# THE COMMISSIONER OE' INCOME-TAX, WEST BENGAL v. ROYAL CALCUTTA TURE' CLUB •

- **Citation:** [1961] 2 S.C.R. 729
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Bench:** J. L. Kapur, M. Hidayatullah, J. c. SHAH
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commissioner-oe-income-tax-west-bengal-v-royal-calcutta-ture-club-2029
- **Pages:** 8

## Headnote

Income Tax-Expenditure for preservation of business-If
wholly and exclusively laid out for the purpose of business-Indian
Income Tax Act, r922 (XI of r922), s. ro (2)(xv).
The business of the respondent club was to run race meetings on a .commercial scale. The club did not own any horse and
therefore did not employ jockeys. It. was a matter of some
importance to the club that there were jockeys of requisite skill
and experience in sufficient numbers who would be available to
the owners and trainers because otherwise the running of the
race meetings would not be commercially profitable and its
interest would suffer and it might have had to abandon its business if it did not take steps to make jockeys of the necessary
calibre available. Therefore it established a school for the
training of Indian boys as jockeys and claimed the sums spent
on the running of the school as deductable amount under s. 10
(2)(xv) of the Indian Income Tax Act.
Th.e question was whether in the circumstances of the case
the expenditure claimed was one which was wholly and exclusively laid out for the purpose of the respondent's business.
Held, that any expenditure which was incurred for preventing the extinction of a business would be expenditure wholly
and exclusively laid out for the purpose of the business of the
assessee and would be an allowable deduction.
In the instant case the amount in dispute was laid out
wholly and exclusively for the purpose of the respondent's business, because if the supply of jockeys of requisite efficiency and
skill failed, the business of the respondent would no longer be
possible.
Eastern Investments Ltd. v. Commissioner of Income-tax, West
Bengal, [r95r] S. C.R. 594 and Commissioner of Income-tax v.
Chandulal Keshavlal & Co., [1960] 38 I.T.R. 6o1, relied on.
British ltisulated and Helsby Cables v. Atherton, [1926) A. C.
205, Morgan v. Tate 0- Lyle Ltd., [1955) A. C. 21 and Boarland v.
Kramat Pulai Ltd., [1953] 2 AIL E. R. n22, discussed.
Strong & Co. v. Woodifield, (1906) A. C. 448 and Smith v.
Incorporated Council of Law Reporting, (1914) 3 K.B. 674, referred to .
. Ward 0- Co. Ltd. v. Commissioner of Taxes, [1923] A. C. 145,
distinguished.
I960
November a8.
730
SUPREME COURT REPORTS
[1961]
:c960

## Text

2 S.C.R. SUPREME COURT REPORTS
729
THE COMMISSIONER OE' INCOME-TAX,
WEST BENGAL
v.
ROYAL CALCUTTA TURE' CLUB
•
(J. L. KAPUR, M. HIDAYATULLAH and J. c. SHAH, JJ.)
Income Tax-Expenditure for preservation of business-If
wholly and exclusively laid out for the purpose of business-Indian
Income Tax Act, r922 (XI of r922), s. ro (2)(xv).
The business of the respondent club was to run race meetings on a .commercial scale. The club did not own any horse and
therefore did not employ jockeys. It. was a matter of some
importance to the club that there were jockeys of requisite skill
and experience in sufficient numbers who would be available to
the owners and trainers because otherwise the running of the
race meetings would not be commercially profitable and its
interest would suffer and it might have had to abandon its business if it did not take steps to make jockeys of the necessary
calibre available. Therefore it established a school for the
training of Indian boys as jockeys and claimed the sums spent
on the running of the school as deductable amount under s. 10
(2)(xv) of the Indian Income Tax Act.
Th.e question was whether in the circumstances of the case
the expenditure claimed was one which was wholly and exclusively laid out for the purpose of the respondent's business.
Held, that any expenditure which was incurred for preventing the extinction of a business would be expenditure wholly
and exclusively laid out for the purpose of the business of the
assessee and would be an allowable deduction.
In the instant case the amount in dispute was laid out
wholly and exclusively for the purpose of the respondent's business, because if the supply of jockeys of requisite efficiency and
skill failed, the business of the respondent would no longer be
possible.
Eastern Investments Ltd. v. Commissioner of Income-tax, West
Bengal, [r95r] S. C.R. 594 and Commissioner of Income-tax v.
Chandulal Keshavlal & Co., [1960] 38 I.T.R. 6o1, relied on.
British ltisulated and Helsby Cables v. Atherton, [1926) A. C.
205, Morgan v. Tate 0- Lyle Ltd., [1955) A. C. 21 and Boarland v.
Kramat Pulai Ltd., [1953] 2 AIL E. R. n22, discussed.
Strong & Co. v. Woodifield, (1906) A. C. 448 and Smith v.
Incorporated Council of Law Reporting, (1914) 3 K.B. 674, referred to .
. Ward 0- Co. Ltd. v. Commissioner of Taxes, [1923] A. C. 145,
distinguished.
I960
November a8.
730
SUPREME COURT REPORTS
[1961]
:c960
CIVIL APPELLATE JURISDICTION:
The Commission" 419 of 1958.
Civil Appeal No.
of Tncom!!·tax,
West Bengal
v.
Royal Calcutta
Turf Club
Kapur J.
Appeal by special leave from the judgment and
order dated August 20, 1957, of the Calcutta High
Court in Income-tax Reference No. 1 of 1956.
Hardyal Hardy and D. Gupta, for the appellant.
N. C. Chatterjee, Dipak Choudhri and B. N. Ghosh,
for the respondent.
1960. November 28. The Judgment of the Court
was delivered by
KAPUR, J.-This is an appeal by special leave
against the judgment and order of the High Court of
Judicature at Calcutta in a reference made by the
Income-tax Appellate Tribunal under s. 66(1) of the
Income-tax Act. The following question was referred:
"Whether in the facts and circumstances of this
case, the Appellate Tribunal was right in holding that
Rs. 61,818 spent by the assessee to train Indian boys
as jockeys, did not constitute expenses of the business
of the assessee allowable under s. 10(2)(xv)?"
which was answered in favour of the respondent. The
Commissioner is the appellant before us and the asses.
see is the respondent.
The respondent is an association of persons whose
business is to hold race meetings in Calcutta. on
a commercial basis.
It holds two series of race
meetings during the two seasons of the year. The
respondent does not own any horses and therefore
does not employ jockeys but they are employed
by owners and trainers of horses which are run in
the races. It is a matter of some importance to
the respondent that there should be jockeys available to the owners with sufficient skill and experience
because the success of races to a considerable extent
depends upon the experience and skill of a jockey who
rides a horse in a race. Because it was of the opinion
that there was a risk of the jockeys becoming unavailable and that such unavailability would seriously
affect its business which might result in its closing
' •·
2 S.C.R. SUPREME COURT REPORTS
731
down the business, the respondent considered it exi96o
pedient to remedy that defect. Therefore in 1948, it Tl c ---..
established a school for the training of Indian boys as
~j 1;;::;~;::~er
jockeys SO that after their training they might be
West Bengal
available for purposes of race meetings held under its
v.
auspices. The school, however, did not prove a sueRoyal Calcutta
cess and after having been in existence for three years
1·urj Club
it was closed down.
Kapur J.
During the year ending March 31, 1949, the respondent spent a sum of Rs. 62,818 on the running of its
school and claimed that amount as a deduction under
s. 10(2)(xv) of the Income-tax Act and also in the assessment under the Business Profits Tax for the chargeable accounting period ending March 31, 1949. This
claim was disallowed by the Income Tax Officer and on
appeal by Appellate Assistant Commissioner and also
by the Income-tax Appellate Tribunal. At the instance of the respondent the question already quoted was
referred to the High Court and was answered in
favour of the respondent. This appeal is brought by
special leave against that judgment.
The decision under the Business Profits Tax Act
will be consequential upon the decisfon of the deduction under the Income-tax Act. The Tribunal found
that it was not the business of the respondent to provide jockeys to owners and trainers, that the jockeys
trained in the respondent's school were not bound to
ride only in the races run by the respondent and that
the benefit, if any, which accrued was of ap. enduring
nature. It also found that the respondent had been
conducting race meetings since long, that it was not
the case of the assessee that if-it did not train jockeys
they would become unavailable and that the mere
policy of producing efficient Indian jockeys was not a
sufficient consideration for treating the expenditure as
one incurred for the business of the respondent. For
these reasons the expenditure was disallowed.
Before the Appellate Assistant e,pmmissioner, it
was contended by the respondent, that the reason for
incurring the expenditure was "to promote efficient
Indian jockeys" and it was in the interest of the respondent to see that the races are not abandoned on
732
SUPREME COURT REPORTS
[1961]
r96o
account of the scarcity of jockeys. In the order of the
T
C --. .
Tribunal it is stated that this was not the case of the
he
omnnsstouer
d
d
I:
of Income-tax
respon ent, an thereiore when the respondent wantWest Bengal' ed paragraph 5 of the statement to be substituted by
v.
the following:
Royal Calcutta
"It was the case of the assessee that unless it
Turf Club.
trained Indian Jockeys,· time may come when there
Kapur].
may not be sufficient number of trained jockeys to
ride horses in the races conducted by the assessee."
the Tribunal did not agree to do so.
Counsel for the appellant raised three points before
us; (1) The question as to whether an item of expenditure is wholly and exclusively laid out for the purposes of business or not is a question of fact; (2) the
connection between an expenditure and profit-earning
of the assessee should be direct and substantial and
not remote and (3) to be admissible as revenue expenditure it should not be in the nature of a capital expense, i.e., it should not bring into existence an asset
of an enduring nature.
As to the first question this court has held in Ea11tern Investments Ltd. v. Commissioner of Income-tax,
West Bengal(') that "though the question must be
decided on the facts of each case, the final conclusion
is one of law". In Commissioner of Income Tax v.
Chandulal Keshavlal & Co. (2), this Court said:-
" Another test is whether the transaction is properly entered into as a part of the assessee's legitimate
commercial undertaking in order to facilitate the carrying on of its business; and it is immaterial that a
third party also benefits thereby. (Ea11tern Investment
Ltd. v. Commissioner of Income-Tax, (1951) 20 I.T.R.
1). But in every case it is a question of fact whether
the expenditure was expended wholly and exclusively
for the purpose of trade or business of the assessee.
In the present case the finding is that it was laid out
for the purpose of the assessee's business and there is
evidence to support this finding."
But those observations must be read in the context.
In that case the assessee firm was the Managing Agent
of a Company and at the request of the Direotors of
(1) [1951] S.C.R. 59~. 598.
(2) [1g6o] 38 I.T.R. 6o1, 610.
2 S.C.R. SUPREME COURT REPORTS
733
the latter agreed to accept a lesser commission for the
Z960
year of account than it was entitled to. It was found Ths Commissione
by the Appellate Tribunal there that the amount was of Income-tax,
expended for reasons of commercial expediency and
west Bengal
was not given as a bounty but to strengthen the
v.
managed company so that if its financial position Royal Calctttta
became strong the assessee would benefit thereby, and
Turf Club
on the evidence the Tribunal came to the conclusion
Kapur 1.
that the amount was wholly and exclusively for the
purpose of such business. It was on this evidence
that the expense was held to be wholly and exclusively laid out for the purpose of the assessee's business
and this was the finding referred to. In that case the
Tribunal had not misdirected itself as to the true scope
and meaning of the words "wholly and exclusively
laid out for the purpose of the assessee's business".
In the present case the Income-tax Appellate Tribunal had misdirected itself as to the true scope and
meaning of these words. In our opinion, in the circumstances of this case, it. cannot be said that the
finding of the Tribunal was one of fact.
The question as to whether the expenses of running
the school for jockeys is deductible has to be decided
taking into consideration the circumstances of this
case. The business of the respondent was to run race
meetings on a commercial scale for which it is necessary to have races of as high an order as possible. For
the popularity of the races run by the respondent and
to make its business profitable it was necessary that
there were jockeys of requisite skill and experience in
sufficient numbers who would be available to the
owners and trainers because without such efficient
jockeys the running of race meetings would not be
commercially profitable. It was for this purpose that
the respondent started the school for training Indian
jockeys. If there were not sufficient number of efficient Indian jockeys to ride horses its interest would
have suffered, and it might have had to abandon its
business if it did not take steps to make jockeys of the
necessary calibre available. Therefore any expenditure which was incurred for preventing the extinction
93
734
SUPREME COURT REPORTS
[1961)
'960
of the respondent's business would, in our opinion, be
The Commissioner expenditure wholl:y and exclusively laid out for the
of Income-tax, purpose of the busmess of the assessee and would be
West Bengal
an allowable deduction.
This finds support from
v.
decided cases.
In Commissioner of Income-tax v.
Royal Calcutta Ohandulal Keshavlal & Go. (1 ), this Court held that in
Turf Club
order to justify a deduction the disbursement must be
Kapur J.
for reasons of commercial expediency; it may be
voluntary but incurred for the assessee's business; and
if the expense is incurred for the purpose of the business of the assessee it does not matter that the payment also enures to the benefit of a third party.
Another test laid down was that if the transaction is
properly entered into as a part of the assessee's legitimate commercial undertaking in order to facilitate the
carrying on of its business it is immaterial that a third
party also benefits thereby. In British Insulated and
Belsby Gables v. Atherton('), Viscount Cave L. C. held
that a sum of money expended, not of necessity and
with a view to a direct and immediate benefit to the
trade, but voluntarily and on the ground of commercial expediency and in order indirectly to facilitate
the carrying on of the business may yet be expended
wholly and exclusively for the purpose of the trade.
In a case more recently decided Morgan v. Tate & Lyle
Ltd. (8) the assessee company was engaged in sugar
refining business and it incurred expenses in a propaganda campaign to oppose the threatened nationalisation of the industry. It was held by the House of
Lords by a majority that the object of the expenditure
being to preserve the assets of the company from
seizure and so to enable it to carry on its business and
earning profits, the expense was an admissible deduction being wholly and exclusively laid out for the purpose of the company's trade.
Lord Morton of Henry.
ton said:
"Looking simply at the words of the rule I would
ask: "If money so spent is not spent for the purpose
of the company's trade, for what purpose is it spent?"
If the assets are seized, the company can no longer
(1) (1g6o) 38 I.T.R. 601, 610.
(2) [1926] A.C. 205.
(3) [1955] A.C . .,,
/
2 S.C.R. SUPREME COURT REPORTS
735
carry on the trade which has been carried on by the
z96o
use of these assets. Thus the money is spent to pre- Th c --. .
th
.
f th
. , t d ,,
e
ommissioner
serve
e very existence o
e company s ra e .
of Income-ta"·
See also Strong & Co. v. Woodifield(1), the observations
West Bengal
of Lord Davey; and Smith v. Incorporated Council of
v.
Law Reporting (g).
Royal Calcutta
C
1
h
.
Turf Club
ounsel for the appel ant relied upon t e Judgment
of the Privy Council in Ward & Co. Ltd. v. CommisKapu1 1.
sioner of Taxes (3), but that decision proceeds on a
different statute where the words were of a very restrictive character, the words being:
" ..................... Expenditure or loss of any kind
not exclusively incurred in the production of the
assessable income derived from that source ............ ".
This case was distinguished in Morgan v. Tate & Lyle(')
on the ground that the language of the New Zealand
statute was much narrower than the language of r. 3A
in England.
Reference was also made by the appellant to Boar-
"land v. Kramat Pulai Ltd. (5). In that case DiJ'.ectors
of three Companies engaged in tin mining in Malaya
incurred expenditure on printing and circulating to
shareholders a pamphlet containing remarks of the
Chairman of the Company. The pamphlet was an
attack on the policy and acts of the Socialist Government and it was held that the question whether the
money was wholly and exclusively laid out or expended for the purpose of trade within the meaning of
rules applicable to the question was one of law but on
a consideration of the question it was held that the
expenditure was not solely incurred with that object.
It is not necessary to discuss that case at any length
because what was held in that case was that the pamphlet was not wholly and exclusively for the purpose
of the company's trade.
.
Applying the law, as laid down in those cases, to
the present case the conclusion is that the amount in
dispute was laid out wholly and exclusively for the
purpose of the respondent's business because if the
(1) [19o6] A.C. 448,
(2) (1914] 3 K.B. 674.
(3) [1923)] A.C. 1.45·
(4) [1955] A.C. 21.
(5) [1953] 2 All E.R. 1122.
736
SUPREME COURT REPORTS
[1961]
'96°
supply of jockeys of efficiency and skill failed the
Th
C -. .
business of the respondent would no longer be possie
ommissioner b
.
of Income-tax
le. Thus the money was spent for the preservation
West Bengal' of the respondent's business.
v.
As to the third point there is no substance in the
Royal Calcutta submission that the expenditure was in the nature of
Turf Club
a capital expense because no asset of enduring nature
Kapur J.
was being created by this expense.
In our opinion the High Court has rightly held that
the expenditure claimed was one which was wholly
and exclusively laid out for the purpose of the respondent's business. It was to prevent the threatened
extinction of the business of the respondent. In the
result this appeal is dismissed with costs.
November ag.
Appeal dismissed.
K. R. C. S. BALAKRISHNA CHETTY
& SONS & CO.
v.
THE STATE OF MADRAS
(J. L. KAPUR, M. HIDAYATULLAH and J.C. SHAH, JJ.)
Sales Tax -
Claim of exemption. by licensee-If conditional
upon observance of conditions and restrictions-Ma4J'as General
Sales Tax Act, I939 (Mad. IX of z939), s. 5.
The appellants, who were dealers in Cotton yarn, obtained
a license under the Madras General Sales Tax Act, 1939 (IX of
1939). Section 5 of that Act exempted such dealers from payment of sales tax under s. 3 of the Act subject to such restrictions and conditions as might be prescribed, including the conditions as to licenses and license fees. Section 13 required a licensee to keep and maintain true and correct accounts of the value
of the goods sold and paid by him. Rule 5 of the General
Sales Tax Rules provided that any person seeking exemption
under s. 5 of the Act must apply for license in Form 1 which
made the license subject to the provisions of the Act and the
rules made thereunder. The appellants on surprise inspection
were found to maintain two separate sets of accounts, on the
basis of one of which they submitted their returns and the other