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TMI Blog1987 (8) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... the partnership consists of five persons, namely, Sri M. A. K. Ansari, Sri T. Sriramulu (both Inspectors in the Central Excise Department), Sri N. Venkatanarayana Pantulu (father-in-law of Sri T. Sriramulu), Smt. Meherunnissa Begum, and Smt. Badrunnissa Begum (sisters of Sri Ansari). In the course of assessment proceedings, it was mentioned by the assessee that the parties have also entered into a joint venture agreement on September 15, 1972, in respect of the very same transactions. The joint venture agreement, however, was not filed before the Income-tax Officer, but was filed for the first time before the Appellate Assistant Commissioner in appeal. The Income-tax Officer refused to grant registration under section 185 mainly on the ground that betting and racing do not constitute business, profession or vocation. Accordingly, he assessed the entity as an association of persons and levied tax on that basis. He also levied interest under sections 139(8) and 217. No appeal was preferred against the order rejecting the application for registration, but an appeal was preferred against the order of assessment. The Appellate Assistant Commissioner held that the Income-tax Officer was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys and efforts with a view to earn income by engaging themselves in betting and gambling and that, therefore, the income derived from such a course of activity is not only income but taxable income under the Act. He submitted that there is no question of diversion of income by overriding title in this case and that the Tribunal was in error in upholding the said contention. On the other hand, Sri A. Satyanarayana, learned counsel for the assessee, contended that, although the amount received was income, it was a " windfall income " and, therefore, not taxable. He contended that the activity of an association of persons must be an activity directed towards earning a regular income and that it cannot be, what he calls, " windfall-income-producing-activity ". He submitted that these persons had merely acquired a ticket, which is " property ", and it so happened that that particular ticket produced a certain income. There was no other activity except purchasing the ticket, according to learned counsel. He also submitted that the two documents bring about a diversion of income by overriding title and that, in any event, the income has to be taxed separately in the hands of the five i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 1,30,917 was issued in his name. It was claimed before the Income-tax Officer that 10 jackpot tickets were purchased for Rs. 50 contributed by the first party (Sri M. A. K. Ansari) and the fourth party (Sri T. Sriramulu), and that both of them actually attended the races and purchased the tickets for all the events. It was submitted that the cheque for Rs. 1,30,917 was deposited in the personal bank account of Sri Ansari and after realisation, individual cheques were issued in the names of the other four parties for Rs. 26,183.40 each. As stated above, a return was filed in the status of a registered firm for the assessment year 1973-74, showing the income at Rs. 1,09,897 on the total winnings for the relevant accounting year minus charges on bettings and expenses that were incurred in the race course. The first question that arises is, whether the said five persons constituted an association of persons or body of individuals ? The expression "association of persons " is not defined in the Act. In Elias (B. N.), In re [1935] 3 ITR 408 (Cal), Derbyshire C.J. referred to the Oxford Dictionary, where the meaning of the word " associate " is given as " to join in common purpose, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired in equal proportions. The moneys so contributed were to be invested in placing of bettings and in jackpot, treble and tanala events. It was also provided that if any " dividends " are realised from the said investment, the same shall be divided between them in five equal shares. We can presume that the earlier partnership agreement also must have been in the same terms. Indeed, it was " partnership " agreement, which expression is not without some significance in the circumstances. In such a situation, it cannot but be said that these persons came together and engaged themselves in an organised/ regular course of activity for earning income. It is immaterial that the activity is betting and gambling. We are unable to appreciate the opinion of the Tribunal that betting and racing do not produce income in the real sense of the word and that they cannot be viewed as a source of producing income. As pointed out hereinbefore, the definition of " income", inclusive no doubt in section 2(24), clearly includes winnings from races, including horse races, and from all sorts of gambling or betting activities of any form or nature whatsoever. It cannot also be said that these five pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in clause (6C) of section 2 of the Act, and it did not contain a sub-clause corresponding to sub-clause (ix) in section 2(24) of the 1961 Act. Moreover, section 4(3)(vii) of the said Act declared " any receipts... not being receipts arising from business or the exercise of a profession, vocation or occupation, which are of a casual and non-recurring nature " shall not be included in the total income of the person receiving them. Once the definition of "income" was amended in the 1961 Act and the said income was expressly made chargeable to tax as " income from other sources " under section 56(2)(ib), the principle of the said decision ceases to apply. More important, section 10(3) of the 1961 Act (corresponding to section 4(3)(vii) of the 1922 Act) is entirely different. Section 10(3), as applicable during the relevant year, reads as follows : " 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included-... (3) any receipts which are of a casual and non-recurring nature, not being winnings from lotteries, to the extent such receipts do not exceed one thousand rupees in the aggregate. " Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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