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TMI Blog1993 (7) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... he losses from activities relating to horse racing as determined in the earlier years. The Income-tax Officer held that the profit earned on the sale of horses could be set off only against the losses suffered on the sale of horses. According to him, winnings from races in the shape of stake money otherwise constituted a distinctly separate source of income other than the income earned on the sale of race horses and so section 74A(3) did not permit such set off against the losses of the earlier years. The Income-tax Officer disallowed the claim of the assessee to set off the current year's profit of Rs. 99,328 earned on the sale of race horses against the determined losses of the earlier years from horse racing. The assessee appealed to the Commissioner of Income-tax (Appeals) and contended that the action of the Income-tax Officer was not justified. The Commissioner of Income-tax (Appeals) held that the claim of the assessee is admissible. According to him, the income earned by the assessee on the sale of horses was business income and so the same should have been set off against the brought forward losses from the activity of dealing in race horses. He directed the Income-tax O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Officer for being carried forward. The expenses arising out of the maintenance of race horses, their purchase price and the losses suffered in competing for stake money were all grouped together under the head "Races including horse races" and losses have been determined under that head which appears in section 74A(2)(c). The Department cannot now turn round and say that there are two different sources of income envisaged under the single item 74A(2)(c). The decisions on the effect of loss incurred in owning and maintaining race horses are of no aid since such decisions are concerned with the question in the context of the law that prevailed before the insertion of section 74A by the Finance Act, 1972, having effect from April 1, 1972. For example, in Janab A. Syed Jalal Sahib v. CIT [1960] 39 ITR 660 (Mad), the assessee, besides carrying on the business of manufacture and sale of beedis, attended horse races and indulged in betting and also entered in the race horses, some of which were his own and some owned in partnership with others. For the assessment years 1947-48 and 1948-49, the excess of the receipts over expenditure in the racing activities was assessed as income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any, from any source other than the activity of owning and maintaining race horses in that year and shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year and- (a) it shall be set off against the income, if any, from the activity of owning and maintaining race horses, assessable for that assessment year : Provided that the activity of owning and maintaining race horses is carried on by him in the previous year relevant for that assessment year; and (b) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on ; so, however, that no portion of the loss shall be carried forward for more than four assessment years immediately succeeding the assessment year for which the loss was first computed. " The Central Board of Direct Taxes in Circular No. 138, dated June 17, 1974, explained the scope of the said section in the following terms:- "34. Carry forward and set off of losses from horse races.-Under section 74A, losses from lotteries, crossword puzzles, races, card games, etc., are allowed to be set off only against income from the same so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in respect of such horses. Further, the loss computed for any previous year will be allowed to be set off in a subsequent year not only against the stake money received in the relevant subsequent year but also against other winnings, if any, from races. The set off will, however, be allowed only if the taxpayer carries on the activity of owning and maintaining race horses in the previous year relevant to the subsequent assessment year. For the purpose of section 74A(3), a race horse would mean a horse maintained for running in races upon which wagering or betting may be lawfully made and 'income by way of stake money' would mean the gross amount of prize money received on a race horse or race horses by the owner on account of the horse or horses or any one or more of the horses winning or being placed second or in a lower position in a horse race. " Owning and maintaining horse races as such is not included in the enumeration of the sources, namely, clauses (a) to (f) of sub-section (1). But sub-section (3) provides that the losses incurred by the owners of race horses in the activity of owning and maintaining such horses to the extent this cannot be set off against other inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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