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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 ..... question was referred by the Commissioner of Income-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" th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never 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 at the end of two years. In passing I should mention that it is conceded that the ordinary shares have been issued to persons who under the former scheme would have been non-member borrowers. After the memorandum and the articles had been altered, the company contended that it was in fact a mutual benefit society, and, therefore, its income was not taxable. The contention was accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 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 to take questions (i) and (ii) together. The case referred to in I.L.R. 47 Mad. 1 (S.B.) is that of The Board of Revenue v. The Mylapore Hindu Permanent Fund, Ltd. (1923) I.L.R. 47 Mad. 1 (S.B.). There the capital of the society was made up solely of periodical investments by its members and the income of the society was mainly derived from interest no loans given to its members, every one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "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 made for the company large profits, in which they were not allowed to share. In the circumstances, it is impossible for the company to contend that it is a mutual benefit society and its income is not taxable. 9. A very similar question to the one which arises here was dealt with in the case of The Leeds Permanent Benefit Building Society v. Mallandaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. (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 Section 10(2)(iii) of the Act. The company is, therefore, not entitled to claim a deduction in respect of these sums. 11. Questions (iv) and (v) can also be taken together. What is really contended for here is that the doctrine of res judicata operates in respect of an assessment made by an Income-tax Officer. This is clearly erroneous. The Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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