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TMI Blog1937 (10) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax to this Court which decided that the income-tax authorities had taken the correct view. The Commissioner of Income-tax, Madras v. The Trichinopoly Tennore Hindu Permanent Fund, Ltd. (1927) 53 M.L.J. 881: 2 I.T.C. 386 (F.B.) After this decision had been given, the company took steps to alter its memorandum and articles of association. In the original memorandum the objects of the company were stated to be: (a) to enable persons to save money; (b) to enable persons to secure loans at favourable rates of interest on sufficient securities; and (c) to do all such other things as are incidental or conducive to the attainment of the above objects. 2. For the word persons the word members was substituted. The company had m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve shares of ₹ 50 each, payable in 10 calls of ₹ 50 each ₹ 5 on application and the remainning calls whenever required on not less than one month's notice, amounting to 25,000 and (g) 60C0 Ordinary shares of Re. 1 each fully paid up, amounting to 6,000 ________ 9,90,000 5. A person who required a loan had under the altered articles to become a member, but he could become a member on payment of one rupee, which he was entitled to withdraw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner is not therefore liable to pay income-tax? (iii) Whether the petitioner is not entitled to claim in computing the assessable income, a deduction of the amount paid to the shareholders and subscribers in excess of their contribution as being interest on borrowed capital within Section 10(2)(iii) of the Act? (iv) Whether the income-tax authorities are precluded in law from levying income-tax on the petitioner having regard to the fact that the petitioner was recognised and treated by them as mutual benefit society and exempted from payment of income-tax since the year 1927? (v) Whether the assessment of the petitioner for the year 1930-31 under Section 34 of the Act is valid and maintainable? 6. It will be convenient t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on loans granted to persons who had each acquired an ordinary share of one rupee and only ₹ 139-11-4 was paid to these persons by way of dividend. The holders of permanent shares received in dividends ₹ 6,542-2-6, the holders of original term shares ₹ 5,550-9-5, the holders of B class term shares ₹ 3,660-5-9, and the holders of C class term shares ₹ 3,338-9-5. In other words, the large profits which the company made were distributed to its real shareholders. The nominal members, those who had taken one rupee shares, invested practically nothing and consequently nothing was paid to them out of the profits either by way of dividend or in reduction of interest. 8. By borrowing from the company they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es are members in. name only. Their membership does not in any sense give them the benefits of membership of a mutual benefit society. Therefore, we consider that the answer to Question No. (i) should be in the affirmative and the answer to Question No. (ii) should be that it is not governed by the Mylapore Fund case. 10. The answer to Question No. (iii) has been correctly stated by the Commissioner of Income-tax in his reference. He points out that there is no payment of interests to shareholders or subscribers on the capital subscribed by them. The company pays dividends to its members and these are dependent on the earning of profits. The sums so paid are not in the nature of interest on borrowed capital, which is allowable under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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