P. S. VARIER vs COMMISSIONER OF Income Tax, MADRAS.

(The judgment of the court was delivered by the Honble the Chief Justice.)

The assessee is an Ayurvedic physician. He carries on an extensive business in the manufacture and sale of Ayurvedic medicines at Kottakal,

Palghat and Calicut. In addition to the income which he derives from the manufacture and sale of medicines and from the practice of his profession,

he derives income from property and ""sundry other sources"". One of his other activities is the maintaining of a dramatic troupe which gives public

performances in the Malabar District, Cochin and Travancore at certain seasons of the year. At Kottakkal, Palghat and Calicut the assessee is the

owner of premises in which he sells his medicines. At each place, adjoining the premises used by him for the sale of his Ayurvedic medicines, is a

hall in which the assessees dramatic troupe also gives performances. At all the performances prices for admission are charged. For the Year 1937-

38 the assessees returned an income of Rs. 18,651-4-11 and sought to deduct a sum of Rs. 3,475 as loss incurred by him in that year in the

maintenance of the dramatic troupe. The Income Tax Officer refused to allow the deduction. The ground for refusal was that the maintenance of

this dramatic troupe really amounted to a hobby of the assessee and therefore could not be classified as a business. This order of the Income tax

officer was confirmed by the Commissioner on appeal. The assessee then asked the commissioner on appeal. The assessee then asked the

commissioner to state a case on the ground that the refusal to allow the deduction involved a question of law. The Commissioner rejected the

application, and in consequence the assessee applied to this court for an order compelling the Commissioner to make a reference. This Court

agreed with the assessee that a point of law was involved and accordingly directed the Commissioner to make a reference on the following

question :

Is there material to support the finding that the assessees dramatic troupe is maintained by him as a hobby and not as a business or as a source of

income"" ?

The Commissioner has now made the reference.

The assessee has maintained this dramatic troupe for many years, and in the statement of the case made by the Commissioner the profits and

losses for the years from 1922-23 to 1933-34 are set out. In 1922-23 there was a profit of Rs. 997 and in 1928-29 a profit of Rs. 1,820. It is

common ground that when these profits were made the Income Tax authorities assessed them to Income Tax. In the other years mentioned they

were losses and up to and including the year 1934-35 the Income Tax authorities allowed deductions for the losses when assessing the assessee to

Income Tax. It is difficult to see how they could do otherwise seeing that they had insisted on taxing the assessee when he had made profits. The

Income Tax Officer, Palghat, who made the assessment for the year 1935-36, however, decided that the assessee should not be allowed to

deduct the loss of Rs. 3,475 which admittedly he had suffered in that year in this connection. The only ground that the Income Tax Officer

advanced for disallowing this loss was that the dramatic troupe was a hobby and therefore could not become ""a source"" of income. That was his

opinion and as already indicated it was concurred in by the Commissioner.

The Commissioner has given two reasons in support of his decision. He says that the motive behind the formation of the dramatic troupe was

philanthropic and not commercial because in a prospectus issued by the assessee it was said that the object of the founding of the troupe was to

stage Malayalam dramas on reformed lines and to utilise the proceeds arising out of such performances for rendering free medical aid at the

assessees Vaidyasala. The second reason was that the assessee would never have persevered with such a losing concern unless he looked upon it

as a hobby unconnected with his business activities. In opposing the finding that he was merely indulging in a hobby the assessee stated he seldom

attended the performances and therefore the maintenance of the troupe could not be regarded as hobby. The Commissioner has taken some pains

to show that this statement is not true but it is difficult to see what bearing this statement has on the question, whether true or false.

It is manifest that the assessee maintains this troupe on a commercial basis, whether he does so for the purpose of advertising his Ayurvedic

medicines matters not. If this troupe earns a profit, as it has done in two of the years mentioned in the statement of the case, the profit would

obviously be income from other sources within the meaning of section 6 (vi), even if it could not be classified as income from a business u/s 6 (vi).

In 1929-30 the profit made was taxed under ""other sources"". We are not prepared to accept the reasons advanced by the Commissioner in

support of the theory that there is here a hobby and not a possible source of income. In fact we have no hesitation in holding that there was no

material on the record to support the finding that the assessees dramatic troupe is maintained by him as a hobby. It may not be a ""business,"" but it

certainly must be classified as a source, or possible source, of income.

The question referred will be answered in the negative and as the assessee has succeeded, he is entitled to his costs, which we fix at Rs. 250. He is

also entitled to the refund of his deposit of Rs. 100.

Reference answered in the negative.