Jayasimha Babu, J. - (1.) THE assessee is maintaining horses which are also owned by the assessee for the purpose of running them in horse-races. THE assessee incurred expenditure on such maintenance during the previous year relevant to the assessment year 1979-80. THE horses so maintained by the assessee did not participate in any of the races during that year and the assessee did not have any income from participation in race including horse-race in that year.
(2.) THE assessee claimed that expenditure as loss for the year and sought to set off the same against the income derived by the assessee from other sources. That claim of the assessee was negatived by the Income Tax Officer but was accepted by the Commissioner. THE Tribunal affirmed the order of the Commissioner by holding that the source under which the cost of maintenance of the race-horses is to be considered is not any of the sources referred to in section 74A(2) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') but under the head 'Income from other sources' under section 56 and, therefore, that loss can be set off against the income derived from other businesses carried on by the assessee in that year. The heads under which the income is required to be computed are set out in different parts of the Act. Section 14 deals with the heads of income. The heads listed therein from (a) to (f) are salaries, interest on securities, income derived from house property, profits and gains of business or profession, capital gains and income from other sources. The heads so listed in section 14 are subject to what has been provided elsewhere in the Act. Section 14 opens with the word 'save as otherwise provided by this Act. . . .' Section 74A(2) refers to one of the provisions which identifies sources for which special provision is made. Those sources are lotteries, crossword puzzles, races including horse-races; card games; other games of any sort and gambling or/betting of any form or nature whatsoever not falling under any of the foregoing clauses in section 74A(2). Section 74A(2)(c) refers to 'races including horse-races'. Section 74A(3) deals with losses incurred by the assessee who is the owner of horses maintained by him for running any horse-races, as a result of "the computation in respect of the sources specified in clause (c) of sub-section (2)." The computation to be made in respect of the activity of owning and maintaining race-horses is computation which is required to be made with reference to the source of income under the head 'Races including horse-races'. The absence of the income from horse-races in that year does not have the effect of permitting the computation being made under some other source of income. All expenditure incurred by the assessee owning horses and who maintains horses for running horse-races must necessarily be computed under the source specified in section 72A(2) and no other. If the result of the computation is a loss, then the loss must be carried forward to the following assessment year and set off against the income under 'horse race' in the subsequent year or other years up to four assessment years immediately succeeding the assessment year for which the loss was first computed, as provided in section 74A(3). The Tribunal has misconstrued the provision and has wrongly assumed that the earning of income by participation in horse-race is a pre-requisite for making the computation of the income and expenditure under the head 'Races including horse-races'. Even as the loss suffered in a business can be carried forward under the same head, the computation of the losses is to be made under the head 'Business' if the activity is one which can be regarded as business. In the case of the horse-races and expenditure incurred by the owner of the race-horses on their maintenance also, the loss is to be computed under the source 'races including horse-races' and the loss, if any, carried forward in the manner provided under section 72A(3). We, therefore, answer the question referred to us, namely: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct in law in holding that the loss incurred by the assessee during the previous year relevant for the assessment year 1979-80 in the activity of owning and maintaining race-horses can be set off against any income of the assessee under any other sources under that head or any other head for this assessment year?" in favour of the revenue and against the assessee. The revenue shall be entitled to costs in the sum of Rs. 2,000. ;