Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME TAX, MADRAS
Vs.
RESPONDENT:
G.R. KARTHIKEYAN, COIMBATORE
DATE OF JUDGMENT22/04/1993
BENCH:
JEEVAN REDDY, B.P. (J)
BENCH:
JEEVAN REDDY, B.P. (J)
VENKATACHALA N. (J)
CITATION:
1993 AIR 1671 1993 SCR (3) 328
1993 SCC Supl. (3) 222 JT 1993 (3) 174
1993 SCALE (2)588
ACT:
%
Income Tax Act 1961:
Sections2(24)and 10(3)-For Assessment-What constitutes
Income-Prize Money-From All India Motor Car Rally-Whether
constitutes Income.
HEADNOTE:
The assessee participated in an All India Highway Motor Car
Rally and on being declared a winner, received an amount of
Rs. 22,000 as prize money. The Income-tax officer included
the prize money in his income for the relevant assessment
year relying upon the definition of ’income’in clause (24)
of Section 2 of Income Tax Act.
On an appeal preferred by the respondent-assessee the
Appellate Assistant Commissioner held that as the Rally was
not a race, the prize money cannot be treated as income
within the meaning of section 2(24) (ix). The Tribunal on
an appeal by the Revenue, held that the Rally was not a race
and as it was a test of skill and endurance, it was not a
’game’ within the meaning of Sec. 2 (24) (ix). As the prize
money received was casual in nature it fell outside Sec.
10(3) of the Act.
The High Court on a reference at the instance of the
Revenue,upholding the findings of the Tribunal,observed that
the expression ’winnings’ cannotes money won by betting or
gambling and therefore the prize money not represent
’winnings’. Inasmuch as the amount in question was obtained
by participating in a rally which involved skill in driving
the vehicle, it held, it cannot he included in the
assessee’s income, also because it fell outside the preview
of s.10 (3).
Allowing the Appeal, the Court,
HELD:1. The expression ’income’ must be construed in its
widest sense. The definition of ’income’ is an inclusive
one. Even if a receipt does not fall within sub-clause (ix)
or any of the sub-clauses of Sec.2(24) of the Act it may yet
constitute income. Hence the prize-money received by the
respondent
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assessee constitutes ’income’ -as defined in clause (24) of
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Section 2 of the Act. (335-C)
2.The High Court erred in reading several sub-clauses in
Sec. 2(24) as exhaustive when the statute expressly says
that the definition is inclusive. Even if a receipt does
not fall within the ambit of any of the sub-clauses in Sec.
2(24) it may still he income if it partakes of the nature of
income. The idea behind providing inclusive definition in
Sec. 2(24) is not to limit its meaning but to widen its net.
This Court has repeatedly said that the word ’income’ is of
widest amplitude and that it must he given its natural and
grammatical meaning. (335-D)
Kamakshya Narayan Singh v. C.LT 11 ITR 513 P.C., Navin
Chandra Mafatlal v. C.I.T, Bombay 26 ITR (SC)and Bhagwan Das
Jain v. Union of India 128 ITR 315 SC, followed.
Gopal SaranNarain Singh v. Commissioner of Income Tax,
3ITR237 P.C., referred to.
3.If the monies which are not earned in the true sense of
the word Constitute income, it is difficult to appreciate
why do monies earned by skill and to not constitute income?
The Rally was a contest, if not a race. The Respondent-
assessee entered the contest to win it. The Prize-money
which he got in return for winning the contest was a reward
for his skill and endurance. It does constitute his income-
which expression must be construed in its widest sense.
(335-B)
4.The sub-clause (ix) of Sec. 2(24), is not confined to
games of gambling nature alone. Some of them are games of
skill.
State of Bombay v. R.M. D. Chamarbaugwala AIR 1957 SC 699;
and Stale of Andhra Pradesh v. K. Satyanarayan [1968] 2 SCR
515, followed.
5.As the definition of income in Sec. 2(24) is an inclusive
one, its ambit should be the same as that of the word
’income’ occurring in Entry 82 of list 1 of the Seventh
Schedule of the Constitution of India. (334-B)
6.Even casual income is ’income’as is evident from Sec.
10(3). A casual receipt which should mean in the context,
casual income-is liable to be included in the total income,
if it is in excess of Rs. 1,000 by virtue of clause (3)
330
of Sec. 10. The Tribunal erred in its finding that the
prize money fell outside the purview of Sec. 10 (3) inspite
of holding that the receipt in question was casual in
nature. (335-E)
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3908 (NT)/
1983.
From the Judgment and Order dated 20.11.1979 of the Madras
High Court in Tax Case No. 330 of 1976.
A. Raghuvir and Ms. A. Subhashini for the Appellant.
T.A. Ramachandran and Mrs. Janaki Ramachandran for the
Respondent.
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY, J. This appeal is preferred against the
Judgment of the Madras High Court answering the question
referred to it in the affirmative i.e., in favour of the
assessee and against the Revenue. The question referred
under section 256 (1) of the Income-tax Act reads as
follows:
"Whether, on the facts and in the circumstances of the case,
the Appellate Tribunal was right in holding that the total
sum of Rs. 22.000 received by the assessee from the Indian
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Oil Corporation and All India Highway Motor Rally should not
be brought to tax?"
The assessment year concerned is 1974-75. The assessee,
G.R. Karthikeyan, assessed as an individual, was having
income from various sources including salary and business
income. During the accounting year relevant to the said
assessment year, he participated in the All India Highway
Motor Rally. He was awarded the first prize of Rs. 20,000
by the Indian Oil Corporation and another Sum of Rs. 2,000
by the All India Highway Motor Rally. The Rally was
organised jointly by the Automobile Association of Eastern
India and the Indian Oil Corporation and was supported by
several Regional Automobile Associations as well as
Federation of Indian Motor Sports Clubs and the Federation
of Indian Automobile Associations. The rally was restricted
to private motorcars, the length of the rally route was
approximately 6,956 kms. One could start either from Delhi,
Calcutta, Madras or Bombay, proceed anti-clock wise and
arrive at the starting point. The rally was designed to
test endurance driving and the reliability of the
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automobiles. One had to drive his vehicle observing the
traffic regulations at different places as also the
regulations prescribed by the Rally Committee. Prizes were
awarded on the basis of overall classification. The method
of ascertaining the first prize was based on a system of
penalty points for various violations. The competitor with
the least penalty points was adjudged the first-prize
winner. On the above basis, the assessee won the first
prize and received a total sum of Rs. 22,000. The Income
Tax Officer included the same in the income of the respon-
dent-assessee relying upon the definition of ’income’ in
clause (24) of section 2. On appeal, the Appellate Assistant
Commissioner held that inasmuch as the rally was not a race,
the amount received cannot be treated as income within the
meaning of section 2 (24) (ix). An appeal preferred by the
Revenue was dismissed by the Tribunal. The Tribunal
recorded the following findings:
(a)That the said rally was not a race. It was predominantly
a test of skill and endurance as well as of reliability of
the vehicle.
(b) That the rally was also not a ’game’ within the meaning
of section 2(24)
(ix).
(c) That the receipt in question was casual in nature. It
was nevertheless not an income receipt and hence fell
outside the provisions of section 10 (3) of the Act.
3. At the instance of the Revenue, the question
aforementioned was stated for the opinion of the Madras High
Court. The High Court held in favour of the assessee on the
following reasoning:
(a) The expression ’winnings’ occuring at the inception of
sub-clause (ix) in section 2(24) is distinct and different
from the expression ’winning’. The expression ’winnings’
has acquired a connotation of its own. It means money won
by gambling or betting. The expression ’winnings’ controls
the meaning of several expressions occurring in the sub-
clause. In this view of the matter, the sub-clause cannot
take in the receipt concerned herein which was received by
the assessee by participating in a race which involved skill
in driving the vehicle. The rally was not a race. In other
words the said receipt does not represent ’winnings’.
(b) A perusal of the memorandum explaining the provisions
of the Finance Bill,. 1 972, which inserted the said sub-
clause in section 2(24), also shows that the idea behind the
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sub-clause was to rope in windfalls from lotteries, races
and card games etc.
332
(c) Section 74 (A) which too was introduced by the Finance
Act, 1972 supports the said view. Section 74 (A) provides
that any loss resulting from any of the sources mentioned
therein can be set off against the income received from that
source alone. The sources referred to in the said section
are the very same sources mentioned in sub-clause (ix) of
section 2(24) namely lotteries, crossword puzzles, races
including horse races, card games etc.
The correctness of the view taken by the High Court is
questioned herein.
The definition of ’income’ in section 2(24) is an inclusive
definition. The Parliament has been adding to the
definition by adding sub-clause (s) from time to time. Sub-
clause (ix) which was inserted by the Finance Act, 1972
reads as follows:
"(ix) any winnings from lotteries, crossword puzzles, races
including horse races, card games and other games of any
sort or from gambling or betting of any form or nature
whatsoever;"
We may notice at this stage a provision in section IO.
Section 10 occurs in chapter HI which carries the heading
"Incomes which do not form part of total income". Section
10 in so far as is relevant reads thus:
" 10, Incomes not included in total income: In computing the
total income of a previous year of any person, any income
failing within any of the following clauses shall not be
included:
(d) any receipts which are of a casual and non recurring
nature, not being winnings from lotteries, to the extent
such receipts do not exceed one thousand rupees in the
aggregate". (The clause has been amended by Finance Act,
1986 but we are not concerned with it. Similarly it is not
necessary to notice the proviso to the said clause.)
It is not easy to define income. The definition in the Act
is an inclusive one. As said by Lord Wright in Kamakshya
Narayan Singh v. C.I.T. 11 I.TR. 513 P. C.
"income............. is a word difficult and perhaps
impossible to define in any precise
general formula. It is a word of the broadest connotation".
In Gopal Saran Narain
Singh v. Commissioner of Income Tax 3.I.T.R. 237 P.C., the
Privy Council pointed out that "anything than can properly
be described as income is taxable under the Act unless
expressly exempted." This Court had to deal with the ambit
of the expression ’income’in Navin Chandra Mafatlal v. C.I
T.Bombay 26 I.T.R. (S.C.)
333
The Indian Income-tax and Excess Profits Tax (Amendment)
Act, 1947 had inserted section 12 (B) in the Indian Income-
tax Act, 1922. Section 12(B) imposed a tax on capital
gains. The validity of the said Amendment was questioned on
the ground that tax on capital gains is not a tax on
’income’within the meaning of entry 54 of list-1, nor is it
a tax on the capital value of the assets of individuals and
companies within the meaning of entry-55, of list- 1 of the
seventh schedule to the Government of India Act, 1935. The
Bombay High Court repelled the attack. The matter was
brought to this Court. After rejecting the argument on
behalf of the assessee that the word ’income’ has acquired,
by legislative practice, a restricted meaning-and after
affirming that the entries in the seventh schedule should
receive the most liberal construction-the Court observed
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thus:
"What. then, is the ordinary, natural and grammatical
meaning of the word "income"? According to the dictionary
it means "a thing that comes in." (See Oxford Dictionary,
Vol. V,p. 162; Stroud, vol.II, pp. 14-16). In the United
States of America and, in Australia both of which also are
English speaking countries the word "income is
understood in a wide sense so as to include
a capital gain. Reference may be made to-
’Eisner v. Macomber’, [1919] 252 US 189 (K);
-’Merchants’ Loan and Trust Co. v.
’Smietanka’[1920] 255 US 509 ( L) and -’United
States of America v. Stewart’, [1940] 311 US
60(M) and-’Resch v. Federal Commissioner of
Taxation’, [1943] 66 CLR 198 (N). In each of
these cases very wide meaning was ascribed to
the word "income" as its natural meaning.
The relevant observations of learned Judges deciding those
cases which have been quoted in the judgment of Tendolkar J.
quite clearly indicate that such wide meaning was put upon
the word "income" not because of any particular legislative
practice either in the United States or in the Commonwealth
of Australia but because such was the normal concept and
connotation of the ordinary English word "income". Its
natural meaning embraces any profit or gain which is
actually received. This is in consonance with the
observations of Lord Wright to which reference has already
been made.
The argument founded on an assumed legislative practice
being thus out of the way, there can be no difficulty in
applying its natural and grammatical meaning to the ordinary
English word "income’. As already observed, the word should
be given its widest connota-
334
tion in view of the fact that it occurs in a legislative
head conferring legislative power.
8. Since the definition of income in section 2(24) is an
inclusive one, its ambit, in our opinion, should be the same
as that of the word income occurring in entry 82 of list 1
of the Seventh Schedule to the Constitution (corresponding
to entry 54 of list 1 of the Seventh Schedule to the
Government of India Act).
9. In Bhagwandas Jain v. Union of India 128 I.T.R. 315
S.C. The challenge was to the validity of section 23(2) of
the Act which provided that where the property consists of
house in the occupation of the owner for the purpose of his
own residence, the annual value of such house shall first be
determined in the same manner as if the property had been
let and further be reduced by one half of the amount so
determined or Rs. 1,800 whichever is less. The contention
of the assessee was that he was not deriving any monetary
benefit by residing in his own house and, therefore, no tax
can be levied on him on the ground that he is deriving
income from that house. It was contended that the word
income means realisation of monetary benefit and that in the
absence of any such realisation by the assessee, the
conclusion of any amount by way of notional income under
section 23(2) of the Act in the chargeable income was
impermissible and outside the scope of entry 82 of list-1 of
the Seventh Schedule to the Constitution. The said
contention was rejected affirming that the expression income
is of the widest amplitude and that it includes not merely
what is received or what comes in by exploiting the use of
the property but also that which can be converted into
income.
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10. Sub-clause (ix) of section 2(24) refers to lotteries,
crossword puzzles, races including horse races, card games,
other games of any sort and gambling or’ betting of any form
or nature whatsoever. All crossword puzzles are not of a
gambling nature. Some are; some are not. See State of
Bombay v. R.M.D. Chamarbaugwala A.I.R. 1957 S.C.699.Even in
card games there are some games which are games of skill
without an element of gamble (See State of Andhra Pradesh
v.K. Satyanarayan[1968] 2 S.C.R. 515. The words other games
of any sort" are of wide amplitude. Their meaning is not
confined to games of a gambling nature alone. It thus
appears that sub-clause (ix) is not confined to mere
gambling or betting activities. But, says the High Court,
the meaning of all. the aforesaid words is controlled by the
word ’winnings’ occurring at the inception of the subclause.
The High Court says, relying upon certain material, that the
expression winnings’ has come to acquire a particular
meaning viz, receipts from activities of a gambling or
betting nature alone. Assuming that the High Court is right
in its interpretation of the expression ’winnings’, does it
follow that merely because
335
winnings from gambling/betting activities are included
within the ambit of income,the monies received from non-
gambling and non-betting activities are not so included?
What is the implication flowing from insertion of clause
(ix)? If the monies which are not earned-in the true sense
of the word-constitute income why do moneies earned by skill
and toil not constitute income? Would it not look odd. if
one is to say that monies received from games and races of
gambling nature represent income but not those received from
games and races of non-gambling nature? The rally in
question was a contest, if not a race. The respondent-
assessee entered the contest to win it and to win the first
prize. What he got was a return’ for his skill and
endurance. Then why is it not income-which expression must
be construed in its widest sense. Further, even if a
receipt does not fall within subclause (ix), or for that
matter, any of the sub-clauses in section 2(24), it may yet
constitute income. To say otherwise, would mean reading the
several clauses in section 2(24) as exhaustive of the
meaning of ’income’ when the Statute expressly says that it
is inclusive. It would be a wrong approach to try to place
a given receipt under one or the other sub-clauses in
section 2(24) and if it does not fall under any of the sub-
clauses, to say that it does not constitute income. Even if
a receipt does not fall within the ambit of any of the sub-
clauses in section 2(24), it may still be income if it
partakes of the nature of the income. The idea behind
providing inclusive definition in section 2(24) is not to
limit its meaning but to widen its net. This Court has
repeatedly said that the word ’income’ is of widest
amplitude, and that it must be given its natural and
grammatical meaning. Judging from the above standpoint, the
receipt concerned herein is also income. May be it is
causal in nature but it is income nevertheless. That even
the casual income is ’income’ is evident from section 10
(3). Section 10 seeks to exempt certain ’incomes’ from
being included in the total income’. A casual receipt
which should mean, in the context, casual income is liable
to be included in the total income if it is in excess of Rs.
1,000, by virtue of clause (3) of section 10. Even though
it is a clause exempting a particular receipt/income to a
limited extent, it is yet relevant on the meaning of the
expression ’income’. In our respectful opinion, the High
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Court, having found that the receipt in question does not
fall within sub-clause (ix) of section 2(24), erred in
concluding that it does not constitute income. The High
Court has read the several sub-clauses in section 2(24) as
exhaustive of the definition of income when in fact it is
not so. In this connection it is relevant to notice the
finding of the Tribunal. It found that the receipt in
question was casual in nature but-it opined-it was
nevertheless not an income receipt and fell outside the
provision of section 10 (3) of the Act. We have found it
difficult to follow the logic behind the argument.
11. For the above reasons we hold that the receipt in
question herein does
336
constitute ’income’ as defined in clause (24) of section 2
of the Act. The appeal is accordingly allowed and the
question referred by the Tribunal under section 256(1) of
the Act is answered in the negative i.e., in favour of the
Revenue and against the assessee. There shall be no order
as to costs.
RSK.
Appeal allowed.
337