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TMI Blog1998 (3) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... led to registration, for the reasons, as below : (i) The lottery winning is part and parcel of income from other sources, as this is a wind-fall income ; (ii) Purchase of lottery tickets will not be considered as "business activity" ; and (iii) If the tickets are purchased for sale and if an unsold ticket wins a prize, then the matter will be different. Therefore, the Income-tax Officer was of the view that winning of lottery ticket cannot be said as "business activity", profession, vocation or occupation and, consequently, he refused the registration sought for by the firm. The consequence of non-grant of registration was that the assessment was completed under the status of "body of individuals". Aggrieved by the order of the Income-tax Officer, two appeals had been filed before the Appellate Assistant Commissioner of Income-tax, Coimbatore Range, Coimbatore (for short "the AAC"), They are : Appeals Nos. 1057 of 1982-83 and 1058 of 1982-83. The former appeal is relatable to the refusal of grant of registration under section 185 of the Income-tax Act and the latter is relatable to the assessment order being passed, treating the four partners of the alleged firm as "a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on file by this court as Tax Case (References) Nos. 1070 and 1071 of 1987. In these actions, notices had been served on the assessee and despite service of notices, the assessee did not opt to engage a counsel of its choice to defend it in these actions. These actions were listed in the monthly list and when they came up for hearing yesterday (March 18, 1998) and this day (March 19, 1998), no one on behalf of the petitioner-assessee was/is present in court to defend it in these actions. In such a situation, we could have decided the questions involved in these actions, on their merits, on perusal of the materials available on record and of course, after hearing Mr. S. V. Subramaniam, learned senior standing counsel representing the Revenue. We do not, however, propose to do so. We, therefore, requested Mr. P. P. S. Janarthana Raja, learned counsel present in court to assist the court, as amicus curiae and he too readily agreed to do so ; a fine gesture indeed ; We heard the arguments of the said learned senior standing counsel representing the Revenue as well as the said learned amicus curiae counsel. During the course of their arguments, it transpired that the questions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the instrument of partnership. The order of the Income-tax Officer reveals that he did not entertain anything about the genuineness of the firm and the principal reason for his refusing to accord registration was that the activity of the firm cannot at all be stated to lie a trading or business activity. Such a reason did not find favour with the Appellate Assistant Commissioner and the Tribunal. We are unable to affix our seal of approval to the view so entertained by the Appellate Assistant Commissioner and the Tribunal, in opposition to the view entertained by the Assessing Officer, on the facts and in the circumstances of the cases. Section 4 of the Indian Partnership Act, 1932 (Act No. 9 of 1932), defining "partnership", "partner", "firm" and "firm name" reads as under : "4. Definition of 'partnership, 'partner' 'firm' and firm name'.--- 'Partnership' is the relation between persons, who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into partnership with one another are called individually 'partners' and collectively 'a firm', and the name under which their business is carried on is called the ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and holding them in stock till up to the date of draw would become "stock-in-trade" of the assessee-firm and the prize money won by the winning ticket shall be deemed to be the profits of the concern requiring to be shared among the partners in accordance with their shares. If no prize is won, then the total value of the tickets purchased by the firm should have to be construed as a loss to be shared among the partners in accordance with their shares. Such being the case, he would say, the "business activity" carried on by the assessee-firm is in accord with the "common course of events". Mr. S. V. Subramaniam, learned senior standing counsel representing the Revenue, would, however, strike a discordant note to the submissions, as projected by learned amicus curiae counsel, as stated above. According to him, if the nature of the activity carried on by the assessee-firm is thoroughly sifted, and scanned, what would emerge to the surface is that there is no element of trade or business in the activity carried on by the assessee-firm. He would further say that if the assessee-firm purchased lottery tickets for resale, then it could be said that there is an element of trade or busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who either gamble or bet or provide an opportunity for it. Verse 225 calls upon the king to instantly banish all gamblers from his town. In verse 226 the gamblers are described as secret thieves who constantly harass the good subjects by their forbidden practices. Verse 227 calls gambling a vice causing great enmity and advises wise men not to practice it even for amusement. The concluding verse 228 provides that on every man who addicts himself to that vice either secretly or openly the king may inflict punishment according to his discretion. While Manu condemned gambling outright, Yajnavalkya sought to bring it under state control but he too in verse 202(2) provided that persons gambling with false dice or other instruments should be branded and punished by the king. Kautilya also advocated State control of gambling and, practical person that he was, was not adverse to the State earning some revenue thereform. Vrihaspati dealing with gambling in Chapter XXVI, verse 199, recognises that gambling had been totally prohibited by Manu because it destroyed truth, honesty and wealth, while other law-givers permitted it when conducted under the control of the State so as to allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act of insurance. Then came the Gaming Act of 1845 (8 and 9 Vict. c. 109) which for the first time declared all contracts made by way of gaming or wagering void irrespective of their form or subject-matter. The provisions of this Act were adopted by our Act XXI of 1948 as hereinbefore mentioned. The Gaming Act of 1892 (55 and 56 Vict. c. 9), further tightened up the law. (40) As far back as 1850, the Supreme Court of America in Phalen v. Commonwealth of Virginia [1850] 49 U.S. 163 ; 12 Law Ed. 1030 observed : 'Experience has shown that the common forms of gambling are comparatively innocuous when placed in contrast with widespread pestilence of lotteries. The former are confined to a few persons and places but, the latter infests the whole community ; it enters every dwelling ; it reaches every class ; it preys upon the hard earnings of the poor ; it plunders the ignorant and the simple.' The observations were quoted with approval in Douglas v. Common Wealth Kentucky [1897] 168 U.S. 488 ; 42 Law Ed. 553 at page 555. After quoting the passage from (1850) 49 U.S. 163 ; 12 Law Ed. 1030 at page 1033, the judgment proceeded : 'Is the State forbidden by the supreme law of the lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated above, we are clearly of opinion that the transactions of the assessee-firm cannot certainly be taken as activities relatable to trade, commerce, intercourse or business. The element of concept of business, not being there, in the assessee-firm, to say that the assessee-firm is a partnership firm entitled to be registered under section 185(1)(a) of the Income-tax Act cannot at all be expected to commend acceptance at our hands. The resultant product of the discussion, as above, leads to the irresistible conclusion as below : The assessee-firm can, by no stretch of imagination, be construed as a partnership firm entitled to the benefit of registration under section 185(1)(a) of the Income-tax Act and the consequence to flow therefrom is that the assessment has to be made and completed treating the so-called four partners of the firm as an "association of persons", as had been done by the Assessing Officer. We answer the reframed question under reference in Tax Case (Reference) No. 1070 of 1987 that the Appellate Tribunal is not right in law in upholding the order of the Appellate Assistant Commissioner in directing the Income-tax Officer to grant registration and conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X
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