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TMI Blog1969 (2) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... d by members and other persons either gratuitously or on payment. (d) To promote or hold either alone or jointly with any association, club or persons, meetings, competitions and matches relating to racing and other sports and pastimes, and to offer, give or contribute prizes, medals and awards and to promote, give or support dinners, balls, concerts and other entertainments. The liability of the members is limited. By clause 5 of the memorandum of association, every member of the club has undertaken to contribute to the assets of the club in the event of the same being wound up during the time that he is a member or within one year afterwards, for payment of the debts and liabilities of the club contracted before the time at which he ceases to be a member, and the costs, charges and expenses of winding up the same, and for the adjustment of the rights of the contributories amongst themselves, such amounts as may be required, not exceeding one hundred rupees. According to clause 6, if upon the winding up of the club or its dissolution, there remains after the satisfaction of all debts and liabilities any property whatsoever, the same shall be paid or distributed amongst the mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , offered amenities and facilities offered by a members' club, though this was a minor aspect. (v) The activities connected with and ancillary to horse racing has been held to be business activity and the assessee agrees to this finding. (vi) The club is mixed in its activities : some aspects, e.g., horse racing, are tainted with commerciality. Other aspects are not so tainted and could be said to be in the nature of facilities provided by fashionable sports club. (a) In some activities the club acts like a mutual body, for the monthly subscriptions it receives from the members, it provides certain club facilities to the members. (b) The other activities, however, are concerned with public. For fees, gate-moneys, etc., it has intercourse with the public and earns incomes which could be described as business income. (vii) The subscriptions now in dispute arise entirely from its members, entirely for a common cause and for mutual benefit. Even if the racing was stopped or suspended, members would have contributed the same subscription according to the club rules. The receipts were spent for the common benefit." On the above facts, the Tribunal, applying the doctrine of mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh its activities can be held to be business activities. (c) It is essentially a bona fide club of ordinary character formed for the purpose of recreation and purposes incidental thereto. It is essentially an association of sports-loving gentlemen and the main purpose is to provide the excitement of the sport of horse-racing to the members. (d) It also provides entertainment and excitement to the public and outsiders and charges fees therefore, which constitutes business. (e) The club exists for the members and not for business. It was formed and is maintained to provide the members a suitable race course for the purpose of their recreation ; and the essential character of the club remains. The visitors' part is ancillary. The learned counsel for the revenue has urged that the subscriptions received by the assessee are in the nature of payments for specifie services and, therefore, they are taxable. The main reliance of the learned counsel for the revenue was upon the case of Commissioner of Income-tax v. Royal Western India Tarf Club Ltd. and it was urged that, as held in the said case the assessee was not a mutual association. The learned counsel submitted that the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e participators of the surplus must be contributors to the common fund in other words, there must be a complete identity between the contributors and the participators. It is also clear that it makes little difference if the persons who are so associated together are incorporated. The incorporation is a convenient instrument for enabling the members to conduct a social club. The surplus arising from an ordinary mutual activity would not lead to a resultant profit, because each member pays what would be required for the common benefit. If his contributions prove to be insufficient, he makes good the deficiency; if, on the other hand, it is found that it exceeds what is ultimately required, the excess is returned. Such excess, from no point of view, can be regarded as profit or gain. It has been further held that a mutual association may carry on trade if its operations are confined to its own members. If commercial elements exist, the mere fact that the customers are the persons who form the association or body, would not deprive the transaction of its character of trading. But providing privileges to the members as members cannot be said to arise out any profit motive especially wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it gives to non-members, namely, the use of an unreserved seat in a stand, the facility to watch the races and to bet on the horses in the races, use of the totalisator in that stand and the facility for refreshment. In fact the daily ticket fee for admission into the members' enclosure is exactly the same as that for admission into the first enclosure to which the public have access. The only difference is that a separate enclosure with a separate totalisator is provided for the members where they can meet their fellow members and not be disturbed by the intrusion of non-members. This privilege is referable to their membership of the company for which they pay an entrance fee on their election as members and for which they pay the periodical subscriptions both of which are not sought to be brought to charge. The rest of the facilities mentioned above which the members get are in substance the same as those enjoyed by the public. Those facilities are given to members and non-members alike for a price. The character of the charges made on members is precisely the same as or is similar to that of the charges made on non-members, for the company receives moneys from both members a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commerciality. The further right of the members to admission in the enclosures to view and participate in the races when they are run, without any payment or charge, does not bring about a change, for this, amounts to an extra privilege, which is enjoyed by the members as members. The free admission in the enclosures, for which non-members have to pay, represents the difference in this case between the members and non-members. In the case of members, it is a privilege referable to their membership of the assessee, without there being a profit earning motive, while in the case of non-members, the charges recovered for the same facility, result from a profit making motive. There is neither any basis nor justification for changing the character of the subscription paid for acquiring and maintaining membership and turning it into something equivalent to admission fee for participation in the races paid by non-members. Free admission in the enclosures enjoyed by the members is nothing more than a mere privilege flowing in by virtue of their being members. The privilege in the case of the Royal Western India Turf Club was limited to admission into a separate enclosure where they were n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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