TMI Blog1936 (4) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... sh just and equitable principles in trade and to form a code or codes of practice to simplify and facilitate transaction of business between merchants dealing in grain, cotton seed, etc., at Hapur and elsewhere, and persons entering into those transactions with them. (4) To maintain uniformity in rules, regulations and usages of trade. (5) In case of mutual quarrels or dispute in business to settle them as between members of the association and between parties willing or agreeing to abide by the judgment and decision of the association. (6) To consider all questions connected with trade, commerce, manufactures and affecting the rights and privileges of the whole mercantile community, specially dealers in grain and cotton etc., and to remove all difficulties in a lawful and constitutional manner. (7) To acquire by purchase, taking on lease or otherwise lands and buildings and all other property, movable and immovable, which the association, for the purposes thereof, may from time to time think proper to acquire. (8) To sell, improve, manage, develop, exchange, lease, mortgage or otherwise deal with all or any part of the property of the association, or the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the same time to make any allowance on account of the expenses incurred in maintaining a hospital. The admission fees and annual subscription only were held to be exempt. The assessee appealed on the following grounds:- (1) That it was not an association working for profits and that no part of its income was liable to be distributed in the form of dividends or otherwise. (2) That its income was derived from its own members in the form of contributions for its maintenance and was as such outside the scope of the Act. (3) That it did not settle any profit or loss, but simply recorded the transactions and was not concerned with any payments. (4) That it was incorporated under Section 26 of the Companies Act as an association limited by guarantee. (5) That in any case the Income tax Officer should have allowed the expenditure on charity. The Assistant Commissioner of Income Tax dismissed the appeal, and thereupon the assessee moved the Commissioner of Income tax to state a case and refer certain questions of law to this Court. The questions of law set out in their application were as follows:- (1) Whether an association incorporated under Section 26 of the Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as such is not exempt from assessment as it is certainly a company registered under the Indian Companies Act and comes within the scope of Section 3 of the Income tax Act. I agree with the view of the Income-Tax Commissioner that there is no exemption in favour of such a company as such and that the non-applicability of Section 48 of the Act is an irrelevant consideration. Question No. 2.-As I have already shown, the income of the assessee-apart from admission fees and subscriptions, which have been held to be exempt-is of two kinds; it consists (1) in payment of commission and registration fees which are made by members on their own account and (2) in payment of commission which, though made by members, actually comes from the pockets of outsiders. I will first deal with the former category. Learned counsel for the assessee contends that the Chamber of Commerce at Hapur is a mutual concern , i.e., an association whose members contribute to a common fund for their mutual benefit and that the payments which are made by its members are on that account exempt from income tax, being neither income, profits or gains within the meaning of the Act, they are contributions by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a public general tax and the corporation as a trading concern, which it is indubitably. The majority, however, were of the opinion that the association was not a profit-making concern such as would attract income tax. In the case of The United Service Club, Simla v. The Crown, a learned single Judge of the Lahore High Court, relying on the case of The New York Life Insurance Company v. Styles, held that the income of the United Service Club at Simla, a company registered under the Indian Companies Act, was not liable to be assessed to income tax under the Indian Income Tax Act (Act VII of 1918) except to its house property. At page 110 (of 2 Lah.) the learned Judge observes: The money received by the Club from its members does not fall within Clause (iv) 'income derived from business' as the Club does not trade with its members, but the object for which it exists is their mutual benefit. If the money which the Club receives from its members were chargeable to income tax, it could only be so chargeable under Clause (vi) as 'income derived from other sources'. The question for determination is whether such money can be regarded as income at all. He g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. In considering the case of The New York Life Insurance Company v. Styles, the learned Judges observed: The principle of that case is that income to be taxable must come in from outside and not from within. The question does not seem to have been considered whether a mutual concern can trade with its members and whether the payment and receipt of interest on loans advanced might not amount to a money-lending business between the association and its members. Learned counsel for the department on the other hand strongly relies on the English case of Liverpool Corn Trade Association v. Monks. In that case an association had been formed for promoting the interest of the corn trade and the objects of the Association, as set out in the memorandum of association, were inter alia as follows- (1) To promote or oppose legislative and other measures calculated to affect the corn trade generally, and for these purposes to petition Parliament and take such other steps and proceedings as may be expedient, and to define, make and maintain uniformity and expediency in the rules, regulations, usages and customs of the said trade, and to establish just and equitable principles ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments from its members for the advantages of such use, and one is tempted to ask why a profit is not so made exactly on the same footing as a profit is made by a railway company who issues a travelling ticket at a price to one of its shareholders, or at any rate as much a profit as a profit made by a company from a dealing with its own shareholders in a line of business which is restricted to the shareholders. If there were a railway company which only carried its shareholders, one would say that when it afforded the advantage to a shareholder of performing an act of transit for him, being paid by the shareholder therefor, that the profit thereby made was a profit of the company just as much as if the shareholder was a stranger. That case is of course distinguishable from the cases of The New York Life Insurance Company v. Styles and from the case with which we are now dealing by the fact that there was a share capital and that there were shareholders who had a right to demand dividends, if declared. At the same time it is to be observed that notice was taken of the fact that the company dealt with persons who happened to be the owners of the share capital affording benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to differentiate between them and the admission fees and subscriptions which have been held to be contributions other than income and therefore not taxable. As regards payments which are made by outsiders through members, learned counsel for the assessee argues that there is no privity between the company and the outsiders and that these payments must therefore be deemed to be payments made by members in the same way as those which are made by members on their own behalf. We are not impressed by this argument. That the Association has direct dealings with outsiders is shown in Paragraph 5 of the objects of the Association as set forth in the memorandum and also by Rule 7 of Appendix B as reproduced on page 15 of the paper book. At the same time it seems to me that such payments cannot appropriately fall under any head other than business and since it has been conceded-whether rightly or wrongly-by the Income Tax Commissioner that they are not income from business I must hold that they are not taxable as income from other sources within the meaning of Section 6(vi) of the Act. For reasons already given I express no opinion as to whether they do in fact fall under the head ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of general public utility as contemplated by the Act is being advanced by the assessee. Further, it seems to me that before an institution can be held to be charitable there must be an element of altruism; that is to say, the beneficiaries must not be able to claim the benefit. That condition is wanting in the present case. Moreover, the contention of learned counsel for the assessee that there is no privity between the assessee and outsiders and that this is a mutual concern of the members who compose the association appears to me to be inconsistent with his claim that the assessee is a charitable institution within the meaning of Clause (ii) of Sub-section (3) of Section 4 of the Act. The whole idea of a mutual concern is that the particular members composing it should be benefited. Without considering whether the other requirements of Clause (ii) are or are not satisfied, I am of opinion that for the reasons given above the assessee is not a charitable institution within the meaning of the Act and is not as such exempt from tax. Question No. 5-Learned counsel for the assessee concedes that apart from other considerations, the assessee cannot claim exemption qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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