in subsequent years upto four assessment years against profit or income arising from such betting in such years. In the present case it is common ground that the loss involved is a loss arising purely from the activity of maintaining and the horses of which the assessee is the owner and running them in the races. In his case the general provisions of the IT Act relating to income form other sources or profits and gains of business, as the case may be, depending upon whether such activity amounts to a business will apply and not the provisions of s. 74A. We therefore hold that there is no merit in the Department s objection, which is, accordingly, rejected. The appeal is dismissed. 28th June 1985 T.R. THIRUVENGADAM, A. M.: I have perused the order of may ld., brother, But I am unable to agree with the conclusion reached by him. The view taken by my ld. brother is that the loss arising from the ownership and maintenance of horse would not fall under s. 74A(2) (c). Clauses (c) of sub-s. (2) of s. 74A enumerates one particular source for the purpose of sub-s. (1) of this section. It is "races including horse races" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt out here that s. 74A concerns itself with the consideration of the result of the activities enumerated in sub-s. (2), that would come under the head other sources and not under any other head. 3. This section was inserted in the IT. Act, by the Finance Act. 1972. The Finance Act, 1972 introduced substantial modification mainly of the provision contained in s. 10 (3) to remove or restrict the exemption granted under the provision to casual and non-recurring receipts of income. The various items enumerated in sub-s. (2) together fall in this category and the amendment of s. 10 (3) which was also made by the Finance Act, 1972 at the same time as the introduction of s. 74A, fall originally under the category of casual and non recurring receipts. These were all brought into tax net and given, except for receipts under the head lotteries, the exemption in respect of the loss of the receipts would be exempt only to the extent of Rs. 1000 by way of income. The intention as explained in the explanatory memorandum accompanying the Finance Bill, 1972 was to bring to tax the incomes coming under these heads and at the same time not to allow the losses that might arise from these sources ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equivalent to carrying on a business. It would loos be seen from this that the intention was only to set off the loss incurred in such an activity, namely the maintenance s of he horses against the income form the sources of races including horse races in the subsequent four years. The intention was not to set off a loss arising form the betting activity of an equivalent amount against the income from the same source in the subsequent years. 4. A plain reading of the provision in sub-s. (3) is, in my opinion, to the same effect. It referees to result of the computation in respect of the source specified in sub-s. (2) (c) being a loss and then allows the carry forward of a part of that loss as is attributable to the activity of owning and maintaining the race horses. The Explanation appended to his sub-section is only to quantify precisely the loss incurred in this particular activity. In my opinion, the basis for sub-s. (3) is that the loss arising from the activity of owning and maintenance of race horses falls within the category contemplated under cl. (c) of sub-s. (2) of s. 74A. It is only on that basis that this provision is intended to be worked. There is no warrant for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther incomes of the assessee for this assessment year I will further hold that the assessee would be entitled only to the carry forward of such loss and set off in the subsequent years against the income falling under the head other sources and form the sources of races including horse races. 7. The appeal is allowed. 28th June 1985 ORDER UNDER S. 255 (4) OF THE IT ACT, 1961 Since there is a difference of opinion on the following points between the two Members, the appeal is placed before the President, ITAT for being heard on the following points of difference by one or more of the other Members of the Tribunal: "Whether, the amount of loss incurred by the assessee during the previous year for this assessment year in the activity of owning and maintaining the race horses can be set off against any income of the assessee under any other head for this assessment year, or it can only be carried forward and set off as provided in sub-s. (1) s. of 74A of the Indian IT Act, 1961?" Order G. KRISHNAMURTY, SENIOR VICE PRESIDENT: In this appeal preferred by the Department of difference of opinion arose between my ld. brothers as to whether the loss claimed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was placed for this view on the words "subject to the other provisions of this Chapter" used in s. 74A(3) of the IT Act, 1961. The CIT (A) felt that the view taken by the ITO was not correct and that in that view no meaning was given to the phrase "subject to the other provisions of this chapter" and giving the meaning to that phrase it meant that the assessee was right in his contention that the maintaining and reusing of horses in races should be considered as a business loss from which is to be set off against the income form other sources and that the ban imposed under s. 74A (1) was not applicable. On this view of the matter, he allowed the assessee s claim. 2. When the matter came before the Tribunal the ld. Judicial Member agreed with the view expressed by the CIT but the ld. Accountant Member expressed a different view, Hence the above difference between the members, which was referred to me by the President under s. 255(4) of the IT Act. 3. I have carefully considered the matter, gone through the orders of the learned brothers and the relevant provisions of the Act and I am of the opinion that the view expressed by the ld. Judicial Member is the correct view. Since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing racer horses; (ii) in a case where the assessee has income by stake money, the amount by which such income falls short of the amount of expenditre (not being in the nature of capital expenditre) laid out or expended by the assessee wholly and exclusively for the purposes of maintaining race horses; (b) Horse Race means a horse race upon which wagering or betting may be lawfully made, (c) "income be way of stake money" means the gross amount of prize money received on a race horse of race horses by the owner thereof on account of the horse or horses or any one or more of the horses winning or being placed second or any lower possession in horse races." Sub-s. (1) of s. 74A imposes a ban on the set off of the income form the sources referred to in sub-s. (2) against any income form the head "other source" or against income under any other head. I am new concerned in this matter with cl. (c) which deals with reaches including horse races. Sub-s. (3) inserted by the Finance Act, 1974 w.e.f. 1st April 1975 is intended to carry out an exception to the total ban provided in sub-s. (1). While sub-s. (1) prohibits the set off of a loss incurred form the sources referred to in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, card games and other grams of any sort of from gambling or betting of any form or nature whatsoever, were made chargeable to tax under the head "Income form other sources". The teachable income form these sources is computed after allowing a deduction in respect of expenditre (not being in the nature of capital expenditure) incurred by the tax payer wholly and exclusively for the purpose of making or earning such income. Under a specific provision made in the law, losses relating to these sources are allowed to be set off only against income from the same source. Further, losses relating to these sources incurred in one year are not allowed to be carried forward and set off against the income of a subsequent year. Race horse owners have to incur regular expenditure on the maintenance of horses. In fact, the activity of maintaining horses and running them in races is somewhat akin to a business carried on by a tax payer in an organised manner. Under the existing provisions of law, however, while the losses incurred by a taxpayer in his business or profession are allowed to be carried forward and set off against the profits of the business or profession in subsequent year upto a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction is clear than it has to be seen whether the loss incurred by the assessee was in the activity of own and maintaining race horses. The rules for computation of that loss were laid down in sub-s. (3). In that regard that sub-s. (3) is a self contained code, it provided that in the case of an owner of race horses if he also incurious loss form the source of races including race horses i.e. by betting on horses the loss incurred by the assessee in the activity of owning and maintaining race horses shall subject to the other provisions of this Chapter be carried forward to the following assessment year to be set off against the income if income form the horse races provided the activity of owning and maintaining race horses is continued by him. Then the loss which cannot be wholly so set off would carried forward to the following assessment year and so on but no for more than four assessment years. Now the most important words used in sub-s. (3) governing the carry forward of loss incurred in the activity of owning an maintaining horses are "subject to the other provisions of this Chapter". What are these other provisions of the Chapter which govern the issue of carry forward of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) is to provide an exception to what was contained in sub-s. (1). it cannot be said that the prohibition in sub-s. (1) still apply to sub-s. (3). If such is the interpretation the enactment of sub-s. (3) would be reduced to nullity. The insertion of the phrase subject to the other provisions of this Chapter is not without any purpose. The purpose is allow the set off of that loss form the activity of owning and maintaining race horses form income under any other head and then set in motion the provision for carry forward. Since this is my considered opinion about the interpretation of sub-s. (3) of s. 74, the provision of s. 74A will not apply to this loss, as this is in my view business loss. I am of the opinion that the view expressed by the ld. Judicial Member is preferable in conformity with the view expressed in the Memorandum a planning the provision in the Finance Bill of 1974 as introduced in the Parliament. It also takes into account the ordinary meaning to be assigned to the expression "subject to the other provisions of this Chapter" and not do hors it. This view can be tested from the layman s angle. A person carrying on business and if he inquires loss in that busine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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