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Issues:
1. Whether activities of the Association in maintaining and running the Produce Exchange Department and charging fees for services amount to doing business under Section 10 of the Income Tax Act. 2. Whether specific amounts realized by the Association constitute profit or gain from business subject to tax. 3. Whether penalties levied by the Association from its members are considered profit or gains taxable under Section 10 or any other Section of the Act. Analysis: The judgment involves a reference under Section 66(2) of the Income Tax Act regarding the assessment of the Karachi Indian Merchants' Association. The main contention revolves around whether the Association's activities, such as maintaining the Produce Exchange Department and charging fees for services, qualify as conducting business under Section 10 of the Act. The court compares this case with the Karachi Chamber of Commerce case and emphasizes the mutuality between the Association and its members. The court notes that the primary purpose of the Association is to protect and further the interests of its members, even if it involves activities outside Karachi. Regarding the specific amounts in question, the court analyzes each item separately. The first amount is derived from a fee charged by the Clearing House, the second from the sale of samples for analysis, and the third from penalties for rule violations. The court concludes that these amounts are essentially internal matters between the Association and its members, maintaining that they do not constitute taxable profit or gains under the Act. The court also highlights that the Association has no shareholders or share capital, distinguishing it from cases involving separate legal entities like the Liverpool Corn Trade Association. Furthermore, the judgment delves into the concept of surplus or savings generated by the Association's activities. The court emphasizes that the surplus does not automatically equate to profit or gain, especially when considering the common purpose and contributions of the members. The court draws distinctions from previous cases involving taxable subscriptions and brokers' fees, asserting that the present case aligns more closely with associations formed for common benefits, as seen in cases like Carlisle and Silloth Golf Club v. Smith. In conclusion, both judges concur in answering all four questions in the negative, indicating that the amounts in dispute are not taxable profits or gains under the Income Tax Act. The judgment provides a detailed analysis based on the principles of mutuality, common purpose, and the nature of the Association's operations, ultimately ruling in favor of the assessee and awarding costs accordingly.
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