Commissioner of Income Tax vs Madras Race Club

Thanikkachalam, J.—At the instance of the Department, the Tribunal referred the following two questions for the opinion of this court u/s

256(1) of the Income Tax Act, 1961 :

(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the income of Rs. 3,87,832 being

the net collections on the three days on which the races were conducted for the benefit of the Chief Minister''s Relief Fund and the Beggars''

Rehabilitation Fund should not be treated as the income of the Race Club ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the surplus in the Race Club

Accident Fund should not be treated as the assessee''s income ?

The assessee is a limited company carrying on the business of conducting horse-racing. For the assessment year 1972-73, it returned a business

income of Rs. 16,35,320. The Income Tax Officer made certain additions and computed the total income of Rs. 26,37,223. One of the major

items of dispute is the inclusion by the Income Tax Officer, of a sum of Rs. 3,87,832 being the net collection for three days of racing, on March 4,

1972; March 5, 1972 and March 12, 1972. The assessee''s claim was that it conducted races for two days on March 4 and 5, 1972, for the

benefit of the Chief Minister''s Relief Fund and on March 12, 1972, for the benefit of the Beggars'' Rehabilitation Fund and the net collections were

passed over to those funds and there was diversion of income, even before accrual, by means of an overriding title, created in favour of those

funds and so the amount cannot be brought to tax in the hands of the assessee.

As against the order passed by the Income Tax Officer, an appeal was filed before the Appellate Assistant Commissioner (AAC). Before the

Appellate Assistant Commissioner, two additional grounds were raised. Since they are legal issues, additional grounds were accepted. In the

additional grounds, the first point involved is with reference to the surplus in the Race Club Accident Fund being treated as the assessee''s income

of Rs. 7,733. Inasmuch as the rules were framed to create a separate fund for the benefit of jockeys injured while riding, the Appellate Assistant

Commissioner held that the income to the accident fund had nothing to do with the assessee''s income and deleted the inclusion of Rs. 7,733.

The second ground related to charity and donation, about which we are not concerned, in this reference.

The Appellate Assistant Commissioner had considered the main issue elaborately. It is the case of the assessee that at the instance of the

authority in charge of the Chief Minister''s Relief Fund and the Beggars'' Rehabilitation Fund, the Madras Race Club was asked to conduct races

for two days, namely, March 4 and 5, 1972, on behalf of the Chief Minister''s Relief Fund and for one day, namely, March 12, 1972, on behalf of

the Beggars'' Rehabilitation Fund. So, according to the assessee, on these three days, the club had earmarked the net collections for the benefit of

the Government Charitable Funds and they were disbursed to the authorities by means of cheques and the amount due to the Chief Minister''s

Relief Fund was handed over to the Chief Minister in person.

Subsequently, as per the Government Order, the entertainment tax relatable to the races held for the three days was also waived. On such facts,

it was submitted by the assessee that there has been diversion of income at source by overriding title and, therefore, the income for these three

days is not taxable at the hands of the assessee. After hearing counsel appearing for the assessee as well as the Departmental Representative, the

Appellate Assistant Commissioner held that the amounts collected by the Race Club for the abovesaid three days do not belong to the Race Club,

since there is diversion of income by overriding title. The Appellate Assistant Commissioner has further held that the Appellate Tribunal''s orders

for the earlier years would not at all apply to the year under consideration, as the facts are quite different. In this view of the matter, the Appellate

Assistant Commissioner held that the income of Rs. 3,87,832 should not be treated as the assessee''s income and shall be excluded from the

assessment.

Regarding the surplus in the accident fund, the Appellate Assistant Commissioner found that the assessee had not donated any part of its money

to the fund; but instead one of its officers had been empowered under different rules to make the collection and deposit it into the fund directly. The

accounts of the fund were maintained separately and the income of the fund need not be included in the hands of the assessee-club. The assessee-

club had no power to deal with the said money. It was decided altogether by a different body under a separate set of rules and guidance. Here

also the Appellate Assistant Commissioner held that there was diversion of income by overriding title. In the light of the above facts, the Appellate

Assistant Commissioner held that the surplus of the accident fund should not be treated as the assessee''s income.

The aggrieved Department went on appeal before the Appellate Tribunal. The Appellate Tribunal, agreeing with the reasons given by the

Appellate Assistant Commissioner, held that the races on the aforesaid three days were conducted for the benefit of the Chief Minister''s Relief

Fund and for the Beggars'' Rehabilitation Fund and the income derived on the races conducted on those three days shall not be the assessee''s

income. According to the Appellate Tribunal, there was diversion of income, even from its source and the assessee had an obligation by overriding

title to divert the net collections to the aforesaid two funds. Thus, the Appellate Tribunal held that the income of Rs. 3,87,832 on the basis of the

assessee conducting races for the benefit of the Chief Minister''s Relief Fund and the Beggars'' Rehabilitation Fund should not be treated as the

assessee''s income.

With reference to the surplus in the accident fund, the Appellate Tribunal agreed with the reasoning of the Appellate Assistant Commissioner

and held that the surplus in the accident fund should not be treated as the assessee''s income and the Departmental appeal was dismissed.

Learned standing counsel appearing for the Revenue submitted as under :

(1) The Tribunal was not correct in holding that the letter of acceptance dated March 3, 1972, by the Government would tantamount to an

authorisation or order to the Race Club to hold the races on the relevant dates on behalf of the Chief Minister''s Relief Fund and the Beggars''

Rehabilitation Fund;

(2) The Government''s order waiving the entertainment tax dated April 18, 1972, refers only to the contribution proposed to be made by the Race

Club and not to the collection on the relevant days.

(3) The decision by the Committee of the Race Club to conduct races on behalf of the two funds would not amount to an obligation by the

assessee to earmark the collections of the three days to the funds and there was only a case of application of income after earning by the assessee.

According to learned standing counsel, amounts were earmarked only after the Race Club collected the amounts from the race-goers. The

entire amounts collected by the Race Club were not handed over to the aforesaid two funds. What was made over to the aforesaid two funds was

only the net collection, after deducting the expenses. Therefore, it is only an application of income after it was earned and it cannot be said that

there was diversion of income by overriding title. If there is diversion of income by overriding title, the collection should not reach the Race Club

and the said funds should have a vested interest over the amounts collected by the Race Club on all those three days, even prior to the races. The

resolutions for contribution to the abovesaid two funds were made after the race was conducted. The beneficiary funds are not having any

enforceable right against the Race Club, if the amounts were not paid as promised.

The decision rendered by this court in the case of the same assessee in the earlier assessment years Madras Race Club Vs. Commissioner of

Income Tax, would apply on all fours, to the facts arising in the present assessment year under consideration also. Learned standing counsel also

placed reliance on the decision reported in The Commissioner of Income Tax, Bombay City II Vs. Shri Sitaldas Tirathdas, . Learned standing

counsel also drew our attention to the latest decision of the Supreme Court in Moti Lal Chhadami Lal Jain Vs. Commissioner of Income Tax,

Delhi, . In this context, reliance was also placed on the decision reported in CIT v. Vyas and Dhotiwala : [1959]35ITR55(SC) . It was, therefore,

pleaded that the Tribunal was not correct in holding that the amounts collected during the abovesaid three days do not form part of the income of

the assessee.

On the other hand, learned counsel appearing for the assessee submitted that even though there is not direct Government order for contributing

the fund to the abovesaid two clubs, there was some oral under-standing that the Race Club would contribute three days'' net collections to the

abovesaid two funds. It was represented to the authorities that the request made was verbal. The Madras Race Club agreed for such request and

allotted three days for races being conducted on behalf of the two funds. On March 2, 1972, the officiating secretary of the Madras Race Club

wrote a letter to the Secretary of the Home Department, Government of Tamil Nadu, informing the Government that it had been decided by the

committee to conduct on two days races on behalf of the Chief Minister''s Relief Fund and one day''s race on behalf of the Beggars'' Rehabilitation

Fund and wanted confirmation of the Government. The Secretary of the Home Department wrote back to the secretary, Madras Race Club, on

March 3, 1972, stating that the Government agreed to the programmes of the dates of the races for the Chief Minister''s Relief Fund and the

Beggars'' Rehabilitation Fund, as proposed. On March 3, 1972, the officiating secretary wrote to the Government of Tamil Nadu asking for

exemption from payment of entertainment tax and surcharges for those days to enable them to add the same to the profits of those days. The

Additional Secretary to the Government had communicated the order on April 18, 1974, that the Government waived the collection of

entertainment tax due in respect of races held on the three days.

The Race Club noticed the dates to the public and all its members pointing out that the race will be held on these three days on behalf of those

funds of the Government. The annual report of the Race Club for the year ending March 31, 1972, also had pointed out under the head ""Charities

during the year under review that two days'' racing was held on behalf of the Chief Minister''s Relief Fund and one day of racing was held on behalf

of the Beggars'' Rehabilitation Fund. Therefore, according to learned counsel, there has been diversion of income at source by overriding title and,

hence, the income of the Race Club on those days cannot be construed as the income of the assessee. Learned counsel pointed out that the earlier

decision in the case of the same assessee reported in Madras Race Club Vs. Commissioner of Income Tax, will not be applicable to the facts

arising for this year of assessment. In the earlier years, a resolution was passed, after the races took place. There were no beneficiaries in the

earlier years to enforce the contract. Even the amount to be contributed was stated in the earlier years that it should not exceed Rs. 7 lakhs and if

the Race Club earns more than Rs. 7 lakhs, there was no obligation on the part of the Race Club to part with the excess amount. Therefore, there

was no obligation in the earlier year to contribute as per the directions given by the Government. Hence, it was submitted that the decision

rendered by this court in Madras Race Club Vs. Commissioner of Income Tax, , which related to the earlier year''s assessment order would not be

applicable for the present assessment year, since the facts are different. For these reasons, it was submitted that the Tribunal was correct in holding

that there was diversion of income by overriding title in the present assessment year under consideration.

We have heard the rival submissions. The points for consideration are whether there has been diversion of income at source by overriding title

and whether the income for those three days is not taxable at the hands of the assessee or whether the amounts were handed over to the funds only

by way of contribution by the assessee after earning the income. The dispute is with regard to the inclusion by the Income Tax Officer of a sum of

Rs. 3,87,832 being the net collection for three days of racing on March 4, 1972, March 5, 1972, and March 12, 1972. The assessee claimed that

it conducted races for two days on March 4 and 5, 1972, for the benefit of the Chief Minister''s Relief Fund and on March 12, 1972, for the

benefit of the Beggars'' Rehabilitation Fund and the net collections were handed over to those funds and the assessee diverted the income even

before by means of an overriding title credited in favour of those funds and hence the amount cannot be brought to tax in the hands of the assessee.

It is the case of the assessee that at the instance of the authority in charge of the Chief Minister''s Relief Fund and the Beggars'' Rehabilitation Fund,

the assessee-club was asked to conduct races for two days, namely, on March 4 and 5, 1972, on behalf of the Chief Minister''s Relief Fund and

for one day, namely, on March 12, 1972, on behalf of the Beggars'' Rehabilitation Fund. There was no documentary evidence for such a direction.

According to the assessee, an oral request was made by the Government officials and the assessee-club had agreed for such a request and allotted

three days for races being conducted on behalf of the two funds. A letter was written by the officiating secretary dated March 2, 1972, to the

Secretary of the Home Department, Government of Tamil Nadu, informing the Government that it has been decided by the committee to conduct

two days races on behalf of the said two funds and wanted confirmation from the Government. On March 3, 1972, the Secretary of the Home

Department wrote back to the Secretary, Madras Race Club, stating that the Government agreed to the programmes for the Chief Minister''s

Relief Fund and the Beggars'' Rehabilitation Fund, as proposed. The officiating secretary also wrote a letter dated March 3, 1972, to the

Government of Tamil Nadu asking for exemption from payment of entertainment tax and surcharge for those days to enable them to add the same

to the profits of those days. On April 18, 1974, the Additional Secretary to the Government communicated that the Government waived the

collection of entertainment tax due in respect of the races held on those three days. In pursuance of the abovesaid letters written by the

Government, the Race Club notified the dates to the public and all its members pointing out that the races will be held on those three days on

behalf of those two funds. These thing were published in the newspapers stating that the races are going to be conducted on those three days on

behalf of the abovesaid two funds. In the annual report also, for the year ending March 31, 1972, the Race Club had pointed out that the collection

during those three days were meant for charities. The net amount collected during those three days were handed over to the abovesaid two funds

by way of cheques presented to the Chief Minister in person. Thereafter, the entertainment tax also was waived by the Government. Now, we

have to consider whether on those facts, it can be said that there is diversion of income by overriding title.

The two tests for the application of the rule of diversion of income by overriding title were succinctly stated in the decision of the Supreme

Court in the case of The Commissioner of Income Tax, Bombay City II Vs. Shri Sitaldas Tirathdas, as under (see [1991] 190 ITR 110 :

We are of the opinion that this contention cannot be accepted. As we have pointed out earlier, the right given to the college to sue the company is

only the right to recover part of the amount which has already accrued to the assessee. The creation of a charge in favour of the college does not

make any difference. It only obliges the company to pay a part of the rent to the college on behalf of the assessee, but the existence of a mere

obligation is not sufficient to constitute diversion of income. The classic statement of the true principle is set out in The Commissioner of Income

Tax, Bombay City II Vs. Shri Sitaldas Tirathdas, :

Obligations, no doubt, there are in every case, but it is the nature of obligation which is the decisive fact. There is a difference between an amount

which a person is obliged to apply out of his income and an amount which by the nature of the obligation cannot be said to be a part of the income

of the assessee. Where by the obligation income is diverted before it reaches the assessee, it is deductible; but where the income is required to be

applied to discharge an obligation (self-imposed and gratuitous) after such income reaches the assessee, the same consequence, in law, does not

follow. It is the first kind of payment which can truly be excused and not the second. The second payment is merely an obligation to pay another a

portion of one''s own income, which has been received and is since applied. The first is a case in which the income never reaches the assessee,

who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable''.

A similar question came up for consideration again before the Supreme Court in the case of Moti Lal Chhadami Lal Jain Vs. Commissioner of

Income Tax, Delhi, . According to the facts arising in that case, a company took over from a firm a running business of manufacturing glassware in

a factory located on land belonging to the appellant, a Hindu undivided family. The company was to continue to use all facilities on the bhatties

belonging to the family. Under the lease deed May 3, 1960, the company was to pay an annual rent of Rs. 21,000 of which Rs. 10,000 was to be

paid to a college run by a trust, and a commission of one per cent. of its turnover. By a subsequent agreement entered into on May 4, 1962,

between four parties, viz., two male members of the family, the company, the trust and the college, it was recorded that, out of the total rent of Rs.

21,000, a sum of Rs. 10,000 would be paid to the college in four quarterly instalments. Clause 7 of this agreement provided that, in the event of

failure in the payment of any instalment, the college would have full rights to recover the sum of Rs. 10,000 by recourse to the court and the college

shall have a first charge on the property. For the assessment year 1967-68, it was claimed that the sum of Rs. 10,000 was the income of the

college and hence not part of the appellant''s income on the ground that the sum of Rs. 10,000 had got diverted by overriding title to the college

and ceased to be the appellant''s income. On these facts, while answering the question whether on a proper construction of the lease deeds dated

May 3, 1960, and May 5, 1962, and accompanying facts and circumstances of the case, the sum of Rs. 10,000 is the income of the assessee and

not that of Chhadami Lal Jain Degree College, the Supreme Court held as under (headnote) :

Affirming the decision of the High Court, that the appellant family''s agreement with the company was only that Rs. 10,000 out of the rent due

should be paid directly to the college. This was only a mode of application of the income of the family which made no difference to its liability to

pay tax on the entire rent of Rs. 21,000 which had accrued to the family. Nor did the fact that the college had been given a right by the four-party

agreement to sue for and recover Rs. 10,000 directly from the company in case of default alter the position. The creation of a charge in favour of

the college did not make any difference. It only obliged the company to pay a part of the rent to the college on behalf of the family, but the

existence of a mere obligation was not sufficient to constitute diversion of income.

The expressions ''reaches the assessee'' and ''has been received'' have been used by the Supreme Court in the case of The Commissioner of

Income Tax, Bombay City II Vs. Shri Sitaldas Tirathdas, not in the sense of the income being received in cash by one person or another. What the

court emphasised is the nature of the obligation by reason of which the income becomes payable to a person other than the one entitled to it.

Where the obligation flows out of an antecedent and independent title in the former (such as, for example, the rights of dependants to maintenance

or of coparceners on partition, or rights under a statutory provision or an obligation by a third party and the like), it effectively slices away a part of

the corpus of the right of the latter to receive the entire income and so it would be a case of diversion. On the other hand, where the obligation is

self-imposed or gratutious, it is only a case of application of income.

Therefore, in the abovesaid decision, the Supreme Court pointed out that where the obligation flows out of antecedent and independent title in

the former, it effectively slices away a part of the corpus of the right of the latter to receive the entire income and so it would be a case of diversion.

According to the facts arising in the present case, the Race Club was asked to conduct races for three days in order to divert the income for

the benefit of the abovesaid two funds. For such a request by the Government, no doubt, there is no written evidence, the assessee pointed out

that the request is only oral and the Madras Race Club had agreed to such a request and allotted three days for races being conducted on behalf of

the two funds. There is a letter dated March 2, 1972, by the officiating secretary of the assessee-club to the secretary of the Home Department,

Government of Tamil Nadu, informing the Government that it had been decided by the Committee to conduct two days'' races on behalf of the

Chief Minister''s Relief Fund and one day''s race on behalf of the Beggars'' Rehabilitation Fund and wanted confirmation of the Government. The

Secretary to the Home Department wrote back to the secretary, Madras Race Club, Madras-32, on March 3, 1972, stating that the Government

agreed to the programme of dates of the races for the Chief Minister''s Relief Fund and the Beggars'' Rehabilitation Fund as proposed. On March

3, 1972, the officiating secretary wrote to the Tamil Nadu Government asking for exemption from the payment of entertainment tax and surcharges

for those three days. The Additional Secretary to the Government had communicated the order on April 18, 1974, that the Government waived

the collection of entertainment tax due in respect of the races held on the three days. The Race Club notified the dates to the racing public and its

members pointing out that the races will be held on the said dates on behalf of the abovesaid two funds of the Government. Wide publicity was

given in the publications of the race club and in the newspapers pointing out that the races conducted on the said three days will be on behalf of the

two funds stated above. The annual report of the race club for the year ending March 31, 1972, also pointed out under the head ""Charities"" during

the year under review that three days racing were held on behalf of the abovesaid two funds. Therefore, according to the assessee on those three

days, the club had earmarked the net collection for the benefit of the Government charitable funds and they were disbursed by way of cheques

which were handed over to the Chief Minister in person. Subsequently, as per the Government Order, the entertainment tax relating to the races

held on the three days was also waived. The point is on these facts, can it be said that there has been diversion of income at source by overriding

title.

The facts on record would go to show that even prior to March 2, 1972, the Race Club Committee had decided to conduct three days'' races

on behalf of the abovesaid two funds. The correspondence between the Race Club and the Government would go to show that even before the

races in question were conducted the Committee of the Race Club has, with the approval of the State Government, decided to conduct races for

three days on behalf of the abovesaid two funds. In pursuance of this decision, the race club advertised and notified the dates to the public and its

members, the official programme card and other booklet prominently showing that the races for these days would be conducted on behalf of the

abovesaid two funds. The racing public were informed that three days'' races were being conducted by the assessee-club on behalf of the

abovesaid two funds. The decision of the Race Club Committee, the advertisement and the publication effected by the race club clearly indicate

that even before the races were held the intention of the assessee was to run the races for the three days on behalf of the abovesaid two funds and

there was a creation of a trust whereby the income at source was directed to the two funds. Since the collection of these three days'' races was for

the benefit of the abovesaid two funds, the Government also was prepared to waive the entertainment tax. Therefore, there is a clear understanding

between the Government and the Race Club on the collection for the abovesaid two funds. Diversion of income by overriding title can be created

even by a contract between the two parties before the income reaches the hands of the assessee. According to the facts arising in the present case,

the three days collection never reached the hands of the assessee since there was a contract between the Race Club and the Government for

handing over the collection to the abovesaid two funds. The race club conducted races for three days for the benefit of and on behalf of the

abovesaid two funds. Therefore, the right to receive the abovesaid three days'' collection was vested in the hands of the abovesaid two funds even

before the collection reaches the hands of the assessee-club and before the commencement of races the beneficiaries are known that the

collections were earmarked for the benefit of the beneficiaries, viz., the abovesaid two funds. If the abovesaid three days'' collections were not

paid to the said two funds, the beneficiaries under the said two funds can claim the said collections from the race club. For all these reasons, we

hold that there is a diversion of income by overriding title, and the three days'' collections are payable to the beneficiaries of the abovesaid two

funds other than the one entitled to it. Accordingly, the abovesaid three days'' collection cannot be considered to be the income of the assessee-

club.

Before us, learned standing counsel for the Department relied on a decision of this court in Madras Race Club Vs. Commissioner of Income

Tax, in the case of the same assessee, to support his submission that the Tribunal was not correct in holding that three days'' collection of the race

club is not assessable in the hands of the assessee in the assessment year 1972-73. According to the facts arising in the earlier assessment year

1969-70, the assessee claimed as deduction a sum of Rs. 3,42,539 on the ground that the amount represented charities made during the year out

of the proceeds of two charity race days. The races were held on March 19, and 26 of 1969. The gross collection amounted to Rs. 7,61,179 out

of which deducting the expenses of Rs. 4,18,660, the balance of Rs. 3,42,539 was arrived at. The assessee claimed that the races held on March

19 and 26 of 1969 were specifically held for the purpose of charity as decided and made known to the public long prior to the actual holding of

the events and, therefore, the collection of those days belonged to the charities. According to the assessee, there was a diversion of income from

the races conducted on March 19, and 26 of 1969, even before its accrual and this was also supported by a resolution of the extraordinary

general body meeting of the assessee held on March 21, 1969. Similarly, for the assessment year 1970-71, the assessee claimed that the races

held on March 19, 22 and 29 of 1970, were for the benefit of charities, the collections of the said days being on behalf of the Madras Race Club

Charitable Trust and on the last day for the benefit of the Madras Cricket Association. The net collection of Rs. 7,22,411 had been paid by the

assessee to this institution and the assessee claimed that even as regards these amounts, there had been a diversion of income before its actual

accrual. On these facts, this court held as under (headnote) :

The resolution passed on March 21, 1969, that the Committee of management was authorised to contribute to such charitable institutions or

organisations such sums as it may think fit not exceeding Rs. 7 lakhs from out of the two extra days'' races held on March 19, 1969, and March

26, 1969, could not be considered as having created any legal obligation on the part of the Committee to effect the contribution as the resolution

merely authorised the contribution and did not direct the contribution and the contribution was also at the discretion of the Committee of

Management. In respect of the other three dates, there was not even any resolution. Further, it did not appear that the contributions were ab initio

earmarked or subjected to any legal obligation for application to specified charities. Consequently, the Tribunal was right in its view and the net

amounts received were assessable.

According to the facts arising in the case of the same assessee for the assessment years 1969-70 and 1970-71, the resolution of the general

body meeting of the race club only authorised the committee of management to spend amount on certain charities. Such authorisation was not a

mandatory one and such resolution does not specifically say that the race club should spend the amounts on charities. There was a discretionary

power with the committee of management to spend or not to spend on charity. The beneficiaries in those years were the Madras Cricket

Association and the Madras Race Club Charitable Trust. In respect of the other three days, i.e., March 19, 22 and 29 of 1970, there was not

even any resolution. In the assessment years 1969-70 and 1970-71, though the assessee claimed that the resolutions were passed much earlier to

the conduct of the races, no evidence was produced to support this version with reference to the claim made by the assessee for the assessment

year 1969-70. The resolution passed at the extraordinary general body meeting held on March 29, 1969, was to the effect that the committee of

management was authorised to contribute to such charitable institution or institutions such sums as it may think fit not exceeding Rs. 7,00,000 from

and out of the proceeds of the two extra days'' races held on March 19, and 26, 1969. The resolution was only passed on March 21, 1969, two

days after the holding of the first of such events on March 19, 1969. Even as per the resolution if the assessee-club collects more than Rs.

7,00,000, it need not contribute the excess amount collected for charitable purposes. It does not appear that the contributions when made were

earmarked or subject to a legal obligation for application to specified charities. Therefore, the decision rendered by this court in Madras Race Club

Vs. Commissioner of Income Tax, in the case of the same assessee for the earlier assessment year will have no application to the facts arising in the

present case relating to the assessment year 1972-73.

Learned standing counsel for the Department brought to our notice the decision reported in CIT v. Vyas and Dhotiwala : [1959]35ITR55(SC)

, wherein the Supreme Court pointed out that the real question was whether the income had accrued to the assessee and the profits from the

scheme formed the income of the assessee and stated that the working of the scheme resulted in the production of profits which belonged to the

assessee and they were liable to the taxed thereon since the assessee waived the profits whether they agreed to make profits or not, and the

circumstance that the Deputy Commissioner was in control of the scheme did not prevent the working of the scheme by the assessee as a business

carried on by them. The Supreme Court further pointed out that the scheme considered as a business was not carried on, on behalf of any religious

or charitable institutions and, therefore, the profits from the scheme were not exempted from taxation u/s 4(3)(ia) of the Income Tax Act.

Thus, considering the facts arising in the assessment year 1972-73 in the light of the decisions of the Supreme Court in The Commissioner of

Income Tax, Bombay City II Vs. Shri Sitaldas Tirathdas, ; Moti Lal Chhadami Lal Jain Vs. Commissioner of Income Tax, Delhi, ; CIT v. Vyas

and Dhotiwala : [1959]35ITR55(SC) and Commissioner of Income Tax, West Bengal Vs. Tollygunge Club Ltd., , we hold that the Tribunal was

correct in coming to the conclusion that the three days'' collection cannot be assessed in the hands of the assessee-race club. Accordingly, we

answer the question referred to us in the affirmative and against, the Department.

The second question relates to surplus in the Race Club Accident Fund. There was a surplus of Rs. 7,733 in the said fund. The Income Tax

Officer followed the prior year''s order and had pointed out that there was no obligation imposed on the trust to disburse the fund and such

disbursement was purely discretionary. The Income Tax Officer treated this surplus as income of the assessee-company. On appeal, the Appellate

Assistant Commissioner considered all the facts and had held that this is a separate fund and cannot be treated as income of the assessee. On

further appeal, the Appellate Tribunal confirmed the order passed by the Appellate Assistant Commissioner.

This fund was created under the Madras Race Club Rules of Racing on the 1st of April, 1966. The Scheme was for providing benefits to the

jockeys injured while riding. At every race meeting, the owner of a horse running in the event was to pay a sum of Re. 1 to the secretary of the

race club and a similar sum should be contributed by a jockey. The Race Club Accident Fund was created for the benefit of the jockeys injured

while riding and the rules of the Madras Race Club provided that this was to be a separate fund which would be administered by the secretary of

the club. The fund has its own separate rules, and it has separate accounts. The Income Tax Officer in the prior order wanted to make out that the

collections were made by the secretary of the race club and the surplus should be treated as the assessee''s income. Rule 2 of the Race Club

Accident Fund states that the collected sums shall be paid by the secretary of the club to be taken into the account of the Club Accident Fund. As

per rule 4, the stewards of the club shall have power to grant benefits out of the said fund in the event of the death or bodily injury to a jockey

caused by accident happening while carrying out his duties. There is nothing to indicate that the race club had a hand in earning it or spending it.

The fund is separately created with separate accounts and is utilised for the benefit of the jockey. No part of the fund shown in the rule belongs to

the race club since the funds even at the source had become distinct and separate. Therefore, the Tribunal came to the conclusion that this separate

fund cannot be considered to be the income of the assessee-club. On considering the reasons given by the Appellate Tribunal, we are of the

opinion that the exemption of a sum of Rs. 7,733 from the income of the assessee-club appears to be in order. Therefore, we answer this question

also in the affirmative and against the Department.

In the result, the appeal is dismissed. No costs. Counsel''s fee Rs. 1,000.