Commercial club house and kiosk operations qualify as business activity, with related losses and depreciation allowable in profit computation.

An incorporated company may carry on a taxable business through a club house and kiosks even where the facilities are mainly used by members, their families and guests, because the activity remains commercial and is not a true mutual arrangement. Losses from running those facilities, together with depreciation on their fixed assets, were allowable in computing race-course business profits where the amenities were directly connected with attracting and retaining patronage. Alternatively, if treated as a separate business, the same loss and depreciation could still be set off against race-course profits as arising from another business carried on by the assessee.

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Issues: (i) Whether running the club house and the kiosks amounted to a business activity. (ii) Whether the loss sustained in running the club house and the kiosks, and depreciation on their fixed assets, were allowable in computing business profits from running the race course. (iii) Whether, if not allowable as part of the race-course business, such loss and depreciation could nevertheless be set off against the race-course profits as loss and depreciation of a different business.

Issue (i): Whether running the club house and the kiosks amounted to a business activity.

Analysis: The assessee was an incorporated company with objects that expressly included establishing clubs, hotels, refreshments and allied conveniences, and carrying on the business of hotel-keepers, tavern-keepers, licensed victuallers and refreshment purveyors. The facilities were provided by the company as a separate entity and were not confined to a mutual association in which contributors and participators were identical in the relevant sense. The fact that the facilities were available mainly to members, their families and guests, and that they were run at a loss, did not by itself destroy their commercial character.

Conclusion: The running of the club house and the kiosks was a business activity and not a mere amenity outside business.

Issue (ii): Whether the loss sustained in running the club house and the kiosks, and depreciation on their fixed assets, were allowable in computing business profits from running the race course.

Analysis: The kiosks and club house were amenities directly connected with the conduct of the race-course business and were intended to attract and retain patronage. Expenditure incurred to provide such facilities was not disallowed merely because the receipts from those facilities did not cover the outgoings. Since the activities formed part of the assessee's business arrangements, the resulting loss and depreciation were proper items in the computation of profits.

Conclusion: The loss and depreciation were allowable in computing the assessee's business profits.

Issue (iii): Whether, if not allowable as part of the race-course business, such loss and depreciation could nevertheless be set off against the race-course profits as loss and depreciation of a different business.

Analysis: Even on the alternative footing that the club house and kiosks were separate from the race-course business, the losses and depreciation arose from another business carried on by the assessee and were capable of being adjusted under the relevant computation provision.

Conclusion: The loss and depreciation could also be set off against the race-course profits as arising from a different business.

Final Conclusion: The reference was answered in favour of the assessee, with the club house and kiosk activities treated as business activities and the related loss and depreciation held deductible or otherwise adjustable in the income computation.

Ratio Decidendi: An incorporated company may carry on a taxable business even where the activity is confined to members and their guests, and expenditure or loss incurred in providing business amenities incidental to the main business is allowable if the activity is commercially undertaken and not a true mutual arrangement.

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