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PETITIONER: COMMISSIONER OF INCOME TAX, MADRAS

       Vs.

RESPONDENT: G.R. KARTHIKEYAN, COIMBATORE

DATE OF JUDGMENT22/04/1993

BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) VENKATACHALA N. (J)

CITATION:  1993 AIR 1671            1993 SCR  (3) 328  1993 SCC  Supl.  (3) 222 JT 1993 (3)   174  1993 SCALE  (2)588

ACT: % Income Tax Act 1961: Sections2(24)and   10(3)-For   Assessment-What   constitutes Income-Prize  Money-From All India Motor  Car  Rally-Whether constitutes Income.

HEADNOTE: The assessee participated in an All India Highway Motor  Car Rally and on being declared a winner, received an amount  of Rs. 22,000 as prize money.  The Income-tax officer  included the  prize money in his income for the  relevant  assessment year  relying upon the definition of ’income’in clause  (24) of Section 2 of Income Tax Act. On  an  appeal  preferred  by  the  respondent-assessee  the Appellate Assistant Commissioner held that as the Rally  was not  a  race, the prize money cannot be  treated  as  income within  the meaning of section 2(24) (ix).  The Tribunal  on an appeal by the Revenue, held that the Rally was not a race and  as it was a test of skill and endurance, it was  not  a ’game’ within the meaning of Sec. 2 (24) (ix).  As the prize money  received  was casual in nature it fell  outside  Sec. 10(3) of the Act. The  High  Court  on  a reference at  the  instance  of  the Revenue,upholding the findings of the Tribunal,observed that the  expression ’winnings’ cannotes money won by betting  or gambling  and  therefore  the  prize  money  not   represent ’winnings’.  Inasmuch as the amount in question was obtained by participating in a rally which involved skill in  driving the  vehicle,  it  held,  it  cannot  he  included  in   the assessee’s income, also because it fell outside the  preview of s.10 (3). Allowing the Appeal, the Court, HELD:1.  The  expression ’income’ must be construed  in  its widest  sense.  The definition of ’income’ is  an  inclusive one.  Even if a receipt does not fall within sub-clause (ix) or any of the sub-clauses of Sec.2(24) of the Act it may yet constitute  income.  Hence the prize-money received  by  the respondent 329 assessee constitutes ’income’ -as defined in clause (24)  of

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Section 2 of the Act. (335-C) 2.The  High  Court erred in reading several  sub-clauses  in Sec.  2(24)  as exhaustive when the statute  expressly  says that  the definition is inclusive.  Even if a  receipt  does not fall within the ambit of any of the sub-clauses in  Sec. 2(24) it may still he income if it partakes of the nature of income.   The idea behind providing inclusive definition  in Sec. 2(24) is not to limit its meaning but to widen its net. This Court has repeatedly said that the word ’income’ is  of widest  amplitude and that it must he given its natural  and grammatical meaning. (335-D) Kamakshya  Narayan  Singh  v. C.LT 11 ITR  513  P.C.,  Navin Chandra Mafatlal v. C.I.T, Bombay 26 ITR (SC)and Bhagwan Das Jain v. Union of India 128 ITR 315 SC, followed. Gopal  SaranNarain  Singh  v. Commissioner  of  Income  Tax, 3ITR237 P.C., referred to. 3.If  the monies which are not earned in the true  sense  of the  word Constitute income, it is difficult  to  appreciate why do monies earned by skill and to not constitute  income? The  Rally  was a contest, if not a race.   The  Respondent- assessee  entered  the contest to win it.   The  Prize-money which he got in return for winning the contest was a  reward for his skill and endurance.  It does constitute his income- which  expression  must be construed in  its  widest  sense. (335-B) 4.The  sub-clause  (ix) of Sec. 2(24), is  not  confined  to games  of gambling nature alone.  Some of them are games  of skill. State  of Bombay v. R.M. D. Chamarbaugwala AIR 1957 SC  699; and Stale of Andhra Pradesh v. K. Satyanarayan [1968] 2  SCR 515, followed. 5.As the definition of income in Sec. 2(24) is an  inclusive one,  its  ambit  should be the same as  that  of  the  word ’income’  occurring  in Entry 82 of list 1  of  the  Seventh Schedule of the Constitution of India. (334-B) 6.Even  casual  income is ’income’as is  evident  from  Sec. 10(3).   A casual receipt which should mean in the  context, casual income-is liable to be included in the total  income, if it is in excess of Rs. 1,000 by virtue of clause (3) 330 of  Sec.  10.  The Tribunal erred in its  finding  that  the prize money fell outside the purview of Sec. 10 (3)  inspite of  holding  that  the receipt in  question  was  casual  in nature. (335-E)

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeal No.  3908  (NT)/ 1983. From  the Judgment and Order dated 20.11.1979 of the  Madras High Court in Tax Case No. 330 of 1976. A. Raghuvir and Ms. A. Subhashini for the Appellant. T.A.  Ramachandran  and  Mrs. Janaki  Ramachandran  for  the Respondent. The Judgment of the Court was delivered by B.P.  JEEVAN REDDY, J. This appeal is preferred against  the Judgment  of  the Madras High Court answering  the  question referred  to  it in the affirmative i.e., in favour  of  the assessee  and  against the Revenue.  The  question  referred under  section  256  (1)  of the  Income-tax  Act  reads  as follows: "Whether, on the facts and in the circumstances of the case, the  Appellate Tribunal was right in holding that the  total sum  of Rs. 22.000 received by the assessee from the  Indian

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Oil Corporation and All India Highway Motor Rally should not be brought to tax?" The  assessment  year concerned is 1974-75.   The  assessee, G.R.  Karthikeyan,  assessed as an  individual,  was  having income  from various sources including salary  and  business income.   During  the accounting year relevant to  the  said assessment  year, he participated in the All  India  Highway Motor  Rally.  He was awarded the first prize of Rs.  20,000 by  the Indian Oil Corporation and another Sum of Rs.  2,000 by  the  All  India  Highway Motor  Rally.   The  Rally  was organised  jointly by the Automobile Association of  Eastern India  and the Indian Oil Corporation and was  supported  by several   Regional  Automobile  Associations  as   well   as Federation  of Indian Motor Sports Clubs and the  Federation of Indian Automobile Associations.  The rally was restricted to  private  motorcars, the length of the  rally  route  was approximately 6,956 kms.  One could start either from Delhi, Calcutta,  Madras  or Bombay, proceed  anti-clock  wise  and arrive  at  the starting point.  The rally was  designed  to test endurance driving and the reliability of the                       331 automobiles.   One  had to drive his vehicle  observing  the traffic   regulations  at  different  places  as  also   the regulations prescribed by the Rally Committee.  Prizes  were awarded on the basis of overall classification.  The  method of  ascertaining  the first prize was based on a  system  of penalty points for various violations.  The competitor  with the  least  penalty  points  was  adjudged  the  first-prize winner.   On  the above basis, the assessee  won  the  first prize  and received a total sum of Rs. 22,000.   The  Income Tax  Officer included the same in the income of the  respon- dent-assessee  relying  upon the definition of  ’income’  in clause (24) of section 2. On appeal, the Appellate Assistant Commissioner held that inasmuch as the rally was not a race, the  amount received cannot be treated as income within  the meaning of section 2 (24) (ix).  An appeal preferred by  the Revenue  was  dismissed  by  the  Tribunal.   The   Tribunal recorded the following findings: (a)That the said rally was not a race.  It was predominantly a  test of skill and endurance as well as of reliability  of the vehicle. (b)  That the rally was also not a ’game’ within the meaning of section 2(24) (ix). (c)  That the receipt in question was casual in nature.   It was  nevertheless  not  an income  receipt  and  hence  fell outside the provisions of section 10 (3) of the Act. 3.   At   the   instance  of  the  Revenue,   the   question aforementioned was stated for the opinion of the Madras High Court.  The High Court held in favour of the assessee on the following reasoning: (a)  The expression ’winnings’ occuring at the inception  of sub-clause  (ix) in section 2(24) is distinct and  different from  the expression ’winning’.  The  expression  ’winnings’ has  acquired a connotation of its own.  It means money  won by gambling or betting.  The expression ’winnings’  controls the  meaning  of several expressions occurring in  the  sub- clause.   In this view of the matter, the sub-clause  cannot take  in the receipt concerned herein which was received  by the assessee by participating in a race which involved skill in driving the vehicle.  The rally was not a race.  In other words the said receipt does not represent ’winnings’. (b)  A  perusal of the memorandum explaining the  provisions of  the Finance Bill,. 1 972, which inserted the  said  sub- clause in section 2(24), also shows that the idea behind the

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sub-clause  was to rope in windfalls from  lotteries,  races and card games etc. 332 (c)  Section 74 (A) which too was introduced by the  Finance Act,  1972 supports the said view.  Section 74 (A)  provides that  any loss resulting from any of the  sources  mentioned therein can be set off against the income received from that source  alone.  The sources referred to in the said  section are  the very same sources mentioned in sub-clause  (ix)  of section  2(24)  namely lotteries, crossword  puzzles,  races including horse races, card games etc. The  correctness  of  the view taken by the  High  Court  is questioned herein. The definition of ’income’ in section 2(24) is an  inclusive definition.    The  Parliament  has  been  adding   to   the definition by adding sub-clause (s) from time to time.  Sub- clause  (ix)  which was inserted by the  Finance  Act,  1972 reads as follows: "(ix) any winnings from lotteries, crossword puzzles,  races including  horse  races, card games and other games  of  any sort  or  from  gambling or betting of any  form  or  nature whatsoever;" We  may  notice  at this stage a provision  in  section  IO. Section  10 occurs in chapter HI which carries  the  heading "Incomes  which do not form part of total income".   Section 10 in so far as is relevant reads thus: " 10, Incomes not included in total income: In computing the total  income of a previous year of any person,  any  income failing  within  any of the following clauses shall  not  be included: (d)  any  receipts which are of a casual and  non  recurring nature,  not  being winnings from lotteries, to  the  extent such  receipts  do  not exceed one thousand  rupees  in  the aggregate".  (The  clause has been amended by  Finance  Act, 1986 but we are not concerned with it.  Similarly it is  not necessary to notice the proviso to the said clause.) It is not easy to define income.  The definition in the  Act is  an inclusive one.  As said by Lord Wright  in  Kamakshya Narayan    Singh   v.   C.I.T.   11   I.TR.   513   P.    C. "income.............   is  a  word  difficult  and   perhaps impossible to define in any precise general formula.  It is a word of the broadest connotation". In  Gopal Saran Narain Singh  v. Commissioner of Income Tax 3.I.T.R. 237 P.C.,  the Privy  Council pointed out that "anything than can  properly be  described  as  income is taxable under  the  Act  unless expressly  exempted." This Court had to deal with the  ambit of  the expression ’income’in Navin Chandra Mafatlal v.  C.I T.Bombay 26 I.T.R. (S.C.) 333 The  Indian  Income-tax and Excess Profits  Tax  (Amendment) Act, 1947 had inserted section 12 (B) in the Indian  Income- tax  Act,  1922.   Section 12(B) imposed a  tax  on  capital gains.  The validity of the said Amendment was questioned on the  ground  that  tax  on capital gains is  not  a  tax  on ’income’within the meaning of entry 54 of list-1, nor is  it a tax on the capital value of the assets of individuals  and companies within the meaning of entry-55, of list- 1 of  the seventh schedule to the Government of India Act, 1935.   The Bombay  High  Court  repelled the attack.   The  matter  was brought  to  this Court.  After rejecting  the  argument  on behalf of the assessee that the word ’income’ has  acquired, by  legislative  practice, a  restricted  meaning-and  after affirming  that the entries in the seventh  schedule  should receive  the  most liberal construction-the  Court  observed

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thus: "What.  then,  is  the  ordinary,  natural  and  grammatical meaning  of the word "income"?  According to the  dictionary it  means "a thing that comes in." (See  Oxford  Dictionary, Vol.   V,p. 162; Stroud, vol.II, pp. 14-16).  In the  United States  of America and, in Australia both of which also  are               English speaking countries the word "income is               understood in a wide sense so as to include               a  capital  gain. Reference may  be  made  to-               ’Eisner  v. Macomber’, [1919] 252 US 189 (K);               -’Merchants’    Loan   and   Trust   Co.    v.               ’Smietanka’[1920] 255 US 509 ( L) and -’United               States  of America v. Stewart’, [1940] 311  US               60(M)  and-’Resch v. Federal  Commissioner  of               Taxation’, [1943] 66 CLR 198 (N).  In each  of               these cases very wide meaning was ascribed  to               the word "income" as its natural meaning. The  relevant observations of learned Judges deciding  those cases which have been quoted in the judgment of Tendolkar J. quite  clearly indicate that such wide meaning was put  upon the word "income" not because of any particular  legislative practice either in the United States or in the  Commonwealth of  Australia  but because such was the normal  concept  and connotation  of  the ordinary English  word  "income".   Its natural  meaning  embraces  any  profit  or  gain  which  is actually   received.   This  is  in  consonance   with   the observations  of Lord Wright to which reference has  already been made. The  argument  founded on an  assumed  legislative  practice being  thus out of the way, there can be no  difficulty  in applying its natural and grammatical meaning to the ordinary English word "income’. As already observed, the word  should be given its widest connota- 334 tion  in  view of the fact that it occurs in  a  legislative head conferring legislative power. 8.   Since  the definition of income in section 2(24) is  an inclusive one, its ambit, in our opinion, should be the same as  that of the word income occurring in entry 82 of list  1 of  the Seventh Schedule to the Constitution  (corresponding to  entry  54  of  list 1 of the  Seventh  Schedule  to  the Government of India Act). 9.   In  Bhagwandas  Jain v. Union of India 128  I.T.R.  315 S.C.  The challenge was to the validity of section 23(2)  of the  Act which provided that where the property consists  of house in the occupation of the owner for the purpose of  his own residence, the annual value of such house shall first be determined  in the same manner as if the property  had  been let  and  further be reduced by one half of  the  amount  so determined  or Rs. 1,800 whichever is less.  The  contention of  the assessee was that he was not deriving  any  monetary benefit by residing in his own house and, therefore, no  tax can  be  levied  on him on the ground that  he  is  deriving income  from  that house.  It was contended  that  the  word income means realisation of monetary benefit and that in the absence  of  any  such  realisation  by  the  assessee,  the conclusion  of  any amount by way of notional  income  under section  23(2)  of  the Act in  the  chargeable  income  was impermissible and outside the scope of entry 82 of list-1 of the   Seventh  Schedule  to  the  Constitution.   The   said contention was rejected affirming that the expression income is  of the widest amplitude and that it includes not  merely what  is received or what comes in by exploiting the use  of the  property  but  also that which can  be  converted  into income.

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10.  Sub-clause  (ix) of section 2(24) refers to  lotteries, crossword puzzles, races including horse races, card  games, other games of any sort and gambling or’ betting of any form or  nature whatsoever.  All crossword puzzles are not  of  a gambling  nature.   Some are; some are not.   See  State  of Bombay v. R.M.D. Chamarbaugwala A.I.R. 1957 S.C.699.Even  in card  games  there are some games which are games  of  skill without  an element of gamble (See State of  Andhra  Pradesh v.K. Satyanarayan[1968] 2 S.C.R. 515.  The words other games of  any sort" are of wide amplitude.  Their meaning  is  not confined  to  games  of a gambling nature  alone.   It  thus appears  that  sub-clause  (ix)  is  not  confined  to  mere gambling  or betting activities.  But, says the High  Court, the meaning of all. the aforesaid words is controlled by the word ’winnings’ occurring at the inception of the subclause. The High Court says, relying upon certain material, that the expression  winnings’  has  come  to  acquire  a  particular meaning  viz,  receipts  from activities of  a  gambling  or betting nature alone.  Assuming that the High Court is right in its interpretation of the expression ’winnings’, does  it follow that merely because 335 winnings  from  gambling/betting  activities  are   included within  the  ambit of income,the monies received  from  non- gambling  and  non-betting activities are not  so  included? What  is  the implication flowing from insertion  of  clause (ix)?  If the monies which are not earned-in the true  sense of the word-constitute income why do moneies earned by skill and  toil not constitute income?  Would it not look odd.  if one  is to say that monies received from games and races  of gambling nature represent income but not those received from games  and  races  of non-gambling  nature?   The  rally  in question  was  a contest, if not a  race.   The  respondent- assessee entered the contest to win it and to win the  first prize.   What  he  got  was a  return’  for  his  skill  and endurance.  Then why is it not income-which expression  must be  construed  in  its widest sense.   Further,  even  if  a receipt  does  not fall within subclause (ix), or  for  that matter, any of the sub-clauses in section 2(24), it may  yet constitute income.  To say otherwise, would mean reading the several  clauses  in  section 2(24)  as  exhaustive  of  the meaning of ’income’ when the Statute expressly says that  it is inclusive.  It would be a wrong approach to try to  place a  given  receipt  under one or  the  other  sub-clauses  in section 2(24) and if it does not fall under any of the  sub- clauses, to say that it does not constitute income.  Even if a receipt does not fall within the ambit of any of the  sub- clauses  in  section  2(24), it may still be  income  if  it partakes  of  the  nature of the income.   The  idea  behind providing  inclusive definition in section 2(24) is  not  to limit  its  meaning but to widen its net.   This  Court  has repeatedly  said  that  the  word  ’income’  is  of   widest amplitude,  and  that  it  must be  given  its  natural  and grammatical meaning.  Judging from the above standpoint, the receipt  concerned  herein  is also income.  May  be  it  is causal  in nature but it is income nevertheless.  That  even the  casual  income is ’income’ is evident from  section  10 (3).   Section  10 seeks to exempt  certain  ’incomes’  from being  included  in the total income’.  A casual  receipt which should mean, in the context, casual income  is liable to be included in the total income if it is in excess of Rs. 1,000,  by virtue of clause (3) of section 10.  Even  though it  is a clause exempting a particular receipt/income  to  a limited  extent,  it is yet relevant on the meaning  of  the expression  ’income’.  In our respectful opinion,  the  High

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Court,  having found that the receipt in question  does  not fall  within  sub-clause  (ix) of section  2(24),  erred  in concluding  that  it does not constitute income.   The  High Court  has read the several sub-clauses in section 2(24)  as exhaustive  of the definition of income when in fact  it  is not  so.   In this connection it is relevant to  notice  the finding  of  the  Tribunal.  It found that  the  receipt  in question   was  casual  in  nature  but-it   opined-it   was nevertheless  not  an income receipt and  fell  outside  the provision  of section 10 (3) of the Act.  We have  found  it difficult to follow the logic behind the argument. 11.  For  the  above reasons we hold  that  the  receipt  in question herein does 336 constitute  ’income’ as defined in clause (24) of section  2 of  the  Act.   The appeal is accordingly  allowed  and  the question  referred by the Tribunal under section  256(1)  of the  Act is answered in the negative i.e., in favour of  the Revenue  and against the assessee.  There shall be no  order as to costs. RSK. Appeal allowed. 337