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Issues:
Liability of the Bar Council of Madras to income tax under the Income-tax Act for the years 1939-40 and 1940-41. Analysis: The judgment of the Madras High Court dealt with the issue of whether the Bar Council of Madras was liable to pay income tax on its income. The income of the Council primarily comprised fees from enrolled Advocates, examination fees from apprentices-at-law, and interest on investments. The Council's functions included enrolment of Advocates, maintaining discipline, legal education, and conducting examinations. The Income-tax Act, Section 3, makes an individual or association of persons liable to pay tax on income, and the Council was taxed as an individual. The Council claimed total exemption under Section 4(3)(i) for income derived from property held for charitable or educational purposes. The Council's investments were held for educational purposes, making that income exempt from tax. However, income from enrolment and examination fees was deemed taxable. The Court noted that the Council would maintain separate accounts for income from investments solely for legal education and related expenses. The Commissioner of Income-tax accepted this arrangement, leading to the conclusion that income from investments was not taxable, while income from fees was taxable. The Court directed the assessment for the relevant years to be made based on this distinction. The judgment clarified the taxability of different sources of income for the Bar Council of Madras, ensuring compliance with the Income-tax Act. The judgment provided a clear framework for determining the tax liability of statutory bodies like the Bar Council in similar situations, emphasizing the importance of maintaining separate accounts for income derived from different sources to establish taxability.
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