P L D 1975 Karachi 260 (PLP)

1954‑55 16,197 18,596 1955‑56 5,051 13,732 1956‑57 11,497 (loss) 41,312 1957‑58 38,509 1,504 1958‑59 35,786 7,879 1959‑60 37,329 (loss) 3,477 On these facts, the Assessing Officer was of the opinion that horse racing and betting was one of the avocations or businesses of the assessee and accordingly added the assessee's income from this source of his income from glassware business and brought the total income under tax. The assessee appealed against the decision of the assessing officer to the Appellate Assistant Commissioner of Income tax, who held that the assessee's income from horse‑racing was of a casual nature and therefore was not subject to taxation under the Act. The Department appealed to the Tribunal which upheld the decision of the Appellate Assistant Commis sioner. The Department thereupon preferred 7 applications under section 66(1) of the Act to the Tribunal, one in respect of each charge year, for referring to the High Court the question whether the income of the assessee from horse‑racing was subject to taxation under the Act. The Tribunal, however, dismissed all the 7 applications by a consolidated order‑on the ground that the question whether horse‑racing in a particular case is or is not a business is a question of fact, determinable from other facts and not a question of law. The Department, thereupon, made seven reference applications to the High Court under section 66(2) of the Act against the aforesaid consolidated order of the Tribunal, being I. T. C. Nos. 223 to 229 of 1961. The High Court, by its order given on 21‑4‑1967, was of the view that the con tentions raised by the Department involved a question of law and that in every case it will be a question of law whether on the facts determined and from the surrounding circumstances the activities of a person indulging in horse‑racing were of a commercial nature or other wise. On this view of the matter, the High Court directed that the: aforesaid two questions be referred by the Tribunal for decision of the High Court under section 66(2) of the Act. Mr. Iqbal Naim Pasha, the learned counsel for the assessee, conceded before us that the earnings of the assessee from horse‑racing were income for the purposes of the Act, but contended that the horse‑racing activities of the assessee cannot be considered to be `business' for the purposes of section 2(4) of the Act, and in any case the said income was not taxable under the Act. The expression `business' has been defined in section 2(4) of the Act as follows :‑ " (4) `business' includes any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture;" As pointed out by Craies in his treatise on Statute Law "There are two forms of interpretation clause. In one, where the word defined is declared to "mean" so and so, the definition is explanatory and prima facie restrictive. In the other, where the word defined is declared to "include" so and so, the definition is extensive. Some times the definition contains the words "mean and include", which inevitable raises a doubt as to interpretation(s)." When an interpretation clause, as in the instant case, defines or explain the meaning of a word, by the use of the word `includes', it does not A, take away its ordinary meaning, but besides it brings within its ambit something which otherwise may not be ordinarily included within its fold. As such, the interpretation which is to be given to the word `business' for the purposes of the Act is not only the extended connota tion contained in section 2(4), but also the ordinary dictionary mean ing of the term. The term `business' has been defined in the Oxford English Dictionary as : "a person's official or professional duties as a whole, stated occupation, profession, or trade; a pursuit or occupation demanding time and attention; a, serious employment ac distinct from a pastime; specially a particular occupation; a trade or profession". It will thus be seen that according to the dictionary meaning of the term, a mere pastime or hobby cannot be considered to be a business. According to Corpus Juris Secundum (Vol. III), the term `business' as referred to in the commercial, legal, popular or trade sense, "and in common, or ordinary, parlance, or in a general sense, has a well defined meaning, not employed in any abstract sense but in a highly practical signification, as having reference to an occupation for livelihood or profit. It has been said that, while there are few words more current in our speech than the word `business', and few that include a greater variety of subjects, yet there is none which, in popular speech, has greater or more marked singleness in denotement. and that when one speaks of `business', the mind naturally contemplates a commercial or industrial :establishment or enterprise". The above connotation of the term `business' would clearly appear to exclude mere hobbies and pastimes, although there may be an element of profit or income in them or they maybe carried on for a considerable length of time. Coming now to the extended definition of the word `business', as contained in section 2(4) of the Act, it would be seen that it embraces only such activities as are in the nature of trade, commerce or manufacture. Could it be said that betting on horse races and maintaining race horses for the purposes of entering them in races, in the hope that they ma win a prize or a trophy, is a trade, commerce or manufacture, however extended a meaning we may give to these words and terms. We art inclined to the view that such activities cannot be given the status of or considered to be `business' for the purposes of the Act, though such activities may extend over a number of years and may also be a possible or even a substantial source of income. Reference in this connection may also be made to the first proviso to subsection (1) to section 24 of the Act which provides that speculative transactions, which are in the nature of business, shall be deemed to constitute a business distinct and ‑separate from any other business carried on by the assessee. This proviso clearly suggests that the Legislature did not intend that all speculative transactions, and betting clearly in a form of a speculative transaction, were C to be considered to be business for the purposes of the Act, but only such speculative transactions, which are in the nature of business, are to be deemed to be `business'. Even in connection with horse‑racing, there can certainly be certain activities, such as the functions of bookies, the training of race horses, maintenance of stables for breeding of race horses or the lease of horses on profit for racing, which undoubtedly would fall within the ambit of `business', as defined in the Act, but the maintenance of race horses by an owner for the purposes of entering them in races or betting on races, would not, in our opinion, be considered to be a "business" ‑for the purposes of the Act. We are fortified in our view by a number of English and Indian authorities. In Graham v. Green (9 Tax Cas. 608), the question which arose before the King's Bench 'Division was whether a gentleman, whose means of livelihood, apart from the interest on his bank deposits, was and had been for many years ,betting on horses, was liable to pay tax on his income from bettings and whether such bettings could be considered to be his 'business' or part of ,a business, Rowlatt, J., while holding that such activities could not be considered to be a business or vocation, observed as under "Now we come to the other side; the man who bets with the book maker, and that is this case. These are mere bets. Each time he puts on his money, at whatever may be the starting price, I do not think he could be said to organises his effort in the same way as a book‑maker organises his. I do not think the subject‑matter from his point of view is susceptible of it. In effect all he is doing is just what a man does who is skilful player at cards, who plays every day. He plays today and he plays tomorrow and he plays the next day and he is skilful on each of the three days, more skilful on the whole than the people with whom he plays, and he wins. But I do not think that you can find, in his case, any conception arising in which his individual operations can be said to be merged in the way that particular operations are merged in the conception of a trade. I think all you can say of that man, in the fair use of the English language, is that he is addicted to betting. It is extremely difficult to express, but it seems to me that people would say he is addicted to betting, and could not say that his vocation is betting." The second English case on the subject is Hawos v. Gardner (31 Tax. Cas. 957). In that case, A, who was a poultry farmer and engaged in other farming activities, for many years carried on the hobby of coursing greyhounds, for which purposes he bred and trained his own hounds. Prior to 1945 he gave away or destroyed puppies he did not require but from 1945 onwards, he sold puppies at substantial prices. It was held that up to 1945 the object of A in breeding greyhounds, was entirely to win prizes, and being a hobby or recreational sport activity, it was not in dispute that it was not assessable to income‑tax, but his activities in selling puppies at substantial prices from 1945 onwards at least up to 1950 could be considered to be income from a business. It may, however, be pointed out that in the instant case there is nothing to indicate nor it is even the case of the Department that the assessee breed race‑horses for the purposes of sale. In fact the evidence is to the effect that though in 1956, he possessed as many as 5 horses, all of which he seems to have purchased, 3 died in 1959 and one more died in 1960, so that by the end of the year 1960, he was left with only one horse. The facts of the instant case are very similar to the facts in the case from the Indian Jurisdiction of Janab A. Syed Jalal Sahib v. Commissioner of Income‑tax, Madras ((1960) 2 Taxation 569) on which the Tribunal relied upon in rejecting the appeal of the Department. In that case, the main business of the assessee was the manufacture and sale of bids. However, the assessee attended horse‑races in many centres and indulged in betting on horses. Subsequently, he acquired horses of his own, which he entered for some of the races, and also acquired horses in partnership with others which too he entered in races. The assessee maintained separate sets of accounts regarding his racing activities, in which details of moneys expended and earnings realised either from the stakes for which his horses ran or from his successful bets were accounted for. The Income‑tax authorities treated these amounts as income of the assessee from his business. The Madras High Court, relying on the case of In re : Lala Indra Sen ((1940) 8 1 R 187) held that while the earnings of the assessee from these activities were undoubtedly income for the purposes of the Indian Income‑tax Act, 1922, these activities could not be considered to be a business for the purposes of the said Act nor was such income taxable under the Act, being of a casual nature. The contention that it was a business was repelled in the following words :‑ "Whether or not betting could be organised on commercial lines by a punter to constitute a business of his, it is virtually impossible to look upon gambling by betting or racing, i.e. entering horse for races, or a combination of both, as constituting a profession or vocation. Vocation may be an expression of much larger import than profession. But that makes no difference to what we have stated. No doubt, the expression professional gambler has the sanction of usage, but it only implies that he is a habitual gambler who hopes to make, and possibly does make, money by his gambling activities. That obviously is not enough to hold that gambling is his profession or even vocation, as these expressions have to be understood in the context of the Income‑tax Act. After all, even a person who bets on horses for his pleasure or prestige also hopes to win his bet. Neither such hope nor the realisation of that hope by a habitual gambler could suffice to divest the gambling transaction of its essence of irrationality. A habitual indulgence in such irrational activities could not be viewed as constituting a profession or vocation. Even if the money made over such transactions furnished the sole or main means of livelihood, that would not establish that gambling was a profession or vocation." The question whether income from betting on race‑horses was of a casual nature and therefore exempt from taxation under section 4(3) (vii) of the Act was dealt with in that case as follows :

‑ "The success of a horse or that of a bet is obviously uncertain and wholly a matter of chance, and the receipts dependent on such a chance can never be anything but casual. Whether a person made Rs. 40,000 over one bet or over a series of bets in a year could make no difference. The total would still be a total of casual receipts. What section 4(3)(vii) of the Act requires is that the receipts should not only be casual but it should also be non recurring, Casual and non‑recurring is the requirement of the statutory provision." Mr. S. A. Nusrat, the learned counsel for the Department, has relied upon the case of Norman v. Evans (42 Tax. Cas. 188). In that case a farmer and race horse breeder, leased some of his horses to other persons to be raced by them under identical agreements which provided that half of the wins earned by a horse leased by him would be paid to him. It was held that the income received by the farmer from the lease of his horses was subject to income‑tax. The facts of that case are clearly distinguishable from the facts of the present case, for whereas in the reported case the fact that the farmer was breeding race‑horses and leasing them or at least some of them for profit indicated that he was doing so as a sort of a business venture. In the instant case the assessee kept horses at the race club for his own hobby and pastime and himself betted on his own horses and other horses. Even in the reported case it was assumed that income of an owner who races his own horses is not taxable and it was stated as follows :‑ "Now, in the case of an owner who races his own horse under his own colours in circumstances in which it is reasonable to say that in so doing he is not doing it as part of a trade or business, I understand that it is the practice of the revenue to treat any profits that such owner may make as being casual profits of a kind which are not caught by the Income‑tax Acts, not being profits of a trade and not being profits or gains of any other kind referred to in any of the charging provisions of the Act; but the case may be different if the moneys in question are not moneys which result from the tax‑payer's own activities in that respect." Mr. S. A. Nusrat has also referred us to the case of Commissioner of Income‑tax, Madras v. V. P. Ram (1) where it was held by the Madras High Court that the appointment of a retired Judge as an Arbitrator under the Madras Local Boards Act amounted to occupation or business for the purposes of the Indian Income‑tax Act, 1922, and the income received by such assessee from such arbitration proceedings was taxable under the said Act. We do not consider it necessary to express any opinion upon the correctness or otherwise of this decision, as the activities of the assessee in that case were quite different from the racing activities of the assessee in the instant case, the income wherefrom was subject to mere chance. For the reasons given above, we are inclined to the view that the horse‑racing and betting activities of the assessee, though they were carried on for a number of years and in certain years yielded him substantial amounts, did not constitute `business' within the meaning of section 2(4) of the Act. We would accordingly answer the first question referred to us by the Tribunal in the negative. In view of this opinion, it is not necessary to give any decision on the second question, but if it would have been necessary to answer this question, we would have answered it in the affirmative, since, such earning are of a purely casual nature, depend in entirely on mere chance and luck and having no element of permanency o regularity. In view of the difficult questions which arose in the instant case, we would leave the parties to bear their own costs. S. A. H. Answered accordingly.