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Native Share and Stock Brokers' Association Versus Commissioner of Income Tax

1944 (10) TMI 1 - BOMBAY HIGH COURT

Income-Tax Reference No. 15 of 1944 - Dated:- 13-10-1944 - Sir Leonard Stone (CJ) And Kania, JJ. For the Assessee : Sir J. B. Kanga For the Commissioner : M. C. Setalvad JUDGMENT Stone, CJ. This is a reference under Section 66(1) of the Income- tax Act. The assessee is the Native Share and Stock Brokers' Association of Bombay more commonly known as the Bombay Stock Exchange. The Association is recognised by the Government under the Bombay Securities Contracts Control Act, 1925, and there are .....

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services shall be deemed for the purpose of this section to carry on business in respect of those services, and the profits and gains therefrom shall be liable to tax accordingly." The question referred to us concerns the assessment year 1940-41 or the accounting year, which is the calendar year 1939. The question submitted is:- "Whether the sum of ₹ 1,25,600 received by the assessee Association in respect of authorised clerks and sub-brokers' fees or subscriptions in the ye .....

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they could not enjoy under the rules of the Association. The short question is whether the Association is performing specific services for its members for remuneration definitely related to these services. Sir Jamshedji Kanga on behalf of the Association says that the sum of ₹ 100 is the licence fee paid by a member for the granting of the facilities which the member would not otherwise enjoy and this is not performing services by the Association who grants the licence. The facility grant .....

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ubmits that the answer is to be found by asking the question, "for the remuneration paid, what, if any, are the services performed?" He draws our attention to some of the rules which he says show a definite scheme for the admission and supervision of the authorised clerks and which confer definite advantages to the members who pay the fees. Turning to the rules the relevant group of rules commences with rule 47, which is headed, "Authorised Clerks" and is as follows:- "4 .....

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t; Turning for a moment to rule 172(1) it will there be found that it implements sub-rule (c) because it is as follows:- "172. (1) A remisier shall be entitled to admission to the market on payment of an annual fee of ₹ 100 in advance or such higher fee as may be prescribed from time to time by the Board and shall wear a distinctive badge; but he shall not make bargains in his own name or on behalf of his employer." Now sub-rule (d) of rule 47 provides as follows:- "47. (d) .....

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sociation an annual subscription of ₹ 100 or such higher fee as may be prescribed from time to time in respect of each authorised clerk employed by him. No such subscription shall be payable in respect of a member who acts as an authorised clerk." This is the background of the scheme. The next rule in chronological order which is relevant for the present reference is rule 50(a) and is as under:- "50. (a) The Secretary of the Association shall keep a register for authorised clerks .....

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ot;An authorised clerk is entitled to admission in the market and no clerk who is not authorised is so entitled." That is followed by rule 49 which provides what an authorised clerk may do, and is as under:- "49. (a) An authorised clerk or a member acting as an authorised clerk shall transact business only on behalf of his employer. He shall not make bargains in his own name are in the name of any other than that of his employer or sign contracts in his own name or in any other name or .....

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the market to the authorised clerk of any member and may at any time suspend or terminate the right of admission of such clerk without assigning any reason whatsoever." Finally we come to rule 50(b) which provides for the termination of the employment of the authorised clerks and is as follows:- "A member employing an authorised clerk or terminating the employment or withdrawing the authorisation of such clerk shall give notice in writing to the said Secretary of the name of such cler .....

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es for its members of the Association. No doubt the benefit of the scheme would redound to the benefit of all members since all would have the advantage of disciplined supervision exercised over the authorised clerks and remisiers of the others. I do not think that because the payment for the carrying of the scheme is provided for only by members who avail themselves of the use of the authorised clerks it makes any difference. It cannot make a difference whether the remuneration for the services .....

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t and the material rules of the Association have been set out in the judgment of the learned Chief Justice. Under Section 10(6) of the Act the question to be considered is whether this Association is performing specific services for its members, and, if so, whether the remuneration in question is definitely related to those services. If the answer to these two question is in the affirmative the assessee becomes a person carrying on business in respect of those services and becomes liable to tax .....

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le to be taxed accordingly. In order to answer the two questions which I have formulated at the commencement it is therefore necessary to examine the rules and determine whether by reason of those rules the Association is performing specific services for its members. A perusal of the rules referred to in the judgment of the learned Chief Justice shows that the institution of authorised clerks exists for the benefit only of those who pay remuneration of ₹ 100 instead of going to the market .....

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eir good behaviour is contemplated. Moreover on a clerk ceasing to be a clerk of the individual member proper entries have to be made in the register. This is in order to prevent a member who had employed such authorised clerk being liable thereafter for the transactions effected by such clerks. It is clear that the scheme taken as a whole is based on the institution of the authorised clerks and their work for the members who employ them. For that the Association has to render services which I h .....

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erform certain duties as prescribed by the rules in respect of authorised clerks. It is therefore futile to contend that they amount merely to facilities and do not constitute performance of services by the Association. 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 t .....

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