1982 (5) TMI 54 - AT - Income Tax

Tax Tribunal: Wagering loss deductible, horse-racing income business income, no depreciation on horses

INCOME TAX OFFICER (THIRTEENTH). Versus J. DUBASH L/H OF LATE RATAN N. DUBASH.

The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection in part. It affirmed the treatment of wagering loss as a deductible ... - Issues:1. Treatment of loss incurred in wagering in horse-races as expenditure allowable under section 57(iii) of the IT Act, 1961.2. Classification of income from horse-racing and betting on horses as income for profession or under the head of 'other sources'.3. Allowance of depreciation on horses maintained for race and treatment of horses as capital assets.Analysis:Issue 1: Treatment of wagering loss as allowable expenditureThe appeal and cross-objection in this case revolve around the treatment of a wagering loss incurred by the assessee during the relevant year. The revenue contested that the loss should not be allowed as a deduction under section 57(iii) of the IT Act, arguing that the assessee did not prove wagering as a profession. The AAC disagreed with the ITO's disallowance, holding that the assessee is entitled to the deduction of wagering loss under the mentioned section. The AAC also allowed the assessee to carry forward the losses for set off against future income sources. The Tribunal upheld the AAC's decision, emphasizing the professional nature of the assessee's betting activities and the applicability of section 57(iii) for deduction.Issue 2: Classification of income from horse-racing and bettingThe assessee, in the cross-objection, contended that the income from horse-racing and betting should be classified as income from a profession rather than under 'other sources'. The assessee argued that owning and betting on racehorses constituted a profession, supported by the maintenance and active involvement in the activities. The Tribunal agreed with the assessee, considering the assessee a professional punter actively engaged in horse-racing activities. Citing a Karnataka High Court decision, the Tribunal held that the income earned through betting on maintained horses is business income assessable under the head of business income, not 'other sources'.Issue 3: Allowance of depreciation on horsesRegarding the allowance of depreciation on horses maintained for racing, the assessee claimed that horses should be considered as capital assets eligible for depreciation. However, the Tribunal disagreed, stating that while horses are business assets, they do not qualify as 'plant' for depreciation purposes. Therefore, the assessee was not entitled to claim depreciation on the horses.In conclusion, the Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection in part, affirming the treatment of wagering loss as a deductible expenditure under section 57(iii) and classifying the income from horse-racing and betting as business income rather than income from other sources. Additionally, the Tribunal held that horses do not qualify as 'plant' for depreciation purposes, denying the allowance of depreciation on the maintained horses.