TaxTMI 
TaxTMI 
2002 (10) TMI 75
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.... effects of the assessee? 4. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the entire receipts from the lease of horses accrued in this year when the auction took place, even though the lease was for a period of more than one year?" The main case of the assessee was that owning of race horses is a hobby and receipts arising from the same are receipts from hobby and not liable to be taxed under the provisions of the Act. She also claimed that even if her case that holding of horses is a hobby is rejected, the income arising from the sale of horses can be assessed only as capital gains, but the charge would fail because the horses were the personal assets of the assessee and not capital assets giving rise to liability of tax under the head, "Capital gains". Her further case was that even if the horses were her capital assets, the charge would still fail because there was no cost of acquisition involved in the purchase of a filly or colt and since there was no question of cost of acquisition, the sale or lease of horses would not result in capital gains. She also contended that the lease income arising from the auction of horses was not ....
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.... a period of four years and in the case of a colt they were permitted to use it for a period of five years. The Bangalore Turf Club retained a portion of the lease income and handed over the balance to the assessee. The assessee not only maintained the horses, but she also sent the horses to the stud farm and if the mare gave birth to foals, she would automatically become the owner of the offspring. The assessee paid to the Bangalore Turf Club for the services rendered to the horses and the Bangalore Turf Club maintained the accounts on behalf of the assessee. Apart from the maintenance of the horses, the assessee maintained regular books of account and it is stated that the assessee was having a running account with the Bangalore Turf Club, which conducted auction on behalf of the assessee for the lease. It is clear that the assessee was keeping the horses on a commercial basis and there was an organised activity carried on by the assessee with the help of staff/accountants and purchasing agents and she also used the horses in racing programmes at various racing centres. The race horses were kept and maintained by the club in the club premises itself for the purpose of rearing and....
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.... lease of horses and use of the horses in the races. In other words, there is a commercially organised activity carried on by the assessee with the aid of the staff and the purchasing agents and with the help of the Bangalore Turf Club and the assessee has used the horses in various races conducted at various centres. We, therefore, hold that the assessee has employed the horses in races as a normal business and prudent man would normally do and it is not a case of an owner of the horse, who possessed the horses either for pleasure or for the purpose of pride of possession. We, therefore, hold that the Appellate Tribunal was correct in holding that the activities of the assessee were business activities and there was a profit element involved in carrying on the activity of the assessee. We find that the Appellate Tribunal has taken into account the dominant intention of the assessee in maintaining the race horses and found that she has engaged herself in an organised systematic business activity in the sale and lease of the horses. Hence, we hold that the activity of the assessee was the business activity. We find that the assessee has carried on the activity of the horses with the....
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....r activities were carried on by the assessee for earlier assessment years, held that the activity of the assessee was his business activity and the assessee was entitled to the deduction of the losses that arose from such activity. In our opinion, the ratio of the decision of this court in CIT v. K.S. Venkatasubbiah Redddiar [1996] 221 ITR 18 would apply to the facts of the case. The next question that arises is whether the horses owned by the assessee are the personal assets of the assessee. We also find that the view of the Appellate Tribunal that the race horses owned by the assessee were stock-in-trade is reasonable as the assessee was engaged in the activity of maintaining the horses by spending considerable time, money and energy. We, therefore, hold that the horses in the circumstances were rightly held to be the stock-in-trade of the assessee. Once we hold that the horses are the stock-in-trade of the assessee, the further question that there was no cost of acquisition in the case of a colt or a filly also does not assume importance as the income from the sale or lease of the horses would be assessable under the head "Business" and not under the head "Capital gains". The ....