M. N. CHANDURKAR C.J.


The assessee in this reference has admittedly received a sum of Rs. 38, 079 when he won the jackpot at the horse race on February 27, 1972. The amount was received by cheque and he made an entry in his account books to the effect that a cheque for Rs. 38, 079 was received from the Madras Race Club as.



"prize on hitting jackpot, vide ticket J. No. 26541 and Certificate No. 798 dated March 16, 1972" *


. For the assessment year 1973-74 for which the previous year of the assessee ended on November 5, 1972, because the assessee had Deepavali account year, the Income-tax Officer included a sum of Rs. 37, 079, though the assessee claimed that this amount was exempt as the receipt fell within the financial year 1971-72. The figure Rs. 37, 079 was arrived at after allowing exemption for a sum of Rs. 1, 000 out of Rs. 38, 079 The assessee went in appeal to the Appellate Assistant Commissioner who deleted the addition and accepted the case of the assessee that the winnings from the races accrued to the assessee on February 27, 1972, which fell in the financial year 1971-72 and no separate accounts had been kept or closed in respect of this source of income.


The Revenue challenged this order of the Appellate Assistant Commissioner in appeal before the Tribunal. Before the Tribunal, the case of the Revenue was that the assessee in his account books had shown income from his money-lending business and the receipt of Rs. 38, 079 was entered in the books of account and shown in the profit and loss account and the trial balance. Thus, according to the Revenue, the assessee had exercised his option with regard to the previous year ending Deepavali, 1972, in respect of that source of income. Reference is also made to the wealth-tax assessment of the assessee where this amount was shown as part of net wealth as on November 5, 1972The Tribunal held that the receipt of the amount was on February 27, 1972, and it would be taxable only in the assessment year 1972-73. The circumstance relied on by the Tribunal in support of this view was that the assessee had positively stated when he filed the return that he received this amount in the previous year relevant to the assessment year 1972-73 and, therefore, was exempt. Not only this, but he had also given a note along with the return that this amount was a receipt in the assessment year 1972-73.


The appeal by the Revenue having been dismissed, the following question has been referred to this court at the instance of the Revenue for opinion.


"Whether, on the facts and in the circumstances of the case, the sum of Rs. 38, 079 being the income from horse races was not taxable for the assessment year 1973-74 ?" *


The learned counsel for the Revenue has contended that the assessee in the instant case must be held to have exercised his option in respect of the previous year not merely on the basis of having entered this amount in his accounts for the year ending on Deepavali day, i.e., November 5, 1972, but that the assessee has shown this amount in his wealth-tax assessment for the year ending Deepavali November 5, 1972, and having already shown that, he was claiming an exemption in respect of this amount. This circumstance, according to the learned counsel for the Revenue, is enough to give rise to the inference that there is a conscious exercise of the option in respect of the previous year for the source of income of Rs. 38, 079 and that previous year was the Deepavali year ending Deepavali, 1972


The learned counsel has contended that when section 59 of the Finance Act, 1972

"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" *


. There was a corresponding amendment in section 56 by adding clause (ib) to the category of "income" which would be chargeable to income-tax under the head "Income from other sources". Section 56(2) as amended in so far as is relevant would read as follows

"2. In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes shall be chargeable to income-tax under the head 'Income from other sources', namely :- (i) dividends ;


(ia) income referred to in sub-clause (viii) of clause (24) of section 2 ;


(ib) income referred to in sub-clause (ix) of clause (24) of section 2....."


Sub-clauses (ii) and (iii) are not relevant for our purpose. This amendment by addition of sub-clause (ib) was also made by the Finance Act, 1972. By the same Finance Act, in section 59, it was provided as follows.


"Certain casual and non-recurring receipts not to be included in the total in come for the assessment year 1972-73. Notwithstanding the amendments made by this Act to the Income-tax Act, in computing, in the case of any person, the total income of a previous year relevant to the assessment year commencing on the 1st day of April, 1972, any income falling within clause (3) of section 10 of the Income-tax Act, as it stood immediately before the 1st day of April, 1972, shall not be included." *


There is no controversy about the effect of the provisions of section 59 of the Finance Act, 1972. The effect is that notwithstanding the amendments in the definition of "income" and the amendment of section 56, Parliament expressly provided that when the total income of any person is to be computed for the previous year relevant to the assessment year commencing on the 1st day of April, 1972, any income falling within clause (3) of section 10 as it stood immediately before the 1st day of April, 1972, shall not be included.


The question which falls for consideration is whether the income from horse racing in question when it was received on February 27, 1972, qualifies for this exemption under section 59 of the Finance Act, 1972. According to the assessee, the income must be treated as having been received by him in the financial year 1971-72 and, therefore, it was received in the previous year relevant to the assessment year commencing on the 1st day of April, 1972. According to the Revenue, notwithstanding the fact that the income was received on February 27, 1972, it cannot be said to have been received in the assessment year 1972-73, in so far as the assessee was concerned because the relevant previous year of the assessee ended only on November 5, 1972, and the corresponding assessment year was 1973-74. The Tribunal has found that in respect of this source of income, the assessee had exercised his option in favour of the financial year being the previous year. The decision in this reference, therefore, turns only on the limited question as to whether the inference drawn by the Tribunal that the assessee had exercised his option for the previous year which was the financial year 1971-72, is justified or not. Section, 3(1) of the Income-tax Act, 1961, defines "previous year". We are concerned only with subclauses (a) and (b) of that definition which read as follows

"1. For the purposes of this Act, 'previous year' means- (a) the financial year immediately preceding the assessment year; or.


(b) if the accounts of the assessee have been made up to a date within the said financial year, then, at the option of the assessee, the twelve months ending on such date ; or" *


Section 3(3) expressly provides that subject to the other provisions of section 3, an assessee may have different previous years in respect of separate sources of his income. It is, therefore, not in dispute that in respect of the income from horse racing, it is open to the assessee to select any previous year irrespective of the fact that for the purpose of his accounting in respect of business income or income from some other sources, his previous year was the year ending Deepavali of 1972, in so far as the facts of the present case are concerned. It is also well-established that the assessee can exercise his option under section 3(1)(b) of the Income-tax Act even before the Tribunal if the case does not fall under any of the other clauses of section 3(1)-see the decision in Addl. CIT v. P. K. N. Obulisami Chettiar 1988 (115) ITR 794, 1978 (7) CTR 236, 1978 (115) ITR 794(Mad).


There is no particular mode contemplated by law of exercising this option and whether in a given case an option has been exercised or not is essentially a matter of inference. In the instant case, the learned counsel for the assessee is relying on certain statements made by the Tribunal in its order. In paragraph 3, the Tribunal has observed that

"in the return filed, the assessee had clearly indicated that the receipt of Rs. 38, 079 was exempt, the receipt being relevant for the assessment year 1972-73." *


The order of the Tribunal also shows that accounts were being maintained only for money-lending business. The Tribunal has found as a fact that the return of income for the assessment year 1973-74 did not show the amount of Rs. 38, 079 as income. On the other hand, the Tribunal has referred to the fact that there is a statement accompanying the return which indicated: "Horse race receipts Rs. 38, 079 (exempt)". The learned counsel for the Revenue has, however, argued that the statement made by the Tribunal in paragraph 3 of its order that the return clearly indicated that the receipt of Rs. 38, 079 was exempt, the receipt being relevant for the assessment year 1972-73, should not be accepted by us as correct because, according to the learned counsel, the statement, the contents of which are reproduced by the Tribunal, itself merely states "Horse race receipts Rs. 38, 079 (exempt)". It is not possible for us to reject the observations made by the Tribunal as incorrect because there is no material to show that the statement is really incorrect. The statement referred to by the Tribunal in paragraph 4 is clearly in addition to the statement made in the return that the receipt of Rs. 38, 079 was exempt. The order of the Income-tax Officer also shows that a positive case was put before him that there is no regular account for this income and hence the receipt being in March, 1972, before the financial year 1972-73, i. e., commencing from 1st April, 1972, is exempt. Therefore, even before the Income-tax Officer, the assessee's case was that this amount of Rs. 38, 079 was received during the financial year 1971-72 and, therefore, in the previous year corresponding to the assessment year 1972-73. This statement in our view, was enough to indicate that in respect of this income, the assessee had clearly exercised his option and no separate accounts having been maintained, that being the only income from the source of horse racing, nothing prevented the assessee from taking the stand and exercising an option that that income should be treated as income of the financial year 1971-72. The circumstance that in the wealth-tax assessment for the year ending November 5, 1972, the assessee has included this as part of his net wealth would not necessarily indicate that the income was not received in the previous year 1971-72. The return in respect of the year ending November 5, 1972, for wealth-tax has to be with reference to the valuation date under section 2(q) of the Wealth-tax Act. That position cannot, however, be in any way inconsistent with the specific choice given under section 3(2) to the assessee to adopt any previous year in respect of any particular source of income. The fact that the assessee chose to make a claim for exemption would not necessarily lead to the conclusion that for the purpose of the assessment under the Income-tax Act, the assessee had as a matter of fact included the disputed amount as income of the previous year ending Deepavali, 1972. This would be inconsistent with his express case and statement in the return that the income has to be treated as having been received in the financial year 1971-72The learned counsel for the Revenue has relied upon a decision of the Gujarat High Court in CIT v. Kirit Kumar Anubhai in Income-tax Reference No. 109 of 1974 decided on 7-4-1976-reported in the issue of Taxation of January, 1977, at page 4. The question in that case was whether capital gains arising out of sale of some shares which had taken place on January 1, 1961, could be brought to tax in the assessment year 1962-63 or in the assessment year 1961-62. In the return for the assessment year 1962-63, filed on the basis of the calendar year, the consideration for the receipt of the sale of shares is shown, but the contention of the assessee was that inasmuch as no separate account for the share of the company was maintained by the assessee in his books of account and since that amount was not made up for the purpose of capital gains, which arose out of the sale of shares of the company, the financial year should be taken as the previous year. The assessee's further contention was that the books of account were for all sources of income other than the source "capital gains" and, therefore, the previous year for the purposes of capital gains should be the financial year 1960-61 and for the rest of the amounts shown in the return, the previous year should be the calendar year 1961. It was held that by filing the return which was filed as on the, footing of the balance-sheet as on December 31, 1961, the assessee had exercised the option mentioned in section 3(1)(b) and once that option was exercised, the previous year for the purpose of capital gains must also be held to be the calendar year 1961 and not the financial year 1960-61. It is difficult to see how this case can be of any assistance to us. All that this case decided was that the transaction, out of which the capital gains arose, had taken place on January 1, 1961. This date undoubtedly fell in the calendar year 1961, as also in the financial year 1960-61 but the return having been filed positively on the basis of the balance-sheet as on December 31, 1961, this particular conduct of the assessee was construed as having adopted the calendar year as the previous year. In the instant case, apart from not showing the income from horse racing as for the relevant previous year ending Deepavali, 1972, the assessee had expressly stated that the income had accrued to him in the financial year 1971-72. The other decision relied upon by the learned counsel for the Revenue is of this court in CIT v. Nellai Murasu P. Ltd 1985 (154) ITR 355, 1984 (40) CTR 243, 1984 (18) TAXMAN 132, 1984 (2) TLR 960. That decision is also clearly distinguishable on facts. The previous year which the assessee company had adopted ended each year on 30th of June. The company sold certain lands on July 19, 1967. The profit arising on this sale was taken note of by the assessee in its accounting period ending on June 30, 1968, and in the return filed for the assessment year 1969-70, the assessee disclosed not only its business profits but also the capital gains on the sale of the lands in question. The case of the assessee was that the transfer of lands took place on July 19, 1967, and the capital gains must, therefore, be considered for assessment only in the previous year ending on March 31, 1968, relevant to the earlier assessment year 1968-69 and hence bringing to tax the capital gains in the assessment year 1969-70 was not justified. It may be noted that this was argued for the first time before the Tribunal because before the Income-tax Officer and the Appellate Assistant Commissioner, the liability was denied on the ground that the lands were agricultural lands. The Tribunal accepted the assessee's claim that the capital gains could not be brought to tax in the assessment year 1969-70. When the matter came to this court, this court took the view that the conduct of the assessee in making up its accounts up to June 30, 1968, showing the gains arising on the transa

ction in its accounts for the said year and also having filed its return of income for the assessment year 1969-70, disclosing the capital gains, clearly indicated that the assessee had, even in respect of the capital gains, adopted the year ending June 30, 1968, as the previous year and hence had exercised its option under section 3(1)(b) of the Income-tax Act. This decision also proceeds on the facts disclosed giving rise to an inference as to in respect of which previous year the assessee had exercised its option. The main circumstance which was found by the court was that the assessee had disclosed the capital gains in the return for the assessment year 1969-70. At page 361, the Division Bench observed as follows" We are of the view that even on the basis that the transaction fell within the financial year April 1, 1967, to March 31, 1968, as per section 3(1)(a), that is the previous year for the assessee, the date of transfer falls within that previous year. As we have already held, the assessee in this case having disclosed the income by way of capital gains in the return for the year ending June 30, 1968, it should be deemed to have exercised the option to adopt the previous year ending June 30, 1968, as the previous year for capital gains as well. The decision is, therefore, clearly distinguishable on facts. On a careful consideration of the matter, we are satisfied that the Tribunal was justified in taking the view that the sum of Rs. 38, 079 being the income from horse races was not taxable for the assessment year 1973-74. The question referred to us has to be answered in the affirmative and against the Revenue. The question is accordingly answered. The assessee will get the costs of this reference from the Revenue. Costs Rs. 500.