TMI Blog1937 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... t which decide that the Income tax authorities had taken the correct view. (The Trichinopoly Tennore Hindu Permanent Fund Ltd. v. The Commissioner of Income Tax, Madras, 2 Income tax Cases 386). After this decision had been given the company took steps to alter its memorandum and articles of association, in the original memorandum the objects of the company were stated to be :- (a) to enable persons to save money : (b) to enable persons to secure loans at favorable rates of interest on sufficient securities; and (c) to do all such either things as are incidental or conductive to the attainment of the above objects . For the word persons the word members was substituted. The company had made considerable profits out of landing money to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (f) 500 Reserve shares of ₹ 50 each payable in 10 calls of ₹ 5 each, ₹ 5 on application and the remaining calls whenever required on not less than I months notice, amounting to... 25,000 (g) 6000 Ordinary shares of Re. 1 each of fully paid amounting to... 6,000 9,90,000 A person who required a loan had under the altered articles to become a member, but he could become a member on payment : of one rupee, which he was entitled to withdraw at the end of two years. In passing I should mention that it is conceded that the ordinary shares have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs in excess of their contribution as being interest on borrowed capital within Sec. 10(2)(iii) of the Act ? (iv) Whether the Income Tax authorities are precluded in law from levying income tax on the petitioner having regard to the fact that the petitioner was recognised and treated by them as a mutual benefit society and exempted from payment of income tax since the year 1927 ? (v) Whether the assessment of the petitioner of the year 1930-31 under Sec. 34 of the Act is valid and maintainable ? It will be convenient to take questions (i) and (ii) together. The case referred to in 47 Madras I is that of the Board of Revenue v. The Mylapore Hindu Permanent Fund Ltd. There the capital of the society was made up solely of periodical i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In other words, the large shareholders, the nominal members, those who had taken one rupee shares, invested practically nothing and consequently nothing was a paid to them out of the profits either by way of dividend or in reduction of interest. By borrowing from the company they made for the company large profits, in which they were not allowed to share. In the circumstance it is impossible for the company to contend that it is a mutual benefit society and its income is not taxable. A very similar question to the one which arises was dealt with in the case of The Leeds Permanent Benefit Building Society v. Mallandaine (1897, 2 Q.B. page 402). This Society consisted of members who held one or more shares or one or more fifty parts of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders or subscribers on the capital subscribed by them. The company pays dividends to its members and these are dependent on the earning of profits. The sums so paid are not in the nature of interest on borrowed capital which is allowable under Sec. 10(2)(iii) of the Act. The company, is, therefore, not entitled to claim a deduction in respect of these sums. Questions (iv) and (v) can also be taken together. What is really contended for here is that the doctrine of res judicata operates in respect of an assessment made by an Income Tax Officer. This is clearly erroneous. The Income Tax Officer does not constitute a Court, and, therefore, the doctrine can have no application. But his assessments are final, unless they can be reopened u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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