ORDER
T.N.C. Rangarajan, Judicial Member
1. These appeals relate to the claim of the assessee that the subsidy received from the Madras Race Club could not be brought to tax. The assessee is an individual who owns a number of horses and enters them in races conducted by the Madras Race Club. Certain subsidies and concessions were provided by the Madras Race Club in respect of horses which participated a minimum of four times during the racing season. One of those was a subsidy of an amount equivalent to the basic training fee to the owner. The scheme also provided for a subsidy of Rs. 150 per horse per month for the trainers. In respect of out of station horses the subsidy of Rs. 300 for each run to the owner and Rs. 100 to the trainer for horses which do not come within the first four places was given and there was a reimbursement of the expenses incurred for bringing the horses to Madras. The contention of the assessee is that the subsidy received by the owner did not have the character of income in his hands because it was not an expected return on any investment and it did not come through a definite source and thus did not fulfil the criteria for determining income as stated by the Supreme Court in the case of Raghuvanshi Mills Ltd. v. CIT [1952] 22 ITR 484 and the Privy Council in the case of CIT v. Shaw, Wallace and Co. 6 ITC 178. According to the assessee, it was a bounty given by the Race Club and in any case the reference to the basic trainer fee was only a measure to ascertain the amount due and hence it was not an item which could be taken into consideration in determining the assessee’s income. On the other hand, the contention of the revenue was that this was a reimbursement of the expenditure incurred by the assessee for earning the income which was assessable under the head ‘Income from other sources’. The revenue relied upon the decision of the Andhra Pradesh High Court in the case of CIT v. Sahney Steel and Press Works Ltd. [1985] 152 ITR 39 and contended that any receipt which went to reimburse the expenditure incurred by the assessee would be a revenue receipt. The reply of the assessee was that it need not necessarily be so as there are cases where a refund of entertainment tax in the case of Mehboob Productions (P.) Ltd. v. CIT [1977] 106 ITR 758 (Bom.) and refund of sales-tax in the case of CIT v. Dusad Industries [1986] 162 ITR 784 (MP) have been considered to be capital receipts of a windfall nature and not liable to tax.
2. On a consideration of the rival submissions, we are of the opinion that though at first blush the arguments advanced in support of the claim of the assessee are attractive, on closer scrutiny the claim is not acceptable. The assessee is the owner of the horses which are entered in the races conducted by the Madras Race Club. No doubt, the assessee does not maintain the horses and enter them in the races as a business venture but only as a hobby so that any excess of receipts by way of winning from the races over expenditure incurred would not have been normally chargeable to income-tax. As noticed by us in the case of M.CT. Muthiah, HUF v. ITO [1984] 10 1TD 6 (Mad.) the Income-tax Act has been amended by defining ‘Income’ in Section 2(24)(ix) to include winnings from races and that is the reason why such winnings become taxable and it is also specifically provided that such income should be taxed under the head ‘Income from other sources’ under Section 56. Section 59 provides that the provisions of Section 41 would also be applicable in computing income under Section 56 i.e., where a deduction has been granted in respect of any expenditure incurred by the assessee in an assessment and the assessee had obtained any reimbursement of the amount that could be treated as income of the assessee in the subsequent year of receipt. In the present case, the subsidy has been received in the year in which the expenditure has been incurred and, therefore, recourse need not be taken to Section 41 read with Section 59 to bring it to tax if the position is that such receipt goes to meet the expenditure incurred by the assessee. The contention of the assessee is that the receipt is not of the nature of ‘income’ at all because is not an expected return from a definite source. But this contention has to be rejected because it was a return from the source from which the assessee was having income by way of winnings assessable under Section 56. It may not have been income in the general sense but for the fact that it is to be considered as a part of the amount taxable under Section 56 read with Section 2(24)(ix).
3. Hence the crucial question in this case is whether the subsidy received is inextricably connected with the winnings of the assessee or whether it is only a bounty given by the Race Club unconnected with the receipts earned by the assessee from the Race Club.
4. The learned counsel for the assessee placed considerable stress on the terms under which the subsidies and concessions were given by the Madras Race Club. He referred to such terms for the racing season 1979/80 which conditions, he stated, were similar for the assessment year now under consideration also. Stress was laid on the fact that the subsidy in the nature of an amount equivalent to basic training fee to the owner was given where a horse ran for a minimum of four times in the case of horses of certain classes and a minimum of three runs in the case of other horses. The submission of the learned counsel was, therefore, that this subsidy had a reference only to the number of times a horse participated in the race and had no nexus to the winnings in a race by a horse which winnings alone were made taxable. In the absence of such a nexus, he submitted that the subsidy given could not be treated as income especially because winnings from horse racing were treated as income by the definition in Section 2(24)(ix) of the Income-tax Act, 1961.
5. A perusal of the conditions laid down for the grant of the subsidy by the Race Club shows that the subsidy was an amount equivalent to the basic training fee to the owners for such horses which run for a minimum of four times. It is not in dispute that when the horses are brought to the club, the basic training fee has to be paid by the assessee and hence the subsidy is only a refund of that basic training fee. The inextricable connection between the subsidy received and the basic training fee paid is so obvious that it is clearly a refund of the baic training fee and we cannot accept the argument that the reference to its being equivalent to that basic training fee was only a measure of the subsidy which was otherwise only a bounty. This is in contrast to the cases cited by the assessee where there was no such nexus. May be the subsidy was given only to encourage the participation of more horses and training the horses was not a precondition for the grant of subsidy. But the basic scheme of the sport of horse racing itself (as elucidated in the Encyclopaedia Britannica, Volume 8, pages 1092 onwards) is that every horse participating in the race should try to win and the rules and procedures of racing are so designed as to give as far as possible an equal chance of winning for every horse which participates. Therefore, the stipulation that the subsidy would be given on a certain number of minimum runs by a horse presupposes that the horse will have a minimum number of tries for a win. Every participation is an attempt for a win. The mere fact that in a particular participation a horse may not win does not alter the true objective of the participation which is to win the race and the winnings when obtained becomes taxable under the Act. Therefore, there is a direct nexus between the grant of the subsidy and the winnings since the subsidy is related to the participation with the object of winning. Thus, the refund of the basic training fee automatically increases the amount of receipts which the assessee gets from the Race Club and which is liable to tax. Since the training fee is one of the items of expenditure to be taken into account in computing the income and it is that fee which is waived by grant of the subsidy it is impossible to ignore the subsidy received by the assessee in computing the income of the assessee from winnings which is taxable under Section 56(1) read with Section 56(2)(ib) of the Income-tax Act, 1961. The assessments in this respect are, therefore, confirmed.
6. In the assessment year 1981-82, there is an additional claim by the assessee that the interest chargeable under Section 215 should be determined only after considering the relief due under the Double Taxation Avoidance Agreement and excluding also the income under Section 56 which is not to be taken into account for determining the advance tax payable by the assessee. Since this objection is well “taken, we direct the Income-tax Officer to re-determine the chargeable interest under Section 215.
7. In the result, appeal No. I.T.A. 2306/Mds/85 is dismissed and I.T.A. No. 549/Mds/85 is treated as partly allowed.
