TMI Blog1948 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... facts regarded by the parties as material for the decision of the question which the Board seems to have intended to submit. The question emerges clearly enough from a consideration of the proceedings which took place while the company's assessment was under consideration. The Assam Agricultural Income-tax Act applies to all agricultural income derived from land situated in the Province of Assam (Section 5) and it provides by the charging section (Section 3) that agricultural income-tax at the rate specified in the annual Assam Finance Acts shall be charged for each financial year on the total agricultural income of the previous year. The part of the definition section (Section 2) which is relevant to the present case defines agricultural income as any income derived from land used for agricultural purposes by agriculture. The Indian Income-tax Act contains a definition of agricultural income in the same terms, but by a rule (Rule 24) made under it, income derived from the sale of tea grown and manufactured by the seller in British India shall be computed as if it were income derived from business and 40 per cent. of such income shall be deemed to be income, profits and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether a business carried on by a society or company, whether incorporated or not, which cultivates produce on its own land and sells it exclusively to its own members, is by its nature incapable of begetting profits as that term is understood in the Assam Agricultural Income-tax Act or, since there is no distinction on this point, the Indian or the United Kingdom Income-tax Acts. It is unfortunate that this question is presented in an abstract and general way without any statement of facts setting out or summarizing the Society's accounts for the year of computation. The statement of facts is also defective for, besides failing to refer to the price at which the tea was sold, it omits to mention certain loans made to the appellant Society by its members to which the appellant's counsel attached much importance. This Board was urged by both parties to proceed with the appeal as if the statement, of facts contained in the judgment of Gentle, J., in the High Court were substituted for the findings of fact in the submission. It is with reluctance that their Lordships would grant such an indulgence. But, taking into account the circumstance that the present case began not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the tea was sold to them. This is a view of the transaction which their Lordships cannot accept. The advances were a loan to the Society for the purpose of enabling it to produce tea on its own land. When the tea was produced it was sold to the lenders, and the price was set off against the amount of the loan. There was, therefore, a dual relationship between the appellant and its members; there was a mutual creditor-debtor relationship and there was a buyer and seller relationship. There was nothing notional about either of these relationships; they were not mere conventional machinery to give efficacy to a relationship which was in substance that of principal and agent. On the facts stated the members genuinely made a loan to the appellant; the appellant genuinely owned the land which it itself genuinely cultivated and it genuinely sold the tea at a genuine market price to its members. The statement of facts shows that in the ordinary sense of the word profits might well result, for the proceeds of the sales might and probably did exceed the expenses of production and management and the interest on loans; that profits would result was in fact contemplated and there are rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the Madras case* the learned Chief Justice expressed the opposing view, which is the view now supported by the appellants' counsel. Before the incorporation of the Society, he says, there existed two large co-operative societies in Great Britain, one in England known as the Wholesale Co-operative Society Ltd., and the other in Scotland known as the Scottish Co-operative Society Ltd. They were co-operative societies of the familiar type which deliver goods to their members on a system the object of which is to eliminate the profits of the middleman as between those societies and their individual members. The goods they were to distribute to their members the Societies had of course to purchase in the market. A portion of the goods so distributed were products of Southern India, notably tea. The idea then occurred that a further elimination of outside profits could be effected by producing their own tea and other products. Accordingly the corporation now sought to be assessed was founded with the object of acquiring and working estates in various parts of the world including Southern India to supply the two original co-operative societies with the good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsurance business the association is authorized to use the common fund not for payments in indemnity of losses but for payment of sums payable on the death of a member. But in the nature of things there are no profits to be made out of a mutual arrangement to share losses, and there are no profits to be made out of a mutual arrangement to pay a sum to executors or assignees on the death of an associate. It is also to be observed that in Styles' case* and similar cases the contributors to the common fund and the participators in it are two identical bodies. The role of the association is to collect from the associates the contributions to the common fund and to make the payments from it in accordance with the contributors' mandate, and this mandate may be and usually is written into the constituent documents of the association, which may or may not be a corporation. The association is, therefore, no more than a convenient agent for carrying out what the associates might more laboriously do for themselves. What kinds of business other than mutual insurance may claim exemption from liability to income-tax under the principle of Styles' case* need not be here considered; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aggregate of its members; and the members of the appellant company are its participating policy-holders. When a number of individuals agree to contribute funds for a common purpose, such as the payment of annuities, or of capital sums, to some or all of them, on the occurrence of events certain or uncertain, and stipulate that their contributions, so far as not required for that purpose, shall be repaid to them, I cannot conceive why they should be regarded as traders, or why contributions returned to them should be regarded as profits. Lord Herschell, after stating that the Attorney-General had conceded that the fact that the persons associating themselves together for the purpose of mutual assurance had been incorporated was immaterial, added:― I think the Attorney-General was correct in thinking it immaterial that the persons thus associated had been incorporated, and that a legal entity had been created distinct from the members of which it was composed. This being so I shall, for the sake of simplicity, consider the questions that arise as though the association were unincorporated. Persons who agree to contribute to a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the use of various facilities provided by it. It was found liable to income-tax. The case is consistent with the view expressed by their Lordships because the shareholders and the contributors to the fund out of which dividends were paid were not identical. Thomas v. Richard Evans Co., Ltd. was held by Rowlatt, J., to fall within the principle of Styles' case. The association was a purely mutual assurance association and the contributors and the assured persons were identical bodies: any surplus of contributions over payments to policy-holders was ultimately returned to contributors. Rowlatt, J., said:― Where all that a company does is to collect money from a certain number of people-it matters not whether they are called members of the company or participating policy-holders-and apply it for the benefit of those same people, not as shareholders in the company, but as the people who subscribed it, then as I understand Styles' case**, there is no profit. If the people were to do the thing for themselves, there could be no profit, and the fact that they incorporate a legal entity to do it for them makes no difference; there is still no profit. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Rules for the application of profits fell to be treated as a discount having the effect of reducing the price of the tea sold to the members and so reducing or perhaps eliminating the profits. Their Lordships are not concerned to discuss that suggestion in this appeal and express no opinion, favourable or unfavourable, upon it. It is expedient, in view of the defects of the question, to answer it not by a simple affirmative, but by declaring that the Society is not exempt from liability to Assam agricultural income-tax in respect of profits from the sale to its members of tea cultivated or manufactured at its Deckiajuli Estate in the Province of Assam. Their Lordships will, therefore, humbly advise His Majesty that the judgment of the High Court should be varied by the substitution for an affirmative answer to the question of this following answer:― The Society is not exempt from liability to Assam agricultural income-tax in respect of profits from the sale to its members of tea cultivated or manufactured at its Deckiajuli Estate in the Province of Assam and that subject thereto the appeal should be dismissed. The appellant must pay the costs of this appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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