TaxTMI 
TaxTMI 
2002 (10) TMI 76
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....2 as income from horse racing in computing the total income of the assessee which sum was not originally included by the Income-tax Officer in his draft assessment order, for the assessment year 1978-79?" The following questions of law are referred by the Tribunal, at the instance of the Revenue in relation to the same assessment year 1978-79: "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the income derived by the assessee from lease of horses and sale of horses arising out of a 'hobby' and cannot be taxed under the Income-tax Act? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the horses constituted personal effects of the assessee within the meaning of section 2(14)(ii) and, therefore, the gains arising from their sale cannot be taxed under the head 'Capital gains'?" Tax Case No. 209 of 1986 at the instance of the assessee raises the question of jurisdiction of the Inspecting Assistant Commissioner in the draft assessment proceedings under section 144B of the Act, and the Tax Case No. 210 of 1986, at the instance of the Revenue, ....
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....ce of explanation, the amount of Rs. 1,53,250 was treated as income from undisclosed source. The Assessing Officer made a draft assessment and sent the draft assessment order to the assessee seeking its explanation, and the assessee gave its explanation for the source for the purchase of the horses and also for the sources for the loss claimed in the racing account. The Income-tax Officer forwarded the draft assessment order together with the objections raised by the assessee to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner on scrutiny of the accounts found that the assessee had not only purchased the horses in the auction sales, but also auctioned horses which were reared in the stables and it had won stake money and sold horses also. According to the assessee, two accounts were maintained on behalf of the assessee by the Madras Race Club, one of which was called racing account wherein the various expenses incurred by the Race Club on behalf of the assessee were debited and various amounts received as stake moneys were credited. There was another account called breeders account and the expenses incurred by the Madras Race Club in maintaining the r....
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....ing the mares and offspring. It was found that the assessee was engaged in rearing good offspring which could compete well in the races. He held that the maintenance of race horses was a highly specialised field of activity which required extensive knowledge on the horses which run in races and their speed and performance in the race are material. The Inspecting Assistant Commissioner found that a great deal of time, money and energy are spent in organising the activity and it is done on a commercial scale and the scale of action can be gauged from the receipts by way of stake money, the sale price and the lease income. The Inspecting Assistant Commissioner therefore held that the receipts are taxable not under the head, "Business income", but under the head, "Income from other sources". The Inspecting Assistant Commissioner has found that the Income-tax Officer has reported a sum of Rs. 1,22,500 as the income derived from lease of horses and there was also excess of the expenditure over the receipts of a sum of Rs. 28,652 as net income from the lease of the horses. The Inspecting Assistant Commissioner therefore gave a direction to include both the receipts as income from racing a....
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.... contentions which were raised before the Commissioner of Income-tax (Appeals); one on the question of jurisdiction and another on the question of merits. The Appellate Tribunal held that the Inspecting Assistant Commissioner was well within her jurisdiction in giving a direction in respect of the taxability of the receipts from the sale and lease of the horses. However, on merits the Tribunal held that the activity of the assessee was only a hobby and the receipts arising from the hobby cannot be regarded as its income. The Tribunal therefore held that there was no material to indicate that the activities were carried on by the assessee for the purpose of earning the income. As far as section 10(3) of the Act is concerned, the Tribunal held that the section would apply only if the receipts are income in nature and since the receipts are not income in nature, section 10(3) of the Act has no application to the facts of the case. The Tribunal also held that section 74A of the Act has no application as section 74A deals with the loss arising from the running of race horses and the said provision is confined to earning of stake money and the receipts by way of leasing of the horses or ....
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....item not covered in the draft assessment order. Mr. T.C.A. Ramanujam, learned senior standing counsel appearing for the Department, has submitted that the subject matter dealt with by the Inspecting Assistant Commissioner was not at all different from what was proposed by the Income-tax Officer and since the proposed addition made by the Inspecting Assistant Commissioner was in relation to the race horses owned and maintained by the assessee, the Inspecting Assistant Commissioner was well within her jurisdiction in issuing the direction in respect of the taxability of the receipts from sale or lease of race horses owned and maintained by the assessee. He also submitted that while the Income-tax Officer in the draft assessment order suggested a source of income of Rs. 1,53,250 on account of the race horse, the Inspecting Assistant Commissioner has quantified a smaller amount of income from races, viz., Rs. 1,51,252, and the assessee is not prejudiced in any manner and, therefore, it cannot be said that the Inspecting Assistant Commissioner had acted beyond the jurisdiction in giving a direction to assess the income of Rs. 1,51,252 as income from other sources. We have carefull....
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.... (ii) The objections raised by the assessee. It is open to the Inspecting Assistant Commissioner to go through (wherever necessary) the records relating to the draft assessment order and he is empowered to issue directions in respect of the matters covered by the objections as he deems fit for the guidance of the Income-tax Officer to enable him to complete the assessment. Under the proviso to sub-section (4) of section 144B of the Act, the Inspecting Assistant Commissioner is required to give an opportunity to the assessee if he intends to issue any direction which is prejudicial to the assessee. The rest of the provisions of section 144B deals with the follow up procedure to be done by the Income-tax Officer and it says that the direction is binding on the Income-tax Officer and it also deals with the other matters which are specified in the other sub-sections. Sections 144A and 144B were inserted by Parliament by the Taxation Laws (Amendment) Act, 1975, on the basis of the recommendations of the Wanchoo Committee. The said committee has recommended that the higher officer in rank in hierarchy of officers of the Income-tax Department should be associated in the process of a....
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....ons raised by the assessee, but whether the direction is issued in relation to the matter covered by the objections. In our view, it is perfectly open to the Inspecting Assistant Commissioner to issue directions with respect to the matters covered in the objection raised by the assessee and he is not confined or limited to the various items of addition or disallowance made by the Income-tax Officer in the draft assessment order. In other words, the powers of the Inspecting Assistant Commissioner are wide and his jurisdiction would extend to and encompass the matters which are covered in the objections raised by the assessee. The submission of Mr. R.Meenakshisundaram, learned counsel for the assessee, that the Inspecting Assistant Commissioner is confined only to the three items mentioned in the draft order is not acceptable. The assessee has raised objections not only with reference to three items of income sought to be included in the draft assessment order but also explained the source for the purchase of the horses and its source of unexplained loss by the receipts by way of sales or lease of race horses. We also find that in the draft order of assessment made by the Income-tax ....
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....some of the words are considered. It is no doubt true that the Supreme Court in a number of cases has cautioned that it is not advisable to interpret the pro visions of a statute by holding the words of the statute in one hand and the dictionary in the other. It is no doubt true that the dictionaries cannot solve the problem of interpretation. However, to consider the meanings of the phrase "in respect of the matters covered by the objections", we thought it fit to refer to some of the dictionaries. The phrase, "in respect of" was construed in Venkataramaiya's Law Lexicon to mean that it is of the widest meaning and it has been construed to mean "relating to" or "with reference to" and the words "in respect of" has wide connotation. The expression "matter" was considered in Anderson's Dictionary of Law to mean the subject of legal action, consideration, complaint or defence or the fact or facts constituting whole or part of a ground of action or defence. The expression "matter" is defined in the New Oxford Dictionary English page 1143 to mean the situation under consideration. The expression "matter" was considered in Webster's Third International Dictionary to mean a topic unde....
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....overed by the objections raised by the assessee, the Inspecting Assistant Commissioner has the jurisdiction to issue the direction. Learned counsel for the assessee also referred to the decision of the Calcutta High Court in Bengal and Assam Investors Ltd. v. CIT [1983] 142 ITR 156. The Division Bench of the Calcutta High Court held that the directions issued by the Inspecting Assistant Commissioner under section 144B(4) on items not covered by a draft assessment order will be invalid to the extent they were not covered by the draft order. We have carefully gone through the judgment of the Calcutta High Court and the court was dealing with the situation where the direction was issued in respect of a matter not covered in the objection raised by the assessee and, hence, is not applicable to the facts of the case. In Arrah Sasaram Light Railway Co. Ltd. v. CIT [1993] 204 ITR 807, the Calcutta High Court was dealing with a case of a draft assessment made on the basis of the directions issued under section 144A of the Act and the question arose whether the Income-tax Officer was bound to refer the matter under section 144B of the Act if the proposed addition to the income returne....
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....cedural provision. The Gujarat High Court also held that it gives wide power to the Inspecting Assistant Commissioner to issue directions in reference to the matters covered by the objections for the guidance of the Income-tax Officer to enable him to complete the assessment. This decision hardly helps the assessee. On the other hand, we find that it supports the case of the Revenue. One of the objections raised by Mr. R. Meenakshisundaram, learned counsel was that the Income-tax Officer has forwarded certain amounts to the Inspecting Assistant Commissioner at the time of finalisation of issue of directions. The Gujarat High Court held that until the assessment is completed by the Income-tax Officer under section 144B of the Act, he remains free to exercise the power to complete the assessment and the draft order of assessment does not create any right in favour of the assessee to prevent the Income-tax Officer from revising such proposed order so long as the assessee was given an opportunity to raise objection against it. We are in respectful agreement with the view expressed by the Gujarat High Court and we hold that the Income-tax Officer is free to send his proposal to his draf....
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....Commissioner will have the necessary jurisdiction to issue a direction in such a case. In such a situation it cannot be said that he has traversed outside the draft assessment order or the objections raised by the assessee. It is also clear that he has jurisdiction in respect of the matters covered by the objection. Hence, we are unable to accept the submission of learned counsel for the assessee that the power of the Inspecting Assistant Commissioner is confined to three sums of money noticed in the draft order of assessment. Moreover, a careful reading of the draft order of assessment shows that the Income-tax Officer considered the assessment of income from the race horses and the assessee has not given complete details as to how it claimed losses or as to how it claimed expenditure in the maintenance of the horses. The assessee along with the objection produced the books of account with reference to the same source of income which was under consideration of the Income-tax Officer and which were covered in the objections raised by the assessee. The Inspecting Assistant Commissioner found that the receipt from the sale or lease of horses was required to be added in the total inco....
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....re two accounts, one racing account and another breeding account, and both the accounts disclosed the periodical activity of the assessee in earning the income by way of lease or sale of the race horses. Moreover, the entries in the account book of the Bangalore Turf Club showed the receipts by way of sale or lease of the horses. In other words there were sufficient materials before the Income-tax Officer as well as before the Inspecting Assistant Commissioner to show that there was a regular, systematic and organised activity by the assessee in earning income by the sale and lease of the race horses. The Inspecting Assistant Commissioner has found on the basis of the records that the karta of the family was interested in racing and maintaining race stables for the past three generations and there were 11 horses in the stable, three in racing and eight in the stud farm including the mares and offspring. She has also found that the maintenance of race horses is a highly specialised field of activity requiring an extensive and deep knowledge of the race horses including the need to determine their speed when they compete in races and to assess their performance in the competitive fie....
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....tted the matter to the Appellate Tribunal to consider the applicability of section 74A of the Act in the light of the decision in CIT v. M.A. Chidambaram [2000] 243 ITR 260 (Mad), but, however, the Appellate Tribunal in the assessee's own case for the assessment years 1979-80 to 1983-84 has held the income arising from the sale and lease of the horses would be assessable under the head "Business" and not under the head "Other sources". The Revenue has not challenged the finding of the Appellate Tribunal for the subsequent years and the finding of the Appellate Tribunal has become final. We are of the opinion that if the matter is remitted for reconsideration of the order of the Appellate Tribunal for the assessment year 1978-79 alone, the interest of justice will not be met as for one year it may be assessed under the head "Other sources" and for the subsequent years the income has already been held to be assessable under the head "Business". We have noticed that the assessment year involved is 1978-79 and at this distance of nearly 24 years after the end of the said assessment year, if the matter is remitted to the Tribunal to consider the head under which the income is assessable....