9911796707
TMI Blog1957 (1) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... orised assistants or agents and one person as his authorised clerk on payment of a registration fee of ₹ 125 for each nomination. Monthly and other periodical subscriptions are payable by members, authorised assistants and agents. While submitting its return for the assessment year 1950-51 the assessee company transferred a sum of ₹ 8,125 received as admission fees from the members and authorised agents directly to the balance sheet instead of including it in the profit and loss account. The Income- tax Officer came to the conclusion that as the admission fee payable by a member or an agent is not refundable and constitutes the assessee's income it is a receipt of a revenue nature which is assessable to income- tax. This order was upheld by the Assistant Commissioner in appeal. When the appeal was taken to the Appellate Tribunal it was argued on behalf of the assessee company that all sums recovered as entrance fees were being accumulated in order eventually to purchase lands and to erect a suitable building and consequently that the said sums were exempt from taxation as capital receipts. This argument appears to have found favour with the members of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res that a trade, professional or similar association performing specific services for its members for remuneration definitely related to those services shall be deemed for the purposes of this section to carry on business in respect of those services, and the profits and gains therefrom shall be liable to tax accordingly. Now, what exactly is a mutual society which is exempt from the payment of income-tax? A mutual society is usually a voluntary association organised or conducted for the mutual benefit of its members. It is not formed with a view to the accumulation of wealth and the making of profit but solely for the purpose of reciprocal support, aid and assistance between the associates. The main object of an association of this kind is to accumulate from the contributions of members, a fund to be used in their own aid or relief in the misfortunes of sickness, injury or death and the fund raised is practically a trust fund made up of their contributions. An insurance company is a mutual company when there is no group but the policy-holders who have interest in it or over it. In Ohio Farmers Indemnity Co. 36 U.S. BTA 1152 affirmed 108 F (2d) 665 (GCA 6th, 1940) it was said: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epaid to them, they cannot be regarded as traders, and the contributions returned to them cannot be regarded as profits. Before a society can claim exemption from the payment of income- tax under the rule laid down in Styles' case [1899] 2 Tax Cas. 460 it is essential that there should be complete identity between the contributors to the common fund and the participators in the surplus, for as pointed out by Lord Macmillan in Municipal Insurance Ltd. v. Hills [1932] 16 Tax Cas. 430, 448: The cardinal requirement is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund; in other words, there must be complete identity between the contributors and the participators. If this requirement is satisfied, the particular form which the association takes is immaterial. Our attention has been invited to a number of cases in which the requirement of identity between contributors and participators was not satisfied. The first of these cases is reported as Liverpool Corn Trade Association Limited v. Monks [1926] 2 K.B. 110. In this case a company formed with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. The House of Lords held that any surplus arising from employers' liability and miscellaneous insurance business done with fire policy-holders was taxable as it did not arise from mutual insurance business since there was not complete identity between the contributors to the common fund and the participators in the surplus. The third case is that of English and Scottish Joint Co-operative Wholesale Society Limited v. Commissioner of Agricultural Income-tax, Assam. [1948] 16 I.T.R. 270. In this case a co-operative society sold the tea grown and manufactured by itself to its members at market rates. The society contended that it was a mutual association whose transactions with its members were incapable of producing a profit and it was not therefore liable to be assessed under the Assam Agricultural Income-tax Act. Their Lordships of the Privy Council held the society to be non-mutual concern and declared that it was not exempt from liability to income- tax in respect of profits earned by it from the sale of tea to its members. These and several other authorities were reviewed with care by their Lordships of the Supreme Court in the case of Commissioner of Income-tax, Bomba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not members of the society. Judged in the light of the tests propounded in the foregoing authorities I entertain no doubt in my mind that the assessee company is not a mutual society which is exempt from the payment of income-tax. This company has a capital of ₹ 5,00,000 divided into 250 shares of ₹ 2,000 each on which dividends can be earned. Any person can become a shareholder of this company by purchasing a share, but every shareholder cannot become a trading member unless he is duly enrolled or admitted or elected a member of the said exchange and unless he has paid a sum of ₹ 250 as admission fee. A new member becomes entitled to exercise all rights and privileges of membership and is liable to all the liabilities and obligations of membership. Every member is at liberty to nominate not more than two persons as his authorised assistants or agents and one person as his authorised clerk. Every authorised assistant or agent must pay a registration fee of ₹ 125 and the member nominating him must also pay a monthly subscription of ₹ 5 for such authorised assistant or agent and Re. 1 for his authorised clerk. If these conditions are fulfilled, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
