TMI Blog1985 (4) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Society in purchasing at reasonable rates such commodities as are generally required by them. (ii) To sell and supply to the members of the Society and the employees of the Tata Iron and Steel Co. Limited and of the associated and subsidiary companies in Jamshedpur and Tatanagar, grain, foodstuffs, bazar supplies, cloth, piecegoods, articles of household consumption or use and other necessaries of life of good quality at economic prices. (iii) To accept gifts or contributions either by way of donation periodically or other subscriptions or otherwise for the support and furtherance of the objects of the Society and in case of such contributions, donations, subscriptions, legacies and other moneys for such purposes as aforesaid upon or subject to special terms and conditions which are not inconsistent with the objects of the Society. " In the years in question, the taxing officer added profits arising out of dealings between the society and its members to the total income of the assessee. The assessee claimed that these profits should be exempt on the basis of mutuality. Another item of receipt claimed by the assessee to be exempt from taxation was subsidy received by it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on with a view to earning profits as in any other commercial concern. The company gave to its members the same or similar amenities as it gave to non-members, namely, the use of an unreserved seat in a stand, the facility to watch the races and to bet on the horses in the races, the use of the totalisator in that stand and the facility for refreshment. The admission fee for members' enclosure was exactly the same as that for admission to non-members. The dealings in both the cases disclosed the same profit-earning motive and were tainted alike with commerciality. S. R. Das J., as he then was, distinguishing New York Life Insurance Co. v. Styles [1889] 2 TC 460; LR 14 AC 381 (HL), observed that the principle that no one can make a profit out of himself is true enough, but may in its application easily lead to confusion. According to his Lordship, there was nothing per se to prevent a company from making profit out of its members. The following observation of S. R. Das J. is rather poignant (p. 560 of 24 ITR) : " 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Bihar and Orissa Co-operative Societies Act, 1935, and situated in Jamshedpur and Tatanagar and their paid employees. The liability of a member for the debts of the Society was limited to the face value of the shares actually held by him less the amount paid by him on such shares. Rule 52 of the bye-laws of the Society lays down that all sales shall ordinarily be for cash and may, at the discretion of the managing committee, be made to nonmembers also. It is not in controversy that members as well as non-members were buying from the co-operative society shops. The contributions to the fund were thus of members as well as of non-members. Dividends oil shares were to be distributed to members. The above features are to be found in the bye-laws of the assessee which is annexure E to the reference. The above leave no manner of doubt that there was no common fund. The participators in the dividends may not have contributed to its funds. The members were receiving facilities which were same or similar as were received non-members. The participators in the dividends were only shareholders. The Society was thus indulging in commercial transactions. By the test laid down in the two S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers v. Watkins [1934] 18 TC 499 and that of CIT v. Royal Western. India Turf Club Limited [1953] 24 ITR 551 (SC). With all discussions on the subject before us, in my concluded opinion, profits of the Society from sales to members would certainly be includible in the taxable income of the Society. Subsidy and grants.--The next question on which our opinion has been sought is whether the Appellate Tribunal was justified in holding that subsidy and grants received from different companies were revenue receipts and taxable under the Income-tax Act. Bye-law 3(v) of the assessee shows that one of the objects of the Society besides others was to accept gifts or contributions either by way of donation periodically or other subscriptions or otherwise for the support and furtherance of the objects of the Society. The Tribunal found that, from the very inception of the assessee, Tisco and other subsidy companies had been regularly contributing to the Society for the benefit of their employees, who are the main beneficiaries of the Co-operative Society. These payments had been made by the companies on their own sweet will and there was no rule or law binding them to make such payments. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsidy or grant received by the assessee in the case before us. The Board was dealing with subsidies for helping the growth of industries and not for supplementing profits. The subsidy had direct relationship with the fixed capital. The last sentence of the circular is rather telling. The situation contemplated is that subsidy is intended to be a contribution towards capital outlay of the industrial unit. Such subsidy was recommended by the Board to be regarded as capital receipt in the hands of the recipient. The character of the subsidy or grant in the case before us is entirely different. They are not meant for the growth of any industry. They have no nexus with the fixed capital. The assessee-society received it month after month. The objective was welfare of the workers of the industry in extending the subsidy. The growth of the industry was not the consideration. The reliance placed by the assessee on Board's Circular No. 142 dated August 1, 1974, is, therefore, entirely misplaced. [See Delhi Flour Mills Co. Ltd. v. CIT [1974] 95 ITR 151 (Delhi)]. The fact that a receipt of money is described as subsidy or grant is not conclusive of the question whether the sums received are ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
