- (1.) AS required by the High Court of Judicature at Bombay by their order dated 20th March, 1961, in Income -tax Application No. 22 of 1959, we hereby draw up an agreed statement of the case and refer it to the High Court under section 66(2) of the Indian Income -tax Act, 1922, with reference to the following questions of law : '1. Whether the Tribunal erred in law and/or acted without any evidence or contrary to the materials on record, in holding that in running the club house and the kiosks, the applicant was not carrying on a business activity ? 2. Whether the loss sustained by the applicant in running the said club house and the kiosks, and the depreciation on the fixed assets of the club house and the kiosks, were allowable while computing the applicant's profits from the business of running the race course ? 3. If the answer to the above question is in the negative, whether the said loss and depreciation could be set off or adjusted the said profits under section 10 of Income -tax Act, as loss and depreciation of a different business ?'
(2.) THE assessee is a limited company incorporated in 1926 under the Indian Companies Act, 1913. The assessments under reference are excess profits tax assessments for the chargeable accounting period ended March 31, 1946, and income -tax assessments for the year 1948 -49 to 1952 -53 (both inclusive). The accounting period for the excess profits tax assessment is the year ending March 31, 1946, while the accounting period for the income -tax assessments are years ended June 30, 1947, June 30, 1948, June 30, 1949, June 30, 1950, and June 30, 1951. The objects for which the company was incorporated were, inter alia, as follows : (1) to carry on the business of a race course company; (2) to establish any clubs, hotels and other convenience in connection with the property of the company; and (3) to carry on the business of hotel keepers, tavern keepers licensed victuallers and refreshment purveyors.
(3.) THE company was running a club house in Poona and refreshment kiosks both at Bombay and Poona race courses. Up to December, 1956, the club house was open to the members and their guests and boarding and lodging was provided and available exclusively for members, their wives and unmarried daughters. The company suffered a loss of Rs. 15,374 in the chargeable accounting period ending March 31, 1946, Rs. 60,982 in the assessment year 1948 -49, Rs. 94,244 in the assessment year 1949 -50, Rs. 79,203 in the assessment year 1950 -51, Rs. 94,244 in the assessment year 1951 -52 and Rs. 45,351 in the assessment year 1952 -53. In the earlier years also it had suffered losses but it did not claim the deduction of those losses because its claim was that it was a mutual concern and, therefore, none of its activities yielded income that was taxable. The matter went up to the Supreme Court for the assessment year 1940 -41, and the Supreme Court held that the amount received by the company from its members in respect of the season tickets, daily admission gate tickets and the use of the private boxes by members were assessable to tax. It is, thereafter, that the company raised this claim for the deduction of loss in the running of the club house at Poona and the kiosks at Bombay and Poona from its profits chargeable to tax under section 10 of the Act.;