Bombay High Court

H.E. Nasser Abdulla Hussain vs Dy. Cit on 20 May, 2002

Equivalent citations: (2002) 77 TTJ Mumbai 878

ORDER

M.K. Chaturvedi, Vice President

These four appeals by the assessee rotate around the identical issues. For the sake of convenience, these are consolidated and disposed of by a common order.

2. The first ground, common to all the appeals, pertains to the disallowance of appellant's claim of depreciation on horses. This ground was not pressed. As such, we dismiss the same as not pressed.

3. The next common ground, relevant for the assessment years 1990-91, 1991-92 and 1993-94, relates to the sustenance of disallowance of appellant's claim to carry forward losses under the head "Racing activity" as per the provisions of section 74A of the Income Tax Act, 1961 (hereafter referred to as the Act).

4. We have heard the rival submissions in the light of material placed before us and precedents relied upon. The assessee was carrying the activity of breeding of race horses and also racing them in horse races. The loss from breeding activity was returned under the head "Profits and gains of business" and the loss from racing activity was reflected under the head "Profits and gains of business" and the loss from racing activity was reflected under the head "Income from other sources." During the relevant assessment years, the assessee claimed carry forward of losses under the head "Racing activity" by resorting to the prescription of section 74A of the Act. Assessing Officer disallowed the claim, Commissioner (Appeals) confirmed the disallowance. The disallowance was made on the ground that the assessee himself has not maintained the race horses. It was noticed by the revenue authorities that the horses were maintained by Bin Hussein Stud Farm. As such, the benefit of section 74A of the Act was denied to the assessee.

5. Section 74A reads as under :

"74A(3) In the case of an assessee, being the owner of horses maintained by him for running in horse races (such horses being hereafter in this sub-section referred to as race horses), the amount of loss incurred by the assessee in the activity of owning and maintaining race horses in any assessment year shall not be set off against income, if any, from any source other than the activity of owning and maintaining race horses in that year and shall, subject to the other provisions of this chapter, be carried forward to the following assessment year and :

(a) it shall be set off against the income, if any, from the activity of owning and maintaining race horses assessable for that assessment year :

Provided that the activity of owning and maintaining race horses is carried on by him in the previous year relevant for that assessment year; and

(b) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on; so, however, that no portion of the loss shall be carried forward for more than four assessment years immediately succeeding the assessment year for which the loss was first computed.

Explanation : ............."

6. It is stipulated in the aforesaid section that the losses incurred by the owners of race horses, in the activity of owning and maintaining such horses, to the extent these cannot be set off against other income from the source "races, including horse races", will be carried forward and set off against income from the aforesaid source in subsequent years up to a period of four assessment years following the assessment year for which the loss is first computed. For the purposes of section 74A(3), a race horse would mean a horse maintained for running in races upon which wagering or betting may be lawfully made.

7. What is the purport of the words used in section 74A........ "horses maintained by him for running in horse races" ? Can the act of maintenance of horses be done through others, i.e., through the servants and agents of the assessee or the words maintained by him implies that assessee must maintain the horses by himself. In the present case, the assessee owned the horses and these horses were maintained by Bin Hussein Stud Farm. Assessee paid the due amount to the said stud farm for the maintenance of race horses.

8. The act of maintenance comprised of the feeding of horses, brushing the horses, medical examination of the horses and other incidental activities. It was stated that the assessee cannot do all this work by himself. As such, it was done through others against payment made for the services.

9. It is a well-known tenet of law canonized in the dictum : "Qui facit per alium facit per se" (He who does a thing through another, does it himself). In Halsbury's Laws of England, 3rd Edn., Vol. 33, para 407, in the context of 'manufacturer' it is mentioned that one who makes himself, and the one who gets a thing made by others, both are manufacturers. The latter is a manufacturer because a person is deemed to make goods or apply a process if the goods are made, or the process is applied, by another person to his order under any form of contract other than a purchase. The term "manufacturer" applies both to him who actually makes and to him who causes to be made.

The courts held that, one who gets the finished article prepared not by his own paid employees but by independent artisans paying for labour, is also a manufacturer. The same is the case where a part of the process is done by his own labour and a part by an outside agency.

10. The Jurisdictional High Court in the case of CIT v. Neo Pharma (P) Ltd. (1982) 137 ITR 879 (Bom), examined the meaning of 'industrial company'. The assessee-company was incorporated with the object of manufacturing. It entered into an agreement with another company to make available to the assessee plant, machinery and services, etc. to carry on its manufacturing activities. The assessee held the manufacturing licence. Products were manufactured by other company under direct supervision of assessee's own technically qualified staff. Raw material was supplied by the assessee. Assessee paid the hire and service charges to the other company. Assessee's name was printed on the packing materials and labels and cartons. Risk for the entire operation was undertaken by the assessee. On this factual detail, Hon'ble High Court has held that the operation amounts to assessee's manufacturing. As such, assessee was an industrial company.

11. Section 74A(3) of the Act begins with the words "In the case of an assessee, being the owner of horses maintained by him for running in horse races .........." The purport of this precision is that the assessee must be the owner of the horses and he must maintain those horses for running in horse races. The interpretation given by the revenue that the horses must be maintained by the assessee in person leads to absurdity. The text and context of the section is important. An interpretation, which would create an unfair, irrational or unreasonable result, should be avoided. Construction, which makes the machinery workable, should be followed. One cannot make a fortress out of the dictionary. Words in a section are not to be interpreted by having those words in one hand and the dictionary in the other hand. In spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purpose they are intended to serve. Statutes have some purpose and objects to accomplish. Therefore, purposive construction is good guide to their meaning. Interpretation must depend on the text and context. They are the basis of interpretation. One may well say if the text is the texture, the context is what gives the colour. Neither can be ignored. Both are important. Construction should be Ex visceribus actus, i.e., construction within the four-corners of the Act. The words of a statute should be given a sensible meaning so as to make them effective. However, complicated or mind twisting a provision may be, the court must attempt to give it a meaning. This principle is laid down in the dictum : Ut res magis valeat quam pereat. In our opinion, the words "horses maintained by him" should not be construed to mean that the assessee should personally look after the horses. The principle laid down in the dictum : "Qui facit per alium, facit per se" is applicable. As such, horses could be maintained through others also. Assessee appointed Bin Hussein Stud Farm for the maintenance of horses. Due amount was paid for maintenance by the assessee. The consideration for such payment was services offered by the stud farm. As such, it can be said that the assessee maintained the horses and meted with the requirement of the section 74A(3) of the Act. The revenue authorities did not interpret correctly the meaning of the term "maintained by him" as appeared in the section. The view taken by the Commissioner (Appeals) is not correct. We, therefore, direct the assessing officer to allow the assessee the benefit of section 74A of the Act.

12. In the result, appeals of the assessee for the assessment years 1990-91, 1991-92 and 1993-94 stand partly allowed and the appeal for the assessment year 1992-93 stands dismissed as not pressed.