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TMI Blog1959 (3) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax under the provisions of section 10(6) of the Indian Income-tax Act (XI of 1922), hereinafter referred to as the Act. The Calcutta High Court, by its judgment dated January 6, 1956, answered the question in the negative, disagreeing with the determination of the Income-tax Appellate Tribunal by its order dated April 23, 1949. The facts of this case, upon which the decision of the appeal depends, may shortly be stated as follows : The respondent is a limited liability company incorporated on June 7, 1933, with a view to taking over the assets and liabilities of an unincorporated association called " The Calcutta Stock Exchange Association " and to carrying on the affairs of the stock exchange which had been founded by that association. The principal object of the respondent company is to facilitate the transaction of business on the Calcutta Stock Exchange. In view of that objective, the company had to make rules and by-laws, regulating the mode and the conditions in, and subject to, which the business of the stock exchange had to be transacted. The company is composed of " members " who may be either individuals or firms, who, except in the case of parties who had been mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w to discouraging the employment of a large crowd of such " authorized assistants ". The by-laws also provide that " an authorized assistant shall not enter into any contracts on his own behalf and all contracts made by him shall be made in the name of the member employing him and such member shall be absolutely responsible for the due fulfilment of all such contracts and for all transactions entered into by the authorized assistant on his behalf. " It is also contemplated by the by-laws that tickets have to be issued to the authorized assistants, besides the members' tickets. The by-laws also contemplate that a member shall give to the prescribed authority of the company, an immediate notice in writing, of the termination of the employment by him of any authorized assistant, and on such termination, the right of the assistant to use the rooms of the association shall cease, and he shall not be at liberty to transact business in the name and on behalf of his employer. The by-laws also make provision for the supervision of the work of the authorized assistants to see that they function within the limits of their powers, and do not transact business on behalf of persons or firms othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the authorised assistants were more than representatives of the members who employ them, and they transact business on their behalf, and that the association had framed rules and by-laws regulating the admission, supervision and discontinuance of such authorized assistants. For coming to this conclusion, he relied upon the decision of the Bombay High Court in the case of Native Share and Stock Brokers' Association v. Commissioner of Income-tax. The case was then taken up in appeal to the Income-tax Appellate Tribunal, which dismissed the appeal. The Tribunal agreed with the finding of the taxing authorities that the authorised assistants were not members of the company within the meaning of the articles of association of the company, and that their position was analogous to that of the " authorised clerks in Native Share and Stock Brokers' Association at Bombay ". In the course of its order, the Tribunal observed as follows : " The provision made in the regulations of the company by which a member can take advantage of sending his authorized assistants to the company for transacting the business in the member's name is nothing but giving extra facilities to the members. By ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of newly floated companies and for recognition of changes in the styles of firms respectively should be included in the assessable income of the assessees." The Tribunal was asked to re-state a case upon the questions as re-cast, extracted above. Accordingly, the Tribunal drew up a fresh statement of the case and re-submitted it to the High Court. On this re-statement of the case, the matter was heard by a Bench consisting of Chakravartti, C. J., and Sarkar, J. The High Court considered the terms of section 10(6) of the Act, and came to the conclusion that the case had not been brought within those terms. The High Court, in the course of its opinion, observed that though the assessee was undoubtedly a trade association, it did not perform any specific services for its members for remuneration. It then examined in detail the decision of the Bombay High Court in the case of Native Share and Stock Brokers' Association v. Commissioner of Income-tax relied upon by the Department, and observed that the differences pointed out between the case in hand and the cage decided by the Bombay High Court were " not vital, though they are not immaterial " but it was not prepared to take t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of those services, and the profits and gains therefrom shall be liable to tax accordingly." It has to be observed at the outset that the performing of, the services of the description mentioned in that sub-section, may not, but for the words of that section, have amounted to carrying on business in respect of those services, The use of the word " deemed " shows that the Legislature was deliberately using the fiction of treating something as business which otherwise it may not have been it is also noteworthy that the sub-section is couched in rather emphatic terms. We have, therefore, to examine the terms of the sub-section to see whether the three sums of money in question, or any of them, are or is within the ambit of those terms. The words " performing specific services ", in our opinion, mean, in the context, " conferring particular benefits " on the members. The word " services " is a term of a very wide import, but in the context of section 10 of the Act, its use excludes its theological or artistic usage. With reference to a trade, professional or similar association, the performing of specific services must mean conferring on its members some tangible benefit whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n absentee member to transact business on his behalf and in his name by his representative or agent. The entrance fee in question, therefore, cannot but be ascribed to the specific services rendered by the association in respect of authorized assistants who thus become competent to transact business on behalf of their principal. Coming next to the sum of Rs. 15,687 which was realised from the members by way of subscription in respect of their authorized assistants, it is clear that this sum consists of the contributions severally made by the members periodically, so as to continue to have the benefit conferred by the association of having the use of their representative or agent even during their absence. There cannot be the least doubt that this is a very substantial benefit to those members who found it worth their while to engage the services of authorized assistants. A member is not obliged, as indicated above, to have such an assistant, but the fact that he chooses to have such an assistant on payment of the prescribed fee or subscription, itself, is proof positive that a businessman, who ordinarily thinks in terms of money, has found it worthwhile to have, the services of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut even if additional items of payment have to be, made for additional services to be performed by the association only for such of the members as avail themselves of those benefits, it cannot be said that the mutuality extends to those additional benefits also. It is, in our opinion, equally wrong to suggest that the services in question should have been outside the objects of the association. If the association renders services to such of its members as avail themselves of such services as are not within the scope of the business activities of the association, those benefits, if any, would not be conferred by the association as such, because the association has to function within the scope of its objects of incorporation. Hence, on a true construction of the provisions of the sub-section in questions we have come to the conclusion that the facts and circumstances of the present case bring the three items of income of the association within the taxing statute. In our opinion, the decision of the Bench of the Bombay High Court, consisting of Stone, C. J., and Kania, J. (as he then was), in the case of Native Share and Stock Brokers' Association v. Commissioner of Income-tax, is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their own name or in the name of another member ; and a general supervision over their good behaviour is contemplated... " " A question was raised as to whether these are specific services to be performed for particular members or whether the rules amount to performance of duties towards members in general. It is true that several of the services to be rendered may be helpful to the other members for their business. Taken as a whole I consider that as a performance of services by the Association for the benefit of members who pay the remuneration." We have made these copious quotations from the judgment of the Bombay High Court, because, in our opinion, they truly apply the provisions of sub-section (6) of section 10 to associations like the one before us. The other case to which our attention was drawn is Commissioner of Income-tax v. Chamber of Commerce, Alleppey. The facts of that case are not similar to those of the case before us, but the ratio decidendi of that case are relevant. That case referred to the Alleppey Chamber of Commerce. The Chamber inaugurated a produce section with the object of promoting the interests of merchants in general, and of those engaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h member was required to have one share in the company, and had to pay an entrance fee and an annual subscription. Non-members could also become subscribers. Payments were made to the association by members and others for services rendered through the clearing house, etc. The assessee was taxed on the excess of its receipts over expenditure. On appeal to the Special Commissioners, they upheld the assessment. One of the points raised before the Special Commissioners was that transactions with its members were mutual ones, and that any surplus arising from such transactions was not a profit assessable to income-tax. On appeal, the High Court agreed with the determination of the Special Commissioners, and held that any profit arising from the association's transactions with members was assessable to income-tax as part of the profits of business, and that the entrance fees and subscriptions received from members must be included in the computation of such profits. It was suggested that the service in this case, if any, was extremely trivial and the remuneration which was large was for that reason not definitely related to the service. It was held by Upjohn, J., in Bradbury (H. M. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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