Dr.

Ram Manohar Lohiya National

FINAL DRAFT
LAW OF TAXATION

CASE STUDY
CIT V. G.R. KARTHIKEYAN

SUBMITTED TO: SUBMITTED BY:

1
TABLE OF CONTENTS
 Acknowledgement
 Introduction
 Brief Facts of the case
 Contents of the case
 Issues Presented
 Judgment
 Final Order
 Critical Comments
 Conclusion
 Bibliography

2
ACKNOWLEDGEMENT
I Ayush Singh want to express uncommon much obliged and appreciation to my educator
Mr. Anil Sain who gave me the brilliant chance to finalize this glorious research subject
"Commissioner of Income Tax v G.R. Karthikeyan”. All through the exploration period, I
have been guided by my educator at whatever point I confronted any obstacles or was in a
state of daze not having the capacity to resolve the intricacies of the subject.

I would also like to thank my University, Dr. Ram Manohar Lohia National Law University,
Lucknow, for giving me the opportunity to be a part of a novel exploration turned educational
program which without a doubt helps the comprehension of the subject.

I likewise want to thank my guardians, guides and well-wishers who have been a consistent
underpin and have sufficient energy and again looked into my work and have given their
experiences in the matter.

THANK YOU

3
INTRODUCTION
Income’ in common language means profits and gains earned by a person under the safety,
security and stability provided by the Government and ‘tax’ implies the charge levied by the
Government for the services it provides to the person. Taxes can be defined as compulsory
payments which individual citizens make directly on his total income and indirectly for
services provided by the government. Each citizen will have his own doubts and reservation
about what he regards as the excesses or deficiencies of government programmes, the
spending thereon and about the distribution of the burden of the taxes which he pays for
them. But for better or worse, the existing programme of expenditure and taxes at any time
represents the consensus of national opinion as it is resolved through the entire process of the
government.

The provisions of income tax are contained in the Income- Tax Act, 1961 which extend to
whole of India and became effective from 1-4-1962 (Section 1). This Act contains provision
for determination of taxable income, determination of tax liability, procedure for assessment,
appeals, penalties and prosecutions. It also lays down the powers and duties of various
income-tax authorities. Since the Income Tax Act 1961, is a revenue law, there are bound to
be amendments from time to time in this law. Therefore, Income Tax Act has undergone
innumerable changes from the time it was originally enacted. These amendments are
generally brought in annually along with the Union Budget. Besides these amendments,
whenever it is found necessary, the Governments introduce amendments in the form of
Amendments Act and Ordinances.

___________________________________________________________________________

4
BRIEF FACTS OF THE CASE
The assessee participated in an All India Highway Motor Car Rally and on being declared a
winner, received an amount of Rs. 22,000 as prize money. The Income-tax officer included
the prize money in his income for the relevant assessment year relying upon the definition of
'income' in clause (24) of Section 2 of Income Tax Act on an appeal preferred by the
respondent-assessee the Appellate Assistant Commissioner held that as the Rally was not a
race, the prize money cannot be treated as income within the meaning of section 2(24) (ix).
The Tribunal on an appeal by the Revenue, held that the Rally was not a race and as it was a
test of skill and endurance, it was not a 'game' within the meaning of Sec. 2 (24) (ix). As the
prize Money received was casual in nature it fell outside Sec.10(3) of the Act.

The High Court on a reference at the instance of the revenue, upholding the findings of the
Tribunal, observed that the expression 'winnings' connotes money won by betting or
gambling and therefore the prize money not represent 'winnings'. Inasmuch as the amount in
question was obtained by participating in a rally which involved skill in driving the vehicle, it
held, it cannot be included in the assessee's income, also because it fell outside the preview
of s.10 (3).

___________________________________________________________________________

5
CONTENTS OF THE CASE
JOURNEY - Tribunal – Madras High Court – Supreme Court of India
_______________________________________

NAME - Appellants: Commissioner of Income tax.

Vs.

Respondent: G.R. Karthikeyan

________________________________________

CITATION - [1993] 68 TAXMAN 145 (SC)

CASE NUMBER CIVIL APPEAL NO. 3908 (NT) OF 1983

________________________________________

HOW THE CASE HAS COME UP Special leave petition Article. 136
________________________________________

DATE OF ADMISSION: NOVEMBER 20, 1979

DATE OF FINAL DISPOSAL: APRIL 22, 1993

BENCH Division Bench,

B.P. Jeevan Reddy and N. Venkatachala, jj.

________________________________________

LAWYERS

For Appellant- A. Raghuvir and Ms. A. Subhashini

For Respondents- T.A. Ramachandran and Mrs. Janaki Ramachandran

ISSUES PRESENTED
6
 1. Whether Sub-Clause (Ix) of Section 2(24) is confined to mere Gambling or
Betting activities?

The expression 'winnings' occurring at the inception of sub-clause (ix) in section 2(24) is
distinct and different from the expression 'winning'. The expression 'winnings' has acquired a
connotation of its own. It means money won by gambling or betting. The expression
'winnings' controls the meaning of several expressions occurring in the sub-clause. In this
view of the matter, the sub-clause cannot take in the receipt concerned herein which was
received by the assessee by participating in a race which involved skill in driving the vehicle.
The rally was not a race. In other words, the said receipt does not represent 'winnings'.

A perusal of the memorandum explaining the provisions of the Finance Bill, 1972, which
inserted the said sub-clause in section 2(24), also shows that the idea behind the sub-clause
was to rope in windfalls from lotteries, races and card games, etc.

Section 74A of the Act which too was introduced by the Finance Act, 1972 supports the said
view. Section 74A provides that any loss resulting from any of the sources mentioned therein
can be set off against the income received from that source alone. The sources referred to in
the said section are the very same sources mentioned in sub-clause (ix) of section 2(24),
namely, lotteries, crossword puzzles, races including horse races, card games, etc.

The correctness of the view taken by the High Court is questioned herein.

The definition of 'income' in section 2(24) is an inclusive definition. The Parliament has been
adding to the definition by adding sub-clause (s) from time to time. Sub-clause (ix) which
was inserted by the Finance Act, 1972 reads as follows:

"(ix) any winnings from lotteries, crossword puzzles, races including horse races, card
games and other games of any sort or from gambling or betting of any form or nature
whatsoever,"

We may notice at this stage a provision in section 10. Section 10 occurs in Chapter III which
carries the heading "Incomes which do not form part of total income". Section 10 insofar as is
relevant reads thus:

"Incomes not included in total income—In computing the total income of a previous year
of any person, any income falling within any of the following clauses shall not be
included—

7
 “any receipts which are of a casual and non-recurring nature, not being winnings from
lotteries, to the extent such receipts do not exceed one thousand rupees in the aggregate”

(The clause has been amended by the Finance Act, 1986 but we are not concerned with
it. Similarly, it is not necessary to notice the proviso to the said clause.)

____________________________________________________________________________________________________
___________________________________

2. Whether prize money received by assessee on winning a motor rally

It is not easy to define income. The definition in the Act is an inclusive one. As said by Lord
Wright in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT1 "income . . . is a word
difficult and perhaps impossible to define in any precise general formula. It is a word of the
broadest connotation". In Maharajkumar Gopal Saran Narain Singh2 v. CIT, the Privy
Council pointed out that "anything that can properly be described as income is taxable under
the Act unless expressly exempted". This Court had to deal with the ambit of the expression
'income' in Navinchandra Mafatlal v. CIT3 . The Indian Income-tax and Excess Profits Tax
(Amendment) Act, 1947 had inserted section 12B in the Indian Income-tax Act, 1922.
Section 12B imposed a tax on capital gains. The validity of the said Amendment was
questioned on the ground that tax on capital gains is not a tax on 'income' within the meaning
of entry 54 of List-I, nor is it a tax on the capital value of the assets of individuals and
companies within the meaning of entry-55, of Iist-1 of the Seventh Schedule to the
Government of India Act, 1935. The Bombay High Court repelled the attack. The matter was
brought to this Court. After rejecting the argument on behalf of the assessee that the word
'income' has acquired, by legislative practice, a restricted meaning - and after affirming that
the entries in the Seventh Schedule should receive the most liberal construction - the Court
observed thus:

"What, then, is the ordinary, natural and grammatical meaning of the word 'income'?
According to the dictionary, it means 'a thing that comes in' 4. In the United States of America
and in Australia both of which also are English speaking countries the word 'income' is
understood in a wide sense so as to include a capital gain. Reference may be made to -
1
[1943] 11 ITR 513 (PC)
2
[1935] 3ITR237
3
[1954] 26 ITR 758
4
(See Oxford Dictionary, Vol. V, p. 162; Stroud, Vol. II, pp. 14-16)

8
'Eisner v. Macomber'5; - 'Merchants' Loan and Trust Co. v. Smietankd,6 and - 'United States
of America v. Stewart7', and - 'Resch v. Federal Commissioner of Taxation8'. In each of these
cases very wide meaning was ascribed to the word 'income' as its natural meaning. The
relevant observations of learned Judges deciding those cases which have been quoted in the
judgment of Tendolkar, J. quite clearly indicate that such wide meaning was put upon the
word 'income' not because of any particular legislative practice either in the United States or
in the Commonwealth of Australia but because such was the normal concept and connotation
of the ordinary English word 'income'. Its natural meaning embraces any profit or gain which
is actually received. This is in consonance with the observations of Lord Wright to which
reference has already been made . . . The argument founded on an assumed legislative
practice being thus out of the way, there can be no difficulty in applying its natural and
grammatical meaning to the ordinary English word 'income'. As already observed, the word
should be given its widest connotation in view of the fact that it occurs in a legislative head
conferring legislative power."9

Since the definition of income in section 2(24) is an inclusive one, its ambit, in our opinion,
should be the same as that of the word income occurring in entry 82 of List I of the Seventh
Schedule to the Constitution (corresponding to entry 54 of List-I of the Seventh Schedule to
the Government of India Act).

7. In Bhagwan Dass Jain v. Union of India10 the challenge was to the validity of section 23(2)
of the Act which provided that where the property consists of house in the occupation of the
owner for the purpose of his own residence, the annual value of such house shall first be
determined in the same manner as if the property had been let and further be reduced by one-
half of the amount so determined or Rs. 1,800, whichever is less. The contention of the
assessee was that he was not deriving any monetary benefit by residing in his own house and,
therefore, no tax can be levied on him on the ground that he is deriving income from that
house. It was contended that the word income means realization of monetary benefit and that
in the absence of any such realization by the assessee, the inclusion of any amount by way of
notional income under section 23(2) in the chargeable income was impermissible and outside
the scope of entry 82 of List-I of the Seventh Schedule to the Constitution. The said

5
[1919] 252 US 189
6
[1920] 255 US 509
7
[1940] 311 US 60
8
[1943] 66 CLR 198
9
(p.764)
10
[1981] 128 ITR 315 (SC)

9
contention was rejected affirming that the expression 'income' is of the widest amplitude and
that it includes not merely what is received or what comes in by exploiting the use of the
property but also that which can be converted into income.

Sub-clause (ix) of section 2(24) refers to lotteries, crossword puzzles, races including horse
races, card games, other games of any sort and gambling or betting of any form or nature
whatsoever. All crossword puzzles are not of a gambling nature. Some are; some are not. See
State of Bombay v. R.M.D. Chamarbaugwala11. Even in card games there are some games
which are games of skill without an element of gamble 12. The words 'other games of any sort'
are of wide amplitude. Their meaning is not confined to games of a gambling nature alone. It,
thus, appears that sub-clause (ix) is not confined to mere gambling or betting activities. But,
says the High Court, the meaning of all the aforesaid words is controlled by the word
'winnings' occurring at the inception of the sub-clause. The High Court says, relying upon
certain material, that the expression 'winnings' has come to acquire a particular meaning, viz.,
receipts from activities of a gambling or betting nature alone. Assuming that the High Court
is right in its interpretation of the expression winnings, does it follow that merely because
winnings from gambling/betting activities are included within the ambit of income, the
monies received from non-gambling and non-betting activities are not so included? What is
the implication flowing from insertion of clause (ix)? If the monies which are not earned - in
the true sense of the word -constitute income, why do monies earned by skill and toil not
constitute income? Would it not look odd, if one is to say that monies received from games
and races of gambling nature represent income but not those received from games and races
of non-gambling nature? The rally in question was a contest, if not a race. The respondent-
assessee entered the contest to win it and to win the first prize. What he got was a 'return' for
his skill and endurance. Then why is it not income - which expression must be construed in
its widest sense. Further, even if a receipt does not fall within sub-clause (ix), or for that
matter, any of the sub-clauses in section 2(24), it may yet constitute income. To say
otherwise, would mean reading the several clauses in section 2(24) as exhaustive of the
meaning of 'income' when the statute expressly says that it is inclusive. It would be a wrong
approach to try to place a given receipt under one or the other sub-clauses in section 2(24)
and if it does not fall under any of the sub-clauses, to say that it does not constitute income.
Even if a receipt does not fall within the ambit of any of the sub-clauses in section 2(24), it
may still be income if it partakes of the nature of the income. The idea behind providing
11
AIR 1957 SC 699
12
State of Andhra Pradesh v. K. Satyanarayan 1968 (2) SCR 515]

10
inclusive definition in section 2(24) is not to limit its meaning but to widen its net. This Court
has repeatedly said that the word 'income' is of widest amplitude, and that it must be given its
natural and grammatical meaning. Judging from the above standpoint, the receipt concerned
herein is also income. Maybe it is casual in nature but it is income nevertheless. That even the
casual income is 'income' is evident from section 10(3). Section 10 seeks to exempt certain
'incomes' from being included in the 'total income'. A casual receipt-which should mean, in
the context, casual income -is liable to be included in the total income, if it is in excess of Rs.
1,000, by virtue of clause (3) of section 10. Even though it is a clause exempting a particular
receipt/income to a limited extent, it is yet relevant to the meaning of the expression 'income'.
In our respectful opinion, the High Court, having found that the receipt in question does not
fall within sub-clause (ix) of section 2(24), erred in concluding that it does not constitute
income. The High Court has read the several sub-clauses in section 2(24) as exhaustive of the
definition of income when in fact it is not so. In this connection it is relevant to notice the
finding of the Tribunal. It found that the receipt in question was casual in nature but - it
opined - it was nevertheless not an income receipt and fell outside the provision of section
10(3). We have found it difficult to follow the logic behind the argument.

8. For the above reasons we hold that the receipt in question herein does constitute 'income'
as, defined in clause (24) of section 2. The appeal is, accordingly, allowed and the question
referred by the Tribunal under section 256(1) is answered in the negative, i.e. in favour of the
revenue and against the assessee. There shall be no order as to costs.

___________________________________________________________________________

JUDGEMENT

11
Since the definition of income in section 2(24) is an inclusive one, its ambit should be the
same as that of the word 'income' occurring in entry 82 of List I of the Seventh Schedule to
the Constitution.

Sub-clause (ix) of section 2(24) refers to lotteries, crossword puzzles, races including horse
races, card games, other games of any sort and gambling or betting of any form or nature
whatsoever. All crossword puzzles are not of a gambling nature. Some are, some are not.
Even in card games there are some games which are games of skill without an element of
gamble. The words 'other games of any sort' occurring in section 2(24) (ix) are of wide
amplitude. Their meaning is not confined to games of a gambling nature alone. It, thus,
appears that sub-clause (ix) is not confined to mere gambling or betting activities. The High
Court, however, observed that the meaning of all the aforesaid words is controlled by the
word 'winnings' occurring at the inception of the sub-clause. The High Court said, relying
upon certain material, that the expression 'winnings' had come to acquire a particular
meaning, viz., receipts from activities of a gambling or betting nature alone. Assuming that
the High Court was right in its interpretation of the expression 'winnings' did it follow that
merely because winnings from gambling/betting activities are included within the ambit of
income, the monies received from non-gambling and non-betting activities are not so
included? If the monies which were not earned in the true sense of the word, i.e., winnings
from gambling or betting activities, constituted income, the monies earned by skill and toil
from non-gambling and non-betting activities would equally constitute income. It would look
very odd if one was to say that monies received from games and races of gambling nature
represented income but not those received from games and races of non-gambling nature.

In the instant case, the rally was a contest, if not a race. The respondent-assessee entered the
contest to win it and to win the first prize and what he got was a 'return' for his skill and
endurance.

Further, even if a receipt does not fall within sub-clause (ix), or, for that matter, any of the
sub-clauses in section 2(24), it may yet constitute income. To say otherwise would mean
reading the several clauses in section 2(24) as exhaustive of the meaning 'income' when the
statute expressly says that it is inclusive. It would be a wrong approach to try to place a given
receipt under one or the other sub-clauses in section 2(24) and if it does not fall under any of
the sub-clauses, to say that it does not constitute income. Even if a receipt does not fall within
the ambit of any of the sub-clauses in section 2(24), it may still be income if it partakes of the
nature of the income. The idea behind providing inclusive definition in section 2(24) is not to

12
limit its meaning but to widen its net. The word 'income' is of widest amplitude, and it must
be given its natural and grammatical meaning.

Thus, the receipt concerned in the instant case was also income. Maybe it was casual in
nature but it was income nevertheless. That even the casual income is 'income' is evident
from section 10(3). Even though it is a clause exempting a particular receipt/income to a
limited extent, it is yet relevant to the meaning of the expression 'income'. Thus, the prize
money received by the assessee constituted income under section 2(24).

Decision of the High Court reversed.

___________________________________________________________________________

FINAL ORDER
(i)Words like ‘other games of any sort’ are of wide amplitude not limited to games of
gambling nature alone.

(ii) Assuming expression winnings had acquired a particular meaning, namely receipts from
the activities of a gambling/betting nature alone, it did not follow that money from non-
gambling or non-betting were not included in the word income.

(iii) The rally was a contest, if not a race, and assesee entered the contest to win it. What he
got was a return for his skill & endurance but there was some earning. Hence declared
income in its widest sense.

_____________________________________________________________________________________________________

13
CRITICAL COMMENTS
I for one, personally am in support of the decision given by the Supreme Court. The decision
given by the high court of Madras erred in giving the term “income” an exclusive definition.
The term “income” might not have been defined in the act and therefore what is to be treated
as an income will depend on the facts and circumstances of the case. There is no precise
general formula. Nevertheless, anything which can be properly be defined as income can be
taxable under the act.13 The definition Income in Section 2(24) is inclusive and its purpose is
not to limit the meaning, but to widen its scope. It is on the judiciary to determine if that
qualifies as income or not. The trial court made the right decision by including the
aforementioned gain as Income.

In the US Law, income used in wide sense so as to include capital gain. Its natural meaning is
to embrace any profit received.

___________________________________________________________________________

CONCLUSION
The word 'income' is of the widest amplitude and it must be given its natural and grammatical
meaning. The definition of income in section 2(24) is inclusive. The purpose of the definition
is not to limit the meaning of 'income' but to widen its net and the several clauses therein are
not exhaustive of the meaning of income; even if a receipt did not fall within the ambit of any
of those clauses, it might still be income if it partook the nature of income. The words "other
games of any sort' were of wide amplitude and their meaning was not confined to mere
gambling or betting activities. Assuming that the expression "winnings" had acquired a
particular meaning viz. receipts from activities of a gambling or betting nature only, it did not
follow that monies received from non-gambling or non-betting activities were not included
within the ambit of income. The assessee participated in a car rally and won a prize. The car
rally was a contest, if not a race and the assessee entered the contest to win it. What he got
was a return for his skill and endurance. It was "income" construed in its widest
sense. Though it was casual in nature, it was nevertheless income.

13
Kamakshya Narayan Singh v CIT

14
BIBLIOGRAPHY
WEB LINKS

 www.scconline.com
 www.manupatra.com
 www.blackslawdictionary.com
 www.taxman.com
 www.indiakanoon.com
 http://shodhganga.inflibnet.ac.in/bitstream/10603/7789/8/08_chapter%201.pdf
 http://www.lawyerservices.in

___________________________________________________________________________
___________________________________________________________________________

15