9911796707
TMI Blog1953 (10) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by this Court, from the judgment and order pronounced by the High Court of Judicature at Bombay on the 22nd March, 1950, on a reference (I. T. Reference No. 30 of 1947) made by the Income-tax Appellate Tribunal at the instance of the appellant under Section 66(1) of the Income-tax Act (XI of 1922). The facts necessary to be stated for the purpose of disposing of the present appeal are these : The Royal Western India Turf Club Ltd. (hereinafter referred to as the " company ") was incorporated in 1925, under the Indian Companies Act, 1913. The objects for which the company was incorporated were, inter alia, as follows :-- (a) To take over the assets, effects and liabilities of the then unincorporated club known as the Western India Turf Club ; (b) to carry on the business of a Race Course Company in all its branches....... ; (c) to establish any clubs, hotels and other conveniences in connection with the property of the company ; (d) to carry on the business of hotel-keepers, tavern-keepers, licensed victuallers and refreshment purveyors ; (e) to sell, improve, manage, develop, lease, mortgage, dispose of or otherwise deal with all or any part of the property of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... members' enclosure are available to members on payment according to the number of chairs in the box. In addition to the admission fees to the members' enclosure, a member has to pay, in respect of his guests, an additional fee. In each of the enclosures there is a totalisator run on the pari-mutual system at which persons in that enclosure place their bets on each race. These several totalisators are linked by electric appliances, so that the moneys received from members and non-members are included in one pool and distributed amongst the holders of the winning tickets in equal proportions. In each enclosure there is arrangement for the supply of refreshments on payment. The present disputes arose in connection with the assessment of the company's income, profits or gains in the accounting year 1st July, 1938, to 30th June, 1939. The company received large sums of money on admission tickets from members as well as from non-members, besides other moneys on other accounts. The company claimed that in computing its total income, the following four items of receipts should be excluded :-- (1) Season admission tickets from members. Rs. 23,635 (2) Daily admission gate tickets from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 10(6) of the Indian Income-tax Act ? " The reference having come up for hearing the High Court found that the statement of the case was insufficient and incomplete and accordingly it sent back the reference to the Appellate Tribunal with directions to submit a proper statement of facts. The Appellate Tribunal thereupon submitted a supplementary statement of the case setting forth in greater detail the facts necessary for the disposal of the reference. On further hearing of the reference in the light of this supplementary statement of the case the High Court held that the company performed two distinct functions, namely, the carrying on of the business of racing and the carrying on of the club and that the first three items of Rs. 23,635, Rs. 51,777 and Rs. 21,490 were charged to the members in respect of the various amenities specified in the supplementary statement of the case which were given by the club only to its members, namely, the use of the members' enclosure on payment of admission fee, the use of the members' totalisator, the right to watch the races from the lawn or from an unreserved seat in the members' stand, the use of a private box subject to payment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other amenities are income, profits or gains of that business. It is also to be noted that the rates of daily admission fee charged on the non-members for admission into the first enclosure and for the railway tickets are exactly the same as those charged from the members for admission into the members' enclosure. Finally, it has been declared by the High Court by the order under appeal--and it is now accepted by the company--that the company derived the sum of Rs. 82,490 (the fourth item mentioned above) from the horse racing business carried on by it with its members within the meaning of Section 10(1) of the Act. If this sum of Rs. 82,490 received from members represents, as held by the High Court, a part of the income of the horse racing business, why are not the first three items of receipts also parts of the income, profits or gains of that very business ? On what principle or authority are those three items to be excluded from the computation of the total business income of the company ? In support of its claim for exemption from tax liability in respect of these three items the company relies on the principles laid down by the House of Lords in the much discussed cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Inland Revenue and Jones v. South Wales Lancashire Coal Owners Association Ltd., both of which were cases of mutual assurance companies with the liability of the members limited by guarantee, carry the matter no further. Indeed, the decision in the Cornish case as to the surplus of the contributions over the expenses would have been the same as in Styles' case but for the special provisions of Section 52(2)(b) according to which profit was made to include in the case of mutual trading concerns the surplus arising from transactions with members. Jones' case also shows that the fact that under the rules the surplus was not distributable except on the winding up of the company makes no difference in the application of the principle laid down in Styles' case. Municipal Mutual Insurance Ltd. v. Hills was relied on by the learned Attorney-General as showing the real ground on which Styles' case was decided. The appellant there was an incorporated company. It was formed by the representatives of various local authorities by co-operation to insure against fire on favourable terms. Effective control was in the hands of the fire policy holders who alone were entitled, on winding up of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... butors and the participators. If this requirement is satisfied, the particular form which the association takes is immaterial. " Styles' case has recently been examined and explained by the Judicial Committee in English & Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural Income-tax, Assam. After referring to various passages from the speeches of the different Law Lords in Styles' case Lord Normand, who delivered the judgment of the Board, summarised the grounds of the decision in Styles' case as follows :-- " From these quotations it appears that the exemption was based on (1) the identity of the contributors to the fund and the recipients from the fund, (2) the treatment of the company, though incorporated as a mere entity for the convenience of the members and policy holders, in other words, as an instrument obedient to their mandate and (3) the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves. " The Judicial Committee held that none of these grounds was available on the special facts of the case before them and, therefore, the princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ples of Styles' case need not be here considered ; it is clear to us that those principles cannot apply to an incorporated company which carries on the business of horse racing and realises money both from the members and from non-members for the same consideration, namely, by the giving of the same or similar facilities to all alike in course of one and the same business carried on by it. Learned counsel for the company then contends that the carrying on of the business of horse racing is not the only function or activity of the company. It also runs a club, that is to say, an association of persons who co-operate to provide for themselves social, sporting and similar amenities. If the contributions from the members of the club exceed the cost of providing the amenities and if the surplus is held for the benefit of the members such surplus, according to him, is not taxable. For this purpose no distinction, it is said, can be made between the entrance fees or the periodical subscriptions or any other sum (e.g., admission fee, daily or seasonal) paid by the members for the eight to make use of the amenities provided by the club. For the purposes of this argument it is said to be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entry fees for race horses, book makers' license fees and percentages of the totalisator. There, as in the Carlisle and Silloth Golf Club case, no question was raised as to the taxability of moneys paid by the members of the clubs. The case of United Services Club, Simla v. The Crown has been strongly relied on by learned counsel for the company. There the club was an incorporated company. It had no dealings with outsiders and derived no profit from outsiders. The question was directly raised as to whether the income derived from its members was taxable profit. It was held, on the authority of Styles' case and the Carlisle & Silloth Golf Club case, that under the English law the income derived by a society or club from its members was not liable to tax and that the same principle should be followed in India. The proposition so broadly stated overlooks the real grounds of the decision in Styles' case as explained in later cases and cannot be accepted as an accurate statement of the English law. In the Carlisle & Silloth Golf Club case as in the Royal Calcutta Turf Club case, as already stated, the question of the taxability of the moneys received from members was not in issue at a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... social club, the objects of which are immune from every taint of commerciality, the transactions of sale and purchase being purely incidental to the attainment of the main object. What is in fact being carried on, putting technicalities aside, is a members' club and not a proprietary club nor any undertaking of a similar character ". There was in that case no carrying on of any business with any outsider. The dealings with members were really not in the way of any trade or business and it is only on that basis that the profits were held not to fall within the Finance Act. The position of the company in the United Services Club case was similar and, as already stated, that decision can be supported only on this principle. The case of Dibrugarh District Club Ltd. v. Commissioner of Income-tax, Assam, is, if anything, against the company. There an incorporated company carried on a club for the benefit of such persons as might become members. Under the articles of association no shareholder was entitled to the benefits and privileges of the club unless, he was elected as a member. All shareholders were not members and all members were not shareholders. Profits were distributable on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ole they had a right to participate in the whole and, therefore, there could not be any trade between the Association and a member or any sale to a member. The two decisions of the Judicial Commissioners' Court, namely, Commissioner of Income-tax, Bombay v. Karachi Chamber of Commerce and Commissioner of Income-tax, Bombay v. Karachi Indian Merchants Association were concerned with mutual dealings between members who had put up money for their mutual benefit. The surplus went to them not as shareholders but as persons who had contributed in excess and was in no sense a profit and could not, therefore, be brought to charge. As already stated, in the instant case there is no mutual dealing between the members inter se and no putting up of a common fund for discharging the common obligations to each other undertaken by the contributors for their mutual benefit. On the contrary, we have here an incorporated company authorised to carry on an ordinary business of a race course company and that of licensed victuallers and refreshment purveyors and in fact carrying on such a business. There is no dispute that the dealings of the company with non-members take place in the ordinary course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criptions ? It is certainly not a professional association. Learned counsel for the company contends that a "trade association" is not the same thing as a "trading association". According to Webster's New International Dictionary, 2nd Edn., page 264, the meaning of a "trade association" is an association of tradesmen, businessmen or manufacturers for the protection and advancement of their common interest. In our view the company before us is not a "trade association" in this sense although it carries on a business. In this view of the matter it is unnecessary to discuss the further question whether the facilities or amenities given by the company to its members may be regarded as "services" within the meaning of Section 10(6). We are of opinion that Section 10(6) has no application, for the company is not a trade or professional or similar association within the meaning of that sub-section. The result, therefore, is that we hold that all the items of receipts from members referred to in the questions were received by the company from business with its members within the meaning of Section 10(1) and that none of them was received by the company as a trade, professional or similar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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