M.A.M. Ramaswamy vs Commissioner of Income Tax

R. Jayasimha Babu, J.—The assessee is an owner of horses. He received subsidy from the Madras Race Club under a scheme framed by

the club under which the pre-condition for claiming a subsidy was that the horses in respect of which subsidy was claimed should have participated

in a minimum of four races during the racing season. The subsidy was of an amount equivalent to the basic training fee to the owner, as also the

payment of a sum of Rs. 150 per horse per month for the trainers. For out-station horses, the subsidy was Rs. 300 to the owner and Rs. 100 to

the trainer of the horses. There was to be reimbursement of the expenses incurred for bringing the horses to Madras, which was also part of the

scheme.

The assessee contended before the authorities that the subsidy so received is of capital nature and did not fall within the revenue field. This

contention has been rejected uniformly by all the authorities, viz., from the Assessing Officer to the Tribunal. The assessee had, before the Tribunal,

relied upon the case of Mehboob Productions Private Ltd. Vs. Commissioner of Income Tax, Bombay City-I, in support of his plea that

reimbursement did not amount to a revenue receipt. The Revenue, on the other hand, had relied on the decision of the Andhra Pradesh High Court

in the case of Commissioner of Income Tax, Andhra Pradesh, Hyderabad Vs. Sahney Steel and Press Works Ltd., . The decision in the case of

Commissioner of Income Tax, Andhra Pradesh, Hyderabad Vs. Sahney Steel and Press Works Ltd., was affirmed by the Supreme Court in the

case of M/s. Sahney Steel and Press Works Ltd., Hyderabad etc. etc. Vs. Commissioner of Income Tax, Andhra Pradesh-I, Hyderabad, . The

court held that if monies are given to the assessee for assisting him in carrying out the business operations, and the money is given only after and

conditional upon commencement of production, such subsidies must be treated as assistance for the purpose of the trade.

The ratio of that decision applies with full force to the facts of the present case. The assessee received the amounts from the race club by way of

reimbursement of expenditure incurred. The participation of the asses-see''s horses in the races was an essential pre-condition for the subsidy. The

subsidies so received went to reduce the expenditure, which the assessee would have otherwise incurred on the horses for the purpose of entering

them in the races conducted by the club. The income from winnings of horse races is taxable under the head ""Income from other sources"", in view

of the definition of ""income"" in Section 2(24), Sub-clause (ix), of the Act. The subsidy received by the assessee from the race club was a subsidy,

which enabled him to continue his operations as a horse owner whether as business or as hobby, and it was conditional upon the participation of

the horses in the races run by the club. In the circumstances, the subsidy given must be regarded as assistance given by the race club for the

purposes of enabling the owner of horses to earn income from other sources.

Counsel for the assessee submitted that mere participation in the race is no guarantee, that the race would be won by the horses owned by the

assessee. That fact, however, does not alter the position that flows from the receipt of the subsidy as a reimbursement of expenditure incurred on

the horses, which certainly do have the potential for winning the race. It can be reasonably assumed that a horse owner by entering his horses in the

race has the desire and the intention that his horse should win the race; Whether the horse actually wins or not in the race, is no doubt, dependant

upon the quality of the other horses in the race, and several other factors such as a condition of the track, expertise of the rider and other factors.

Every horse owner who participates in the race, therefore, participates with intention of winning the race, though that intention may not be realised

in all cases.

The assessee''s counsel also contended that as the winnings from horse race has to be taxed as income from other sources, that should make the

difference in the way in which subsidies received from the race club should be treated. Counsel submitted that it should be regarded as bounty.

This argument is not tenable. The scheme clearly provides that the horse must have run at least in four races before qualifying for the subsidy. The

subsidy is by way of reimbursement of the expenditure incurred by the owner. Had the subsidy not been given, to the extent, the expenditure

would have been higher for the owner. The subsidy has only gone towards reducing that expenditure. The subsidy so received was clearly revenue

receipt and the Tribunal was right in treating it as such.

We, therefore, answer the question referred to us, which has arisen for the assessment years 1981-82 and 1982-83, as to whether the subsidy

given by the Madras Race Club should be taken into account in computing the winnings from races, which are taxable as income under the Income

Tax Act, in the affirmative, in favour of the Revenue, and against the assessee. No costs.