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HIGH COURT OF CALCUTTA
CHAKRABARTI, B. K. GUHA
ROYAL CALCUTTA TURF CLUB - Appellant
Versus
COMMISSIONER OF INCOME-TAX, WEST BENGAL, CALCUTTA - Respondent
Income-Tax Ref. 1 Of 1956
Decided On : AUGUST 29, 1957
INCOME TAX - Business Profits Tax - Expenditure - Whether expenditure incurred by the assessee to train Indian boys as jockeys constituted expenses of the business allowable under Section 10 (2) (xv) of the Income-tax Act.
Fact of the Case:
The assessee, Royal Calcutta Turf Club, established a school to train Indian boys as jockeys to address the potential shortage of jockeys and protect its business interests. The assessee claimed the expenditure incurred on running the school as a deduction under Section 10 (2) (xv) of the Income-tax Act, arguing that it was wholly and exclusively laid out for the purpose of its business.
Finding of the Court:
The Income-tax Officer, Appellate Assistant Commissioner, and Appellate Tribunal disallowed the deduction on the grounds that: (1) the expenditure was not related to the assessee's business of holding race meetings; (2) the benefit to the assessee from the school was indirect and not a proper objective of business expenditure; and (3) the expenditure was of an enduring nature and, therefore, capital expenditure.
Issues: 1. Whether the expenditure incurred by the assessee to train Indian boys as jockeys constituted expenses of the business allowable under Section 10 (2) (xv) of the Income-tax Act? 2. Whether the expenditure was laid out wholly and exclusively for the purpose of the assessee's business?
Ratio Decidendi: 1. The expenditure was incurred to address a potential threat to the assessee's business and to maintain conditions that would preserve its opportunities for making profits. It was, therefore, laid out for the purpose of the assessee's business. 2. The benefit to the assessee from the school, though indirect, was not an asset or advantage for the enduring benefit of the business. It was a measure of protection against a decline or extinction of the business due to a probable dearth of jockeys. 3. The expenditure was not made once and for all but was a recurring expense of running the school. It was, therefore, not capital expenditure.
Final Decision: The expenditure incurred by the assessee to train Indian boys as jockeys constituted expenses of the business allowable under Section 10 (2) (xv) of the Income-tax Act.
( 1 ) THE point involved in this Reference is a short point, but not tor the matter of that a very easy point to decide.
( 2 ) THE assessee is tire Royal Calcutta Turf Club whose business is to hold race meetings in Calcutta on a commercial basis. It holds two series of meetings during two different seasons of the year. The Club does not own any horses, nor does it employ any jockeys. It only holds race meetings. At those meetings, horses are run by persons who own them and they are ridden by jockeys who are employed by the owners. The Club has thus no direct concern with horses or jockeys. Nevertheless, it is important to the Club that jockeys of the requisite skill and experience should be available to the owners, because no horses can be run unless there are Jockeys to ride them and no races can be held unless there are jockeys to ride horses at the races.
( 3 ) IT appears that some time before 1948, the Club came to think that there was a risk of a serious decline in the number of jockeys available in Calcutta and that if such a decline did in fact occur, races to be held under the auspices the Club might have to be abandoned and its business closed down. It was, therefore, thought expedient to take some steps for providing against that contingency. The step taken was to establish a school for the training of Indian boys as jockeys so that, when they passed out and got their riding licenses, they might be available to the owners desiring to race their horses at meetings held by the Club.
( 4 ) IT has been found that the school did not prove a success and was closed down after a brief existence of three years. It has also been found that the young men trained at the Club's school would be under no obligation to serve owners entering their horses for races held by the Club. After obtaining their riding licenses, they would be at complete liberty to accept employment under anyone they liked and anywhere in any country.
( 5 ) DURING the year ending on the 3lst of March, 1949, the Club spent a sum of Rs. 62,818/-on the running of its riding school. In the course of its assessment to income-tax for the year 1949-50 and assessment to Business Profits Tax for the chargeable accounting period ending on the 31st of March, 1949, the Club put forward a claim that in computing the business profits, the sum of Rs. 62. 818/-, spent by it on the school, should be allowed as a deduction under Section 10 (2) (xv) of the Income-tax Act. In other words. It claimed that the amount was expenditure, not in the nature of capital expenditure and that it had been laid out or expended wholly and exclusively for the purpose of its business.
( 6 ) THE Income-tax Officer disallowed the claim. He held that the running of the school could in no way be related to the business of the Club, which was merely to hold race meetings and had nothing to do with the training of jockeys. If the purpose for which the expenditure had been made was totally outside the proper purposes of the Club's business, no other question could obviously arise but the Income-tax Officer also held that even assuming that the Club might derive a benefit from the keeping of the school, because trained riders, passing out of it, might supply a possible deficiency in the number of jockeys locally available, it would be a very indirect benefit and could not, therefore, be the proper objective of any proper business expenditure. A third ground for rejecting the Club's claim was also given. The Income-tax Officer held that even assuming that the indirect benefit which the Club might derive from the keeping of its school could be a proper objective of expenditure, the deduction asked for could not still be claimed, because the benefit would be a benefit of an enduring nature and, therefore, any expenditure incurred for procuring it would be capital expenditure. To the third reason thus given, the Income-tax Officer added a corollary which is by no means clear to me
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