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Issues:
1. Whether the Club is liable to be assessed to income-tax on its house property and the remainder of its income. 2. Whether the income derived by a society or club from its members is taxable under the Income-tax Act. 3. Comparison of income derived from members with income derived from non-members for tax assessment purposes. Analysis: 1. The judgment is a reference from the Financial Commissioner under section 51 of the Income-tax Act, VII of 1918, regarding the liability of the United Service Club of Simla to be assessed to income-tax. The Financial Commissioner opined that the Club is liable to income-tax on its house property but not on the remainder of its income. The Club conceded its liability under section 8 of the Act for income-tax on its house property. The key issue is the taxability of the remainder of the Club's income, which does not include profits from non-members. 2. Section 3(1) of the Act states that it applies to all income from any source, subject to specified exemptions. The income received by the Club from its members does not fall under "income derived from business" as the Club operates for the mutual benefit of its members. The question arises whether such member-derived income can be considered as taxable income at all. The Commissioner for Income-tax argued that individual member income merging with the Club's profits becomes taxable, while the Club contended that as a corporate body, it is indistinguishable from its members. 3. Legal precedents from England, such as the New York Life Insurance Company case and Carlisle and Silloth Golf Club case, establish that income derived by a society or club from its members is not taxable under English law. The judgment emphasizes that unless the Indian Act explicitly intends to tax such income, the same principle should apply in India. The judgment also distinguishes the Club's case from that of a Municipal Corporation and a society registered under the Cooperative Societies Act, highlighting the unique nature of the Club's income source. 4. The judgment concludes that the United Service Club of Simla is liable to income-tax on its house property but not on the income derived from its members. It rejects the argument that the Club's surplus should be taxable, emphasizing that the Club does not derive income from outsiders. The judgment highlights the distinction between income derived from members and income derived from non-members for tax assessment purposes, ultimately ruling in favor of the Club regarding the taxability of its member-derived income.
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