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TMI Blog1984 (4) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 14-4-1981 annexing a receipt and expenditure statement in respect of his horses' racing activities and also explaining the sources of the investment referred to by the ITO. By a letter dated 18-4-1981 the ITO required further particulars and the assessee replied giving such information by his letter dated 11-7-1981. After hearing the assessee, the IAC, to whom the matter was referred under section 144B of the Income-tax Act, 1961 ('the Act'), gave his directions by order dated 25-9-1981. By that order, he stated that the explanation given by the assessee with reference to the sources of funds for the investment in the purchase of the horses and the maintenance of the horses was reported by the ITO to have been fully explained. However, he further noted that the activities of the assessee with relation to the maintenance of the race horses and the winnings therefrom could be fully scrutinised only at that stage and he came to the conclusion that such activities amounted to a regular source of income. He overruled the objection of the assessee that it was only a hobby and directed that the income from that source computed at Rs. 1,22,500 as well as the excess of income over ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. We, therefore, overrule this preliminary objection. 4. On the merits of the appeal, the contentions put forward on behalf of the assessee were as follows : The activities of purchasing, raising, grooming and running the horses in races constituted a hobby of the assessee. The activities of racing or sale of the horses were incidental to the hobby and any receipts arising from these hobbies were only incidental to the hobby which was only for pleasure and not for making any money. Such receipts could never be taxed as income. It was only by a definition that the winnings from such activities alone were treated to be income and even such income would be exempt if it was casual and non-recurring. Even assuming that the winnings were to be taxed, the scope of the expression 'winnings' could not include income by way of lease or sale of horses which was outside the ambit of the definition of 'income'. Even assuming that the entire receipts from the activities relating to the race horses were to be taxed, there were inaccuracies in the computation of such income because the lease income should be taxed only on an accrual basis and not on receipt basis and the income relatable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions, we are of the opinion that the crux of the question is whether the receipts of the assessee from the activities relating to the maintenance of race horses and participation in the horse races amounted to income or not. As we have noted at the outset, all the activities of the assessee were inter-connected. The main activity was the betting in the horse races for which purpose the assessee has maintained the horses. The main receipts were the winnings from the bets as well as the stake money being the prizes received on the winning horses. The incidental receipts were by way of lease of the race horses as well as capital gains arising by sale of the horses. The assessee was a man well able to afford the pleasure both of keeping the race horses as well as betting on them. It has been judicially noticed that the men of means take pride in possessing the race horses and participating in horse racing events. Such activities can only be regarded as a hobby. 7. The receipts arising from the pursuit of such a hobby as from any other hobby cannot be regarded as income. The classic definition of 'income' is that it is a periodical monetary return coming in with some sor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ried on by the assessee as a business. In fact, the receipts from these activities were never attempted to be assessed under the head 'Profits and gains of business or profession'. 9. Under section 10 of the Act, any income falling within any of the clauses therein shall not be included in the total income. Clause (3) refers to any receipts which are of a casual and non-recurring nature, not being winnings from lotteries provided that it shall not apply to receipts arising from business or the exercise of a profession or occupation. Under section 2(36) 'profession' includes vocation. It is clear from the facts of the case that the assessee has not carried on these activities in exercise of a profession, occupation or vocation because there is no material to indicate that the object of carrying on these activities was for the purpose of earning income. 10. We are then left with the main portion of clause (3) of section 10 which exempts income of the nature of casual and non-recurring receipts other than winnings from lotteries. Before we come to the scope of the expression 'winnings from lotteries', we may also rule out the possibility of the receipts of the assessee being treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pts cannot be charged to tax unless the charging section applies expressly or by necessary implication to such receipts. More so when they are deemed to be taxable and would otherwise cannot even be considered to be income since they are only receipts arising from the pursuit of a hobby. Though the activities of the assessee are inter-related for the purpose of taxability, we are required to isolate the expenditure on maintenance and set it off against stake money because the charge falls only on stake money. Similarly, we have to isolate the winnings from betting on race horses. Though section 74A provides that a loss from any source shall not be set off against the income from any other source specified in sub-section (2), winnings from race horses happens to fall within clause (c), i.e., 'race including horse races', because clause (f) refers to 'gambling or betting of any form or nature whatsoever not falling under any of the other clauses'. But for this classification, even winnings from race horses may have to be separated from the stake money. However, the wording of section 74A being what it is, winnings from betting in races and the stake money are to be assessed as income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the provisions of section 74A, the capital gains arising from the sale of the horses were to be assessed under section 45 of the Act, our answer should be in favour of the assessee because the horses were only personal effects and could not be considered as capital assets at all. The authorities below proceeded as if a HUF is an artificial entity which cannot have a personal effect. But that view ignores the fact that it is only a body of human beings and in any event the definition of 'capital asset' in section 2(14) excludes personal effects, that is to say, movable property held for personal use by the assessee or any member of his family depending on him. Surely, every member of the HUF is dependent upon the HUF and assets held for the pursuit of a hobby cannot but be regarded as a personal effect. In the circumstances, we are of the opinion that the income to be computed under the head 'Income arising from horse racing' has to be computed only with reference to the expenditure incurred for maintaining the horses and the receipts by way of stake money and the winnings from bettings on the horses. We, therefore, set aside the orders or the authorities below and direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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