TaxTMI 
TaxTMI 
1996 (1) TMI 336
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.... running of horse races. The club is one of the five "Turf Authorities of India", the other four being the Royal Calcutta Turf Club, the Royal Western India Turf Club Limited, the Bangalore Turf Club Limited and the Hyderabad Race Club. Race meetings are held in the club's own race courses at Madras and at Uthagamandalam (Ooty) for which bets are made inside the race course premises. While horse races are continuing in the rest of the country, the Tamil Nadu Legislature, as far back as in 1949, enacted law by which horse racing was brought-within the definition of "gaming". The said law, however, was not enforced till 1975, when it was challenged by the club by way of a writ petition before the Madras High Court. The writ petition was dismissed by the High Court. These proceedings before us are a sequel to the chequered history of litigation, between the parties, over a period of two decades. From the pleadings of the parties and the arguments addressed before us by learned counsel, the following questions arise for our consideration: 1.What is "gambling"? 2.What is the meaning of the expression "mere skill" in terms of section 49A of the Madras City Police Act, 1888 (the ....
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....ominates over the element of skill, and a game of skill is one in which the element of skill predominates over the element of chance. It is the dominant element- "skill" or "chance"-which determines the character of the game. The Public Gambling Act, 1867, provided punishment for public gambling and for keeping of "common gaming houses". The Act did not bring within its scope betting on horse races. The Bengal Public Gaming Act, 1867, provided punishment for public gambling and the keeping of common gaming houses. Gaming was defined in the Bengal Act to include wagering or betting except wagering or betting on horse races. The next legislation was the Bombay Prevention of Gambling Act, 1887, which defines "gaming" in similar terms as the Bengal Act. Before we deal with the Madras legislations on the subject, it would be useful to refer to the judgments of this court wherein the question whether trade or business which is of "gambling" nature can be a fundamental right within the meaning of article 19(1)(g) of the Constitution. This court in State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699, speaking through S.R. Das C.J., observed as under (page 719): "From anci....
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....rudence ... It is gambling to buy a ticket or share in a lottery. Such a transaction does not belong to the commercial business of the country. The purchaser stakes money in a scheme for distributing prizes by chance. He is a gamester." On the question whether gambling is protected either by article 19(1)( g) or article 301 of the Constitution, this court held as under (at page 720): "It will be abundantly clear from the foregoing observations that the activities which have been condemned in this country from ancient times appear to have been equally discouraged and looked upon with disfavour in England, Scotland, the United States of America and in Australia in the cases referred to above. We find it difficult to accept the contention that those activities which encourage a spirit of reckless propensity for making easy gain by lot or chance, which lead to the loss of the hard earned money of the undiscerning and improvident common man and thereby lower his standard of living and drive him into a chronic state of indebtedness and eventually disrupt the peace and happiness of his humble home could possibly have been intended by our Constitution makers to be raised to the st....
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.... the competition could not be regarded as of a gambling nature. The Court of Appeal in the judgment under appeal has shown how opinions have changed since the earlier decisions were given and it is not necessary for us to discuss the matter again. It will suffice to say that we agree with the Court of Appeal that a competition in order to avoid the stigma of gambling must depend to a substantial degree upon the exercise of skill. Therefore, a competition success wherein does not depend to a substantial degree upon the exercise of skill is now recognised to be of a gambling nature." On the same day when this court decided in State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 699, the same four-judge Bench presided over by S.R. Das, Chief Justice, delivered judgment in another case between the same parties titled R.M.D Chamarbaugwala v. Union of India, AIR 1957 SC 628. The validity of some of the provisions of the Prize Competitions Act (42 of 1955) was challenged before this court by way of petitions under article 32 of the Constitution. Venkatarama Ayyar J., speaking for the court, noticed the contentions of learned counsel for the parties in the following words (page 630)....
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....competitions in which it does not so depend, form two distinct and separate categories. The difference between the two classes of competitions is as clear-cut as that between commercial and wagering contracts. On the facts there might be difficulty in deciding whether a given competition falls within one category or not; but when its true character is determined, it must fall either under the one or the other. The distinction between the two classes of competitions has long been recognised in the legislative practice of both the United Kingdom and this country, and the courts have, time and again, pointed out the characteristic features which differentiate them. And if we are now to ask ourselves the question would Parliament have enacted the law in question if it had known . . . The conclusion is, therefore, inescapable that the impugned provisions, assuming that they apply by virtue of the definition in section 2(d) to all kinds of competitions, are severable in their application to competitions in which success does not depend to any substantial extent on skill." This court, therefore, in the two Chamarbaugwala's cases (State of Bombay v. R.M.D. Chamarbaugwala, AIR 1957 SC 69....
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....any gaming, and any winnings or prizes in money or otherwise distributed or intended to be distributed in respect of any gaming." Section 42 of the Police Act gives power to, the Commissioner to grant a warrant to enter any place which is used as a common gaming house and the arrest of persons found therein and to seize all instruments of gaming, etc. Section 43 provides that any cards, dice, gaming table or cloth, board or other instruments of gaming found in any place entered into or searched under section 42 shall be evidence that such place is used as a common gaming house. Section 44 states that in order to convict any person of keeping a common gaming house, the proof of playing for stakes shall not be necessary. Section 45 provides for penalty for opening, keeping or use of a gaming house. Section 46 lays down penalty for being found in a common gaming house for the purpose of gaming. Section 47 permits destruction of the instruments of gaming on conviction and section 48 relates to indemnification of witnesses. Sections 49 and 49A (to the extent relevant) of the Police Act are reproduced hereunder: "49. Nothing in sections 42 to 48 of this Act shall be held to apply t....
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....ority controlling such race had with the sanction of the State Government set apart for the purpose. The definition of gaming in the two Acts was sought to be amended by sections 2 and 4 of the Madras City Police and Gaming (Amendment) Act, 1949 (the 1949 Act). The said sections are reproduced hereunder: "2. In the Madras City Police Act, 1888, in section 3, for the definition of 'gaming' the following definition shall be substituted, namely:- 'Gaming' does not include a lottery but includes wagering or betting. Explanation.-For the purpose of this definition, wagering or betting shall be deemed to comprise the collection or soliciting of bets, the receipt or distribution of winnings of prizes, in money or otherwise, in respect of any wager or bet, or any act which is intended to aid or facilitate wagering or betting or such collection, soliciting, receipt or distribution'. 4. In the Madras Gaming Act, 1930, in section 3, for the definition of 'gaming' the following definition shall be substituted, namely:- 'Gaming' does not include a lottery but includes wagering or betting. Explanation.-For the purposes of this definition wagering or betting shall be deemed to c....
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.... skill, the provisions of the two Acts were not applicable to horse races. The High Court rejected both the contentions. The High Court held horse racing to be a game of chance, and as such gambling, on the following reasons: "The question is whether, having regard to his approach, betting on horse races is of gambling nature. We are told that it is not, because betters bring to bear on betting considerable knowledge of each horse as to its ancestry or pedigree, history of its performance in the previous races, various other factors and related circumstances and skill based on such knowledge and experience in horse racing. We, of course, know the plethora of publications, information by means of booklets, pamphlets and even books and the knowledge about horses and horse races all over the world for centuries and the tremendous enthusiasm exhibited by those race-goers who in deciding to stake on a particular horse, know everything about it which enables them to judge that it may in all probability come out successful in a race. Even so, if any skill is involved in the process, it is not the skill of the horse but of the one who bets on it and, based on such skill, the better cann....
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....Commercial Tax Department of the State Government. The balance goes to the club's account. Betting on the horses participating in the races, may be made either at the club's totalizators (the totes) by purchasing tickets of Rs. 5 denomination or with the bookmakers (bookies) who are licensed by the club and operate within the first enclosure. The totalizator is an electronically operated device which pools all the bets and after deducting betting tax and the club charges, works out a dividend to be paid out as winnings to those who have backed the successful horses in the race. Bookmakers, on the other hand, operate on their own account by directly entering into contracts with the individual punters who come to them and place bets on horses on the odds specified by the bookmakers. The bookmakers issue to the punters printed betting cards on which are entered the bookmaker's name, the name of the horse backed, the amount of bet and the amount of prize money payable if the horse wins. The winning punters collect their money directly from the bookmaker concerned. The net result is that 75 per cent. of the tote-collections of each race are distributed as prize money for winning tickets....
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....wo cases decided by the Madras High Court and one of the Andhra Pradesh High Court that the game of rummy was a game of skill and, therefore, the Act did not apply to the case." This court held the game of rummy to be a game of mere skill on the following reasoning (at page 828): "We are also not satisfied that the protection of section 14 is not available in this case. The game of rummy is not a game entirely of chance like the 'three-card' game mentioned in the Madras case to which we were referred. The 'three card' game which goes under different names such as 'flush', 'brag', etc., is a game of pure chance. Rummy, on the other hand, requires certain amount of skill because the fall of the cards has to be memorised and the building up of rummy requires considerable skill in holding and discarding cards. We cannot, therefore, say that the game of rummy is a game of entire chance. It is mainly and preponderantly a game of skill. The chance in rummy is of the same character as the chance in a deal at a game of bridge. In fact in all games in which cards are shuffled and dealt out there is an element of chance because the distribution of the cards is not according to any set p....
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....ge and jockeys have to be specially trained over a period of years. Whether a particular horse wins at the race or not, is not dependent on mere chance or accident but is determined by numerous factors, such as the pedigree of the animal, the training given to it as well as the rider, its current form, the nature of the race, etc. Horse racing has been held judicially to be a game of skill unlike pure games of chance like roulette or a lottery." The above quoted averments have not been specifically denied in the counter affidavit filed before the High Court. The New Encyclopaedia Britannica, 15th edition, volume 5, at page 105, while defining the expression "gambling" refers to horse racing as under: "Betting on horse racing or athletic contests involves the assessment of a contestant's physical capacity and the use of other evaluative skills." Volume 6 of the Encyclopaedia, at page 68, onwards deals with the subject of horse-racing. Thoroughbred horses with pedigree are selected and trained for races. Horse racing is a systematic sport where a participant is supposed to have full knowledge about the horse, jockey, trainer, owner, turf and the composition of the race. I....
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.... four . . . Over the centuries the guiding principle for breeding thoroughbreds has been, as expressed by an old cliche: breed the best to the best and hope for the best. Performance of progeny is the most reliable guide to what is best for breeding purposes, of course but in the case of horses untried at stud, their own racing ability, pedigree, and physical conformation are the only available yard-sticks. Emphasis is on racing ability, especially in evaluating potential stallions." Horse racing is an organised institution. Apart from being a sport, it has become a huge public entertainment business. According to the New Encyclopaedia Britannica, the occasion of certain races are recorded as public holidays. Derby day at Epsom where the public is admitted on two parts of the grounds at no fee has drawn as many as 5,00,000 spectators. Attendance at horse races in many countries is the highest or among the highest of all sports. The horses which participate in the races are a class by themselves. They have a history of their own. The breed of the horse is an important factor. The experts select the horses who are to be inducted into the racing profession. The selected horses a....
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....he condition, speed and endurance of the horse and the skill and management of the rider are factors affecting the result of the race. The better has the opportunity to exercise his judgment and discretion in determining the horse on which to bet. The pari-mutuel method or system of betting on a horse race does not affect or determine the result of the race. The pari-mutuel machine is merely a convenient mechanical device for recording and tabulating information regarding the number and amount of bets (Utah State Fair Association v. Green [1926] 68 Utah 251) and from this information the, betting odds on the horses entered can be calculated and determined from time to time during the process of betting. The recording and tabulating of bets could be done manually by individuals, but the pari-mutuel machine is a more convenient and faster method. The fact that a better cannot determine the exact amount he may win at the time he places his bet, because the odds may change during the course of betting on a race, does not make the betting a mere game of chance, since the better can exercise his reason, judgment, and discretion in selecting the horse he thinks will win. Horse racing, lik....
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....mes of chance within the meaning of the law. There are many games the result of which depends entirely upon skill. Chance is in nowise resorted to therein. Such games are not prohibited by the statute. But there are other games [in] which, although they call for the exercise of much skill, there is an intermingling of chance. The result depends in a very considerable degree upon sheer hazard. These are the games against which the statute is directed, and horse racing is not included in that class." In Engle v. State of Arizona [1959] 53 Ariz 458, horse racing was held to be a game of skill and not of chance on the following reasoning: "There is some conflict perhaps in the cases as to whether horse racing be in itself a game of chance, but we think the decided weight of authority and reason is that it is not. In any game there is a possibility that some oversight or unexpected incident may affect the result, and if these incidents are sufficient to make a game in which it may occur one of chance, there is no such thing as a game of skill. In Utah State Fair Association v. Green [1926] 68 Utah 251, a horse race was held not to be a game of chance within the prohibition of a....
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....hat in a handicap race the competitors are given advantages or disadvantages of weight, distance, time, etc., in an attempt to equalize their chances of winning, but that is not the classic concept of horse racing, according to which the best horse should win. The very concept of handicap race goes to show that there is no element of chance in the regular horse racing. It is a game of skill. Even in a handicap race-despite the assignment of imposts-the skill dominates. In any case an occasional handicap race in a race-club cannot change the natural horse racing from a game of skill to that of chance. The expression "gaming" in the two Acts has to be interpreted in the light of the law laid down by this court in the two Chamarbaugwala cases, wherein it has been authoritatively held that a competition which substantially depends on skill is not gambling. Gaming is the act or practice of gambling on a game of chance. It is staking on chance where chance is the controlling factor. "Gaming" in the two Acts would, therefore, mean wagering or betting on games of chance. It would not include games of skill like horse racing. In any case, section 49 of the Police Act and section 11 of th....
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....wo different situations. Section 49A of the Police Act and section 4 of the Gaming Act do not apply to wagering or betting in the club premises and on the horse races conducted within the enclosure of the club. These sections are applicable to the bucket-shops run in the city streets or bazaars purely for gambling purposes. It would be useful to have a look at the Statement of Objects and Reasons of the 1955 Act, which is as under: "Statement of Objects and Reasons The Madras City Police Act, 1888, and the Madras Gaming Act, 1930, provide for punishment for opening or keeping or conducting, etc., any common gaming house and for being found gaming in a common gaming house. A situation has arisen particularly in the City of Madras where gambling in public streets on the figures in the prices of New York cotton, bullion, etc., and in the registration number of motor vehicles has become very widespread. In order to put down this evil it is considered necessary that the offence of betting on cotton price figures and bullion price figures, etc., in the open streets should also be made punishable and that the punishment, which is at present very inadequate, should be made more deter....
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.... has been brought to the notice of the Government that the committee of management of the Madras Race Club is ridden with factions and that the affairs of the said club are not conducted properly and in particular in the interests of the race going public; And whereas instances of irregularities and malpractices in the conduct of the horse races have been brought to the notice of the Government; And whereas it has been brought to the notice of the Government that the bookmakers keep huge amounts of bet from records causing substantial loss of revenue to the Government; And whereas the Government are satisfied that the Madras Race Club is being mismanaged and that the interests of the race-going public have been affected considerably; And whereas the irregularities and malpractices in the conduct of the races and in the conduct of the affairs of the Madras Race Club have resulted in the concentration of wealth and means of production in a few hands, and to the common detriment; And whereas with reference to clauses (b) and (c) of article 39 of the Constitution, it is expedient to provide that the ownership and control of the material resources of the Madras Race Club ....
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....ion 7, the Government or Government company shall not be liable for the liabilities of the club prior to the date of the coming into force of the Act. Section 8 provides that for the transfer to, and vesting in, the Government under section 4 and the right, title and interest of the club, it shall be paid by the Government in cash and in the manner specified in Chapter VI. Sub-sections (2) and (3) of section 8 provide that the amount for acquisition to be paid would be calculated on the basis of the book value after deducting the depreciation calculated in accordance with the First Schedule. Chapter IV, consisting of sections 9, 10 and 11, provides for management, etc., of the undertaking of the club. Chapter V, consisting of sections 12 and 13, deals with employees of the undertaking. Sections 14 to 23 deal with the appointment of a Commissioner of Payments and the powers of the Commissioner to make payments. The amount quantified with reference to the value of the assets taken over by the Government is not payable to the club but is payable to the Commissioner appointed under section 14. The 1986 Act makes elaborate provisions for distribution of the amount payable amongst credit....
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....stance, one for accomplishing an unauthorised object, the court would be entitled to tear the veil created by the declaration and decide according to the real nature of the law." Article 39(b) and (c) of the Constitution are as under: "(b) that the ownership and control of the material resources of the community are so distributed as best to subserve the common good; (c) that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment; . . .". The main object for which the club was established is to carry on the business of race club, in particular the running of horse-races, steeple chases or races of any other kind and for any kind of athletic sports and for playing their own games of cricket, bowls, golf, lawn tennis, polo or any other kind of games or amusement, recreation, sport or entertainment, etc. In the earlier part of this judgment, we have noticed the working of the club which shows that apart from 5 per cent. commission from the totalizator and the bookmakers no part of the betting-money comes to the club. The club does not own or control any material resources of the community which ar....
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....cal reproduction of constitutional provisions in a totally inappropriate context. There is no nexus so far as the provisions of the 1986 Act are concerned with the objectives contained in article 39(b) and (c) of the Constitution. We, therefore, hold that the protection under article 31(c) of the Constitution cannot be extended to the 1986 Act. Article 31C having gone out, articles 14 and 19 of the Constitution come in. Mr. Parasaran has vehemently contended that it may be permissible for the Legislature to classify a single company where it possesses real and substantial features different from other companies similarly situated, but where no reasonable basis for the classification appears on the face of the legislation nor is deducible from the surrounding circumstances, the legislation would be hit by article 14 of the Constitution. According to Mr. Parasaran the race-club is a company registered under section 25 of the Indian Companies Act, 1956 (the Companies Act). If there is mismanagement of the affairs of the club by the directors/members of the club, necessary action can be taken against the club under the Companies Act, which provides elaborate procedure for such a sit....
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....act whatsoever on the material resources of the community or the economic system of the State. There are no special circumstances or reasons to single out the club as a class for the purposes of the impugned Act. Even if we were to accept the recitation in the objects and reasons that the company was being mismanaged, we are of the view that the Companies Act provides for ample machinery to deal with mismanagement in the companies registered under the Companies Act. It is true that the presumption is in favour of the constitutionality of a legislative enactment and it is to be presumed that a Legislature understands and appreciates the needs of its own people, but when on the face of the statute there is no classification and no attempt has been made to select an individual with reference to any differentiating attributes peculiar to that individual and not possessed by others, the presumption is of no assistance to the State. In the present case, the petitioner club is a company like any other company registered under the Companies Act. Elaborate machinery and well established procedural safe-guards have been provided under the Companies Act for dealing with mismanagement in compa....