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Judgment
Ratnam, J.—The circumstances under which the writ appeal came to be filed may briefly be noted. During the year 1976-77 the Appellant
operated in the Madras Race Course, Guindy as a book-maker. The functions of a book-maker are to receive bets from backers and if the bet
succeeds to pay back to the back is an agreed multiple of the sum bet and if the bet fails the book-maker appropriate the total bet. Under the
Madras Betting Tax Act, 1935 betting tax was levied on the bet amounts collected by the book-make is as per Section 5 of the said Act at rates
notified by the State Government from time to time. The book-maker also has to pay commission to the Race Club at the rate prescribed by it for
services that the Race Club rendered and for the accommodation it provides to the book-marks. The commission which the Race Club charges is
paid by the backers along with the sum bet and is passed on to the Race Club by the book-maker. The tax on to the bet amount is also collected
by the book-maker from the backer and is passed on to the Government. Thus the takings of every book-maker from bets and the receipt of the
tax as well as the club''s commission are totally different transactions the tax collected going to the Government and the com-mission collected
going to the Race Club.
For several years the Commercial Tax Officer, the first Respondent was charging tax on he (sic) takings by the bock-makers on win and place.
Suddenly the first Respondent began to claim tax even on the commissioner paid to the Race Club. The Appellant has been resisting the demand
on the simple ground that the commission has nothing to do with the turn of the event that it does not belong either to the backer or to the book-
maker whatever may happen to the event, and it is paid to the Race Club for use of premises and provision if amenities. However, the first
Respondent (sic) view that in (sic) as the commission is collected at the time when the bet is made it forms part of the bed is against the demand
made by the first Respondent to pay tax even on he amounts collected as commission and which is payable to the Race Club a Representation was
made to the second Respondent but with at any avail. The first and second Respondents have subsequently issued Instructions to the Collectors
the Districts to indicated recovery proceedings against the Appellant under the River Recovery Act to collect the tax on sub commission the Third
Respondent has taken coercive proceedings to recover (sic) amount of tax in disputes. It is at that saw the Appellant filed Writ Petition Nos. 2153
and 2154 of 1980 questioning etc. nand made by the first Respondent for perm ant of tax the mounts collected as commission payable to the Race
C.B. and to issue a writ of prohibition for bearing the Respondents 1 and 2 from collecting tax on commission.
The Respondents in the counter-affidavit contended that the entire collection made by Appellant from (sic) should be taken to be an amount on
which the betting tax chargeable and Section 5(1) of the Madras Betting Tax Act, 1935 hereinafter referred to as the Act, does no contemplate
any exemption from betting tax on any portion of he money paid by back in Consequence of the bet and that therefore the contains collected by
the book-makers from backers forms part of the money paid by them and therefore, it is liable to betting tax u/s 5(1).
The matter came ultimately for disposal before PADMANABHAN J., The learned Judge after posing the question as to whether the bearing tax
under the Act can be levied on the total amount consisting of he bet mount and the commission due to the R Club paid by he b (sic) to the book-
maker, held that in view (sic) section, 5(1), which leaves no room for (sic) the ax is (sic) to be leveled on all money paid or agreed to be paid by
the (sic) to the book-maker, that by the use of the words II money paid or agreed to be paid the Legislature (sic) made is that the tax shall be
leveled in respect of one totally of (sic) received from the backer by the book-make (sic) that he (sic) he levy of tax u/s 5 (sic) be limited. (sic)
amount after excluding the payment male toward commission. A contention was advanced before the earn d J. leg by the Appellant that if section5
is understood as e tabling to state Government to levy tax not only on the bet common but also on the commission payable to the Race Club such
a (sic) is so far as the commission amount is concerned will be inconsistent wish Article 246 of the Constitution of India. According to the
Appellant under item 62 of List II of the VII Schedule to the Constitution the State Government is empowered levy a tax only on (sic) including tax
on entertainments, amusements (sic) and therefore the State Government can levy a tax only on betting and gambling and it is not competent to levy
a tax on commission paid by the backer to the book-maker which is payable to the Race Club. This contention was rejected by the learned Judge
on the ground that the pith and substance of the levy is on betting and the commission payable to the race club only an incident of betting and
there-fore, it is open to the State Government to levy tax on the com-mission payable (sic) the Race Club as well while levying a tax on bets. In
this appeal the view taken by the learned Judge that Section 5 of the Act enable''s the collection of a tax on commission payable to the Race Club
is valid and that Section 5 even if it includes a power to tax on commission on will be valid as it is only an incident and or ancillary power is
sustainable in law, has been questioned.
Before we proceed to deal with the scope and ambit of Section 5 of the Act, we would like to trace the legislative history of the law relating to
betting tax in this State. The objects of the Madras Bating Tax Act XX of 1935, as seen from the relevant Bill published in the Fort. S. George
Gazette, Part IV at page 319, dated 22nd October, 1935 is to impose a tax on betting in Horse and Pony race held in the Presidency of Madras
and thereby argument the financial resources of the Presidency. The provisions of the Bill are based on those contained in the Bengal, Bombay and
(sic) Act on the subject, namely, Bengal Act V. of 1922, Bombay Acts VI of 1925 and IV of 1931 and Burma Act IX of 1928. Both forms of
being which prevail in this Presidency namely betting through to (sic) betting through book-makers are tended to be controlled. In the later case
however the tax will be levied only on winnings, paid (sic) by book-makers. This Act was amended in the year, 1958. Before the said amended
the betting tax leveled on book-makers u/s 5 of the Act was only on the amounts paid by the book-makers to backers on winnings placed by them
and not on the entitle amount collected by the book-makers. The amendment introduced in 1958 deleted Section 5(1) and inserted in that section
a clause providing for a tax being leveled on every book-maker in respect of all monies paid or agreed to be paid by them to backers in
consequence of bets made in a place within the race enclosure. The state eat of objects and reasons for the said amendment of Section 5 are given
below:
The totalizator tax levied u/s 4 of the Madras Bating Tax Act, 1935 (Madras Act XX of 1935), is leveled on backers in respect of all moneys paid
by them into any to talizator by way of stakes or bets. The betting tax levied on book-makers u/s 5 of the Act is however levied only on the
amounts paid by the book-,makers to backers on ""winnings'' placed by them and not on the entire amounts collected by the book-makers. As
such, the amounts paid by backers by way of bets on other horses are excluded from taxation. In order to augment the revenues of the State it has
been decided that the betting tax should be collected on the total takings of the book-makers, that in cases where the amounts paid out by the
book-makers as wins are in excess of their total takings, tax should be level on this excess also, and that the book-makers should be allowed to
pass on to the winners such portion of the tax as is livable on the amounts paid out to the winners.
Thus, before the amendment the betting tax was levied on book-makers on the amounts paid by them to backers on winnings placed by them
and not on the amount collected by the book-makers. After the amendment the tax is sought to be level or every book-makers in respect of all
money paid or agreed to be paid by them to backers in consequence of the bits. The said Act was again amended making the tax payable in
respect of all money paid or agreed to be paid by the backers to the bock-maker so The object of introducing the expression all sums paid or
agreed to be paid by the book-makers covering in Section 5 as it stood amended by Madras Betting Tax Amendment Act, 1958 has been made
clear in the statement of objects and (sic) set out above. It is clear from the said statement of objects and reason that section. 5 as it existed then
enabled levy of betting tax only on the amounts paid by the book-makers to backers on winnings placed by them and not on the entire amount
collected by the book-makers from backers by way of bets on horses. Thus the section as it excited from taxation the amounts paid by backers by
way of bets on other horses which have not won. In order to argument the revenue of the State it has been decided that the betting tax should be
collected on the total takings of the book-makers and that in cases where the amounts paid out by the book-makers in the winnings are in excess
of their total takings, the tax should be levied on this excess also and the book-makers should be allowed to pass on to the winners such portion of
the tax as is livable on the amounts paid out to the winners. From the said statement it is clear that tax which was originally a tax on winnings on
bets has been altered as a tax on the totally receipts as bets. Therefore, having regard to the particular object of the amending Act it is the total
amount of bets on all the horses received by the book-maker that are taxable.
Though for purposes of enabling the backer to bet he has to Payment a commission to the race club and that is collected at the stage of the bet,
the said collection made towards commission cannot be said to form part of the bet amount. The language used in Section 5 has to be construed
and limited to the objects sought to be achieved by he amending Act of 1958. Admittedly the commission is payable only to the race club and it is
not part of the bet amount. I is also not a payment made to the book-maker but a payment to the race club made (sic) the book-maker. Even the
amount paid as tax by the backer to the book-maker cannot be treated is part of the bet. It is no doubt true the expression the amount paid or
agreed to be paid in consequence of bets is wide enough to take in all the payments arising out of the be Bat either the tax collected by the book-
maker which is to be transmitted to Government or the commission paid which is to be transmitted to the Race Club cannot be taken to be
payment in consequence of the bet. Normally a bet arises out of an agreement between he parties and the amount payable (sic) pursuance of that
agreement alone can be taken as an amount paid in consequence of bet and a commission paid to book-makers for transmission to the Race Club
cannot be said to be amount paid in consequence of the bet. The payment of com-mission is more or less condition precedent for the bet and with-
out payment of the said commission the backer will not be allowed to bet. Therefore the payment of commission precedes a bet and as such it is
not in consequence of the bet. Similarly is the payment of tax. Though payment of commission and tax by the backer are similar with the bet, it is in
point of time earlier than betting. The payment of commission. or tax is more or less a passport to betting Though the payment of the commission
or the tax of he bet amount is simultaneous, legally the payment of commission or the tax should be taken to have been made a moment earlier than
the betting. To find out whether the commission or tax is paid in consequence of the bet, we have to adopt not a physical test but a legal test as to
whether the payment precedes the bet or is consequence on the bet Since one has to pay the commission before he is allowed to bet after the
amount is taken to have been paid at a stage proceeding the bet and not as a consequence of the bet. The learned Counsel for the Appellant gives
an illustration or a sale deed are (sic)that the stamp duty for the registration of like Sale deed is not in consequence of the sale deed as (sic) is a
condition precedent for bringing into existence a sale deed. PADMA-NABHAN J., has held that all amount received by the book-maker from the
backers should be taken to be in consequence of the bet. However it is not possible to construe the words in consequence of as has been done by
the learned Judge or as contended for by the Respondents, The commission amount paid is not referable to the bet but it is referable to the
Regulations of the Race club. Even though the commission amount is paid simultaneously along with the bet, it precedes the bet and not in
consequence there of.
In Bradford v. Dawson (1987) 1 Q.B. 307 the expression betting with persons reporting thereto occurring in Section 1 of the Betting Act, 1853
came up for consideration. In that case a book-maker went to a beer house on several days at the same hour in the evening on each day and
persons who had made bets with him elsewhere and bad won came to the beer house, and he paid the bets to them in the beer house. The book-
maker was charged for using the bar of the beer house for the purpose of betting with persons (sic) there etc. The question arose as to whether he
has be with persons resorting to the beer house which is an offence u/s 1 of the said Act. The Court held that paying for bets, previously made
elsewhere, was not using the bar for the purpose of betting with persons resorting where to within the meaning of that Act and therefore the
Respondent could not be Convicted u/s 1. The Court took the view that betting is one thing and paying the bet is another, that the bets being over,
and not having been made in the beer house do not come Within the meaning of the said Act. This decision is relied on by the learned Counsel for
the Appellant in support of bet submission that the bet amount should be taken to be an amount paid in consequence of a bet and it will not include
amounts such as commission payable to the Race Club or the tax payable to the State Government. Reliance also is placed by the learned Counsel
for the Appellant o K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, in support of his stand that the expression ""in consequence
of"" occurring in Section 5 of the Act should receive what may be called an administrative construction which is commonly referred to as practical
construction. In that case the scope and ambit of Section 52(2) of the income tax Act, 1961 came up for consideration. The said provision was
construed in the light of the circulars issued by the Central Board of Direct Taxes explaining the scope and object of that Sub-section. The
Supreme Court observed:
These two circulars of the Central Board of Direct Taxes are, as we shall presently point out, binding on the Tax Department in administrating or
executing the provision enacted in Sub-section (2), but quite apart from their binding character, they are clearly in the nature of contemporaneous
exposition burnishing legitimate aid in the construction of Sub-section (2). The rule of construction by referee to contemporaneous exposition is a
well-established rule for interpreting a statute by reference to the exposition it has received from contemporary authority, though it must give way
where the language of the statute is plain and unambiguous. This rule has been succinctly and felicitously expressed in Crawford on Statutory
Constructive on (1940 Edition.) where it is stated in paragraph 219 that;
administrative constructor (i.e. contemporaneous Construction placed by administrative or executive officers charged with executing a statute)
generally should be clearly wrong before it is overturned such a construction, although non-controlling, is nevertheless en-titled to considerable
weight it is highly persuasive.
The validity of this rule (of administrative construction) was also recognised in Baleshwar Bagarti v. Bhagirathi Dass ILR (1908) Cal 701 Where
MOOKERJEE J-, stated the rule in these terms:
It is well-settled principle of interpretation that Courts in constricting a statute will give such weight to the interpretation put upon, it, at the time of
its enactment and since, by those whose duty it has been to (sic) execute and apply it.
and this statement of the rule was quoted with approval, by this Court in Desh Bandhu Gupta and Co. and Others Vs. Delhi Stock Exchange
Association Ltd., It is clear from these two circulars that the Central Board of Direct Taxes, which is the highest authority entrusted with the
execution of the provision of the Act, understood Sub-section (2) as limited to cases where the consideration for the transfer has been understated
by the assesses and this must be regarded as a strong circumstance supporting the construction which we are placing on that sub section.
According to the learned Counsel for the Appellant, in this ease the expression inconsequence of is taken to be ambiguous, then the rules framed
can be taken to throw light on the interpretation of that expression by following the rule of construction referred to by the Supreme Court in the
above case. According to him Rule 9 and Form O clearly indicate that it is only the (sic) bet amount that should be taken into account and not all
the amounts collected by the book-maker whatever be its nature. We are inclined to agree with the contention of the learned Counsel for the
Appellant that Rule 9 and Form O throw considerable light on the question as to what is the scope of Section 5 and Whether it comprehends (he
commission amounts collected by the book-maker for payment to the amounts collected by the book-maker for payment to the Race Club. It is
true .that the scope of the Statutory provision cannot be cut down wish reference to the about and under the state But where the statutory
provision is ambiguous it is possible to refer to the rules specially when then less are approved by like Legislature as in this case. According to
Section 9(4) of the Act framed under the Act be placed before both the House of Legislature. Therefore, when the rules have the approval of the
Legislature which enacted the statute it is also permissible to refer to the rules for determination the scope of section 5.
In Income Tax Officer, A-Ward, Sitapur Vs. Murlidhar Bhagwandas, Lakhimpur Kheri, the Supreme Court has observed while dealing with the
scope of second provision to Section 34(3) of the income tax Act, 1922 which uses the expression in consequence of or to give effect to have to
be collected with and cannot enlarge the scope of the finding or direction under the proviso.
On the same reasoning the words in consequence of occur ring in Section 5 of the Act cannot enlarge the expression bet. Therefore, the
amounts paid or agreed to be paid in consequence of the bet as commission or tax collected by the book-maker for payment to the Race Club or
the State respectively. Section 4 of the Act also brows a backer when he bits at a totalizator. That section levels lax in respect of monies paid by
them into any totalizaior by way of stakes or bet. The levy of lax u/s 4 is only on the amount paid into the totalize or and it does not include any
other amount Therefore Section 5 also should be taken to levy tax be amount paid on bets made with book makers. It is significant to note that the
Respondent themselves have not chosen to treat the amount of tax collected from the backers as following within the expression a amounts
occurring in section.
As we have construed the expression all amounts paid or agreed to be paid inconsequence of bets as not including the amount paid as c
commission or tax and that is sufficient for the disposal of the writ appeal, we are not going into the question canvassed before us by the. learned
Counsel for the Appellant that if Section 5 is understood as contended for by the Respondent, the provision will violate the provisions of the
Constitution and there fore they should be declared to be constitutionally in valued.
In the result the writ appeal is allowed with cost.