Judgment

S.C. AGRAWAL, J.

(1) THESE appeals filed by the assessee against the order dated 24/2/1977 passed by the Income Tax Settlement Commission (hereinafter referred to as "the Settlement Commission") relate to assessment years 1971-72 and 1972-73. The appellant carries on business as a dealer in art pieces, antiques and curios at Bangalore. During the assessment year 1971-72 the appellant received a total amount of Rs. 3,11,831.00 by way of race winnings in Jackpots and Treble events in races at Turf Clubs in Bangalore, Madras and Hyderabad. The said amount was shown by the appellant in the capital account in the books. The appellant filed a return on 27/3/1972 declaring an income of Rs. 27,829.00. The appellant also made a sworn statement on 6/1/1973 before the Income Tax Officer and on the basis of the said statement the Income Tax Officer made an assessment order dated 27/3/1974 wherein he held that the sum of Rs. 3,11,831.00 is not winnings in races and he treated the said receipts as income from undisclosed sources and assessed the same as income from other sources. For the assessment year 1972-73 the appellant showed receipts of Rs. 93,500.00 as race winnings in two Jackpots at Bangalore and Madras and the said amount was credited in the capital account in the books. The appellant filed a return declaring an income of Rs. 3,827.00 on 3/2/1973. In his assessment order dated 31/8/1974 the Income Tax Officer included the amount of Rs. 93,500.00 as income from other sources and assessed the income of the appellant on that basis. The appeals filed by the appellant against the two assessment orders were disposed of by the Appellate Assistant Commissioner by order dated 12/12/1975 whereby the assessment of Rs. 3,11,831.00 as income under the head other sources for the assessment year 1971-72 and Rs. 93,500.00 for the assessment year 1972-73 was confirmed. The appeals filed against the said order before the Income Tax Appellate tribunal were withdrawn by the appellant under Section 245-M(2 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), and on 6/8/1976 she moved the application giving rise to this appeal, before the Settlement Commission wherein the appellant stated that she was agreeable to a reasonable addition on a reasonable basis should the Commission hold that the drawings of 1970-71 and 1971-72 were not adequate for purchase of Jackpot tickets, other expenses in connection with the races and losses, if any, estimated by the Settlement Commission to have been sustained by the appellant. On the said application the Commissioner of Income Tax submitted his report dated 29/1/1977 wherein he urged that the action of the Department in taxing the entire winnings as income from undisclosed sources should be upheld inasmuch the appellant lacked any knowledge of race techniques and the theory of probabilities precluded any systematic and continuous winnings at races on as many as 16 occasions during a period of less than two years. In his report, the Commissioner also submitted that the books of accounts did not indicate the expenditure on travel and other incidental expenses which had been incurred by the appellant for attending the races at Bangalore and Hyderabad. The Commissioner also asked for reopening of the assessment year 1970-71 where the appellant had won a sum of Rs. 74,681.00 and which was not brought to tax by the Income Tax Officer.

(2) THE matter was heard by three members of the Settlement Commission. By order dated 24/2/1977 two members of the Commission (Shri R.S. Chadda and Shri K. Srinivasan) upheld the assessment for the assessment years 1971-72 and 1972-73 made by the Income Tax Officer and confirmed by the Appellate Assistant Commissioner of Income Tax: but did not find it possible under Section 245-E to accede to the request of the Commissioner of Income Tax that the assessment for 1970-71, which was made without bringing to tax the alleged race winnings o