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Interpretation of the relationship between a company and a club for income tax purposes. Analysis: The judgment by the Calcutta High Court involved the case of a company, referred to as the Dibrugarh District Club, Limited, which operated a club for its members. The company was distinct from the club, with separate memberships and ownership structures. The club had both permanent and temporary members, while the company had shareholders. The company's articles of association specified that shareholders must be elected as club members to enjoy club facilities. The club rules allowed individuals to become members without being shareholders in the company. In the financial year 1925-26, the company generated a profit, primarily from charges to club members. However, there was ambiguity regarding the flow of funds between the club and the company. The company claimed exemption from income tax on the grounds that it did not profit from transactions with non-members and that most club members were also shareholders. The court rejected these claims, emphasizing that the company was not a mutual trading society and must pay income tax on its profits irrespective of how it intended to allocate them. The judgment highlighted the importance of recognizing the company as a separate legal entity from its shareholders and club members. The court held that the company, as the assessee, was liable to pay income tax on its profits in full, regardless of any overlap between shareholders and club members. The judges unanimously agreed on the decision, with Charu Chander Ghose, J., and P.L. Buckland, J., concurring with the Chief Justice's ruling. The court ordered the assessee to bear the costs of the reference. Overall, the judgment clarified the distinct roles and responsibilities of the company and the club, emphasizing the company's obligation to pay income tax on its profits as a separate legal entity, irrespective of its relationship with club members and shareholders.
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