l959

March 26.

44S StJPREM:rn COURT R:rnPoR'l'S [1959] Supp.

MESSRS. HOWRAH TRADING CO., LTD. v.

THE COMMISSIONER OF INCOME-TAX,

CALCUTTA (B. P. SINHA, J. L. KAPUR and

M. HrnAYATULLAH, JJ.)

Income-tax-Assessee acquiring shares by blank transfcrs- Receipt of dividend on s"ch shares-If assessee entitled to grossing "P of dividend income and to credit for tax deducted at source- Indian Income-tax A, ct, r922 (XI of r922), ss. r6(2) and r8(5).

The assessee acquired shares in~ certain companies under "blank transfers" without getting the transfers registered with the companies and it received dividends in respect of these shares. It claimed-that the dividend income should be grossed up under s. 16(2) Income-tax Act and that it should be allowed credit under s. 18(5) for the tax deducted at source on the dividend in the hands of the companies.

Held, that, the assessee was not entitled to the benefits of ss. 16(2) and 18(5) as its name was not in the register of members of the companies. The benefit of s. 18(5) could only go to a shareholder; and a shareholder in that section meant the same thing as in the Indian Companies Act, 1913, i. e., a "member" having his name on the register.

The scheme of the Indian Companies Act, 1913, shows. that the words

11 member", "shareholder" and "holder of a share" have been used inter-changeably.

The words "holder of a share" are really equal to the word "shareholder" and the expression" holder of a share" denotes only a person who, as a shareholder, has his name entered on the register of members.

In re Wala Wynaad Indian Gold Mining Company, (1882) 21 Ch. D. 849, Shree Shakti Mills Ltd. v. Commissioner of Incometax, [1948] 1fJ I.T.R. 187, ]aluram Bhikulal v. Commissioner of Income-tax, 11952) 22 I.T.R. 490, Arvind N. Mafatlal v. Incomctax Officer, [1957J 32 I.T.R. 350, Bikaner Trading Co. v. Commissioner of Income-tax, [1953) 24 LT.~: 419, referred to.

A company when it pays income-tax does not do so on behalf of the shareholders, but the shareholders get the benefit of such payment. The rates of income-tax applicable to the company are, in most instances, higher than the rates applicable to individual shareholders and by the process of grossing up the recipient of the dividend gets some benefit.

Cull v. Inland Revenue Commissionors, (1940) A.C. 51 and Inland Revenue Commissioners v. Blott, (r92r) 2 A.C. lJl, referred to.

(2) S.C.R.

StJPRF.lM~ COURT REPORTS 449

In blank transfers the transfer deed signed by the transferor r959 is handed over with the share scrip to the transferee who may M H 1 complete the transfer by entering his name and applying to the 7' esdss. C owLra' f . t t" f h.

Th I ra ing o. td. company or reg1s ra !On o 1s name. e company on y ' recognises those persons whose names are on the register of Th v.. . members and they alone are legally entitled to the dividend • Commissioner declared. In the case of a blank transfer equities exist between of Income-tax,

Calcutta the transferor and the transferee and the transferee has a right to claim the dividend from the transferor who holds it in trust for him, but the company is only liable to the transferor and not to the transferee. Though the transferee is clothed with an equitable ownership he is not a full owner, since the legal interest vis-a-vis the company still outstands in the transferor.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 65 of 1956.

Appeal from the judgment and order dated August 31, 1954, of the Calcutta High Court in Income-tax Ref. No. 57 of 1953.

N. C. Chatterjee and B. P. Maheshwari, for the appellant.

K. N. Rajagopala Sastri, R. H. Dhebar and D.

Gupta, for the respondent.

1959. March 26.

The Judgment of the Court was delivered by HrnAYATULLAH, J.-Messrs. Howrah Trading Com- Hidayatullah J. pany, Ltd., Calcutta (hereinafter called the assessee) obtained on April 28, 1955, a certificate under s. 66A(2) of the Indian Income-tax Act from the Calcutta High Court, to appeal to this Court against the judgment dated August 31, 1954, in Income-tax Reference No. 57 of 1953. The Divisional Bench (Chakravarti, C. J., and Lahiri, J.) in the judgment under appeal merely followed their earlier judgment delivered the same day in Income-tax Reference No. 22 of 1953, since reported as Hindustan Investment Corporation v.

Commissioner of Income-tax (1). It is the latter judgment which gives the reasons for the decision.

The facts of the case have been stated with sufficient fulness, yet briefly, in the statement of the case submitted by the Income-tax Appellate Tribunal (Calcutta Bench) and may be conveniently set out in its ow11 words:

(r) (1955] 27 I.T.R. 202. 57

1959 "The applicant had received sums of Rs. 3,831,

MeSS>s. Howrnh Rs. 6,606, Rs. 7,954 aud Rs. 8,304 in the four assess- Tmding Co .. Ltd. ment years, 1944-45, 1945-46, 1946-47 and 1947-48 as v. income from dividends. The shares in respect of The, Ciommiss, ion" which this dividend income was received were the oJ ncomeax, .

Calcutta property of the A pphcant but in the books of the various companies these stood in the names of other Hidayatullah J. persons. It appears that these shares were purchased by the Applicant from other persons under a blank transfer but the transfers had not been registered with the various companies. The Applicant's claim in these income-tax proceedings was that these shares although not registered in the name of the applicant were the property of the applicant. It was further claimed that this dividend income should be grossed up under s. 16(2) and credit for the tax deducted should be allowed to the Applicant under s. 18(5)." The Income-tax Officer did not accept this claim, and the appeals of the assessee were rejected by the Appellate Assistant Commissioner of Income-tax, Calcutta, "A" Range and by the Appellate Tribunal.

The Tribunal, however, on being moved, referred the following question to the High Court :

" Whether in the facts and circumstances of this case, the Applicant (the assessee) was entitled to have this dividend income grossed up under section 16(2} and claim credit for tax deducted at source under section 18(5) of the Income-tax Act? " The High Court answered the question in the negative, thus affirming the decisions of the Department and the Appellate Tribunal.

The assessee contends that the decision of the High Court is erroneous, and that it is entitled to have the dividend income 'grossed up' under s. 16(2) and also to claim credit for tax deducted at source, uuder s. 18(5) of the Income-tax Act. The relevant sectious are as follows:

" 16(2) : For the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been

(2) S.C.R. . SUPREME COURT REPORTS 451

paid, credited or distributed to him, and shall be inz959 creased to such amount as would, if income-tax (but t ) t h t

1. bl t th t t l .

Messrs. Howrah not superax a t e r~ e app ic~ e. o e o a m- Trading Co., Ltd. come of the company without takmg mto account any v. rebate allowed or additional income-tax charged for 1'he Commissioner the financial year in which the dividend is paid, ereof Income-tax, dited or distributed or deemed to have been paid, Calcutta credited or distributed, were dedncted therefrom, be ' Hidayatullah J. equal to the amount of the dividend: (proviso omitted). 18(5) : Any deduction made and paid to the account of the Central Government in accordance with the provisions of this section a'Il.d any sum by which a dividend has been increased under sub-section (2) of section 16 shall be treated as a payment of income. tax or super-tax on behalf ...... of the shareholder ..... . and credit shall be given to him therefor on the production of the certificate furnished under ..... section 20

..... .in the assessment, if any, made for the following year under this Act : (proviso omitted). 49B(l): Where any dividend has been paid, credited or distributed or is deemed to have been paid, credited or distributed to any of the persons specified in section 3 who is a shareholder of a company which is assessed to income-tax in the taxable territories or elsewhere, such person shall, if the dividend is included in his total income, be deemed in respect of such dividend himself to have paid income-tax (exclusive of super-tax) of an amount equal to the sum by which the dividend has been increased under sub-section (2) of section 16."

It was contended in the High Court that inasmuch as s. 16(2) referred to an ' assessee ', the assessee company was entitled to have the dividend 'grossed up' by the addition of income-tax paid by the various companies at source and consequently to have the benefit of the credit allowed under the two remaining sections. In the opinion of the High Court, an assessee whose name was not in the register of members of the companies was not entitled to the benefit of these provisions. The learned Judges of the High Court were of the opinion that the word " shareholder " in

'959 s. 18(5) had the same signification as the word "mem-

,1 - her" used in the Indian Companies Act; and that "ess>s. Howrah h l.fi d b •ct d Trading co., Ltd. t e assessee was not qua 1 e to e cons1 ere as a v. shareholder, even though by a blank transfer it had The Commissioner purchased the relevant shares. In our opinion, the of Income-tax, High Court was right in its conclusion.

Calcutta A company when it pays income-tax, does not do

Hidayatullah ;. so on behalf of the shareholders. It is itself chargeable under the Act. In Gull v. Inland Revenue Commissioners (1), Lord Atkin stated the . Jaw (which in substance is also the law in our country) thus:

"My Lords, it is now clearly established that in the case of a limited company the company itself is chargeable to tax on its profits, and that it pays tax in discharge of its own liability and not as agent for its shareholders ......... At one time it was thought that the company, in payiug tax, paid 'on behalf of the shareholder ; but this theory is now exploded by decisions in this House, and the position of the shareholders as to tax is as I have stated it." When the company pays its own income-tax and declares a dividend from the balance of its profits, it deducts from such dividend a proportionate part of the amount of the tax paid by it. This principle is explained in another English case, and it is substantially also the law in this country. In Inland Revenue

Commissioners v. Blott('), Viscount Cave stated the l(l. w in these words :

"Plainly, a company paying income-tax on its profits does not pay it as agent for its shareholders. It pays as a tax-payer, and if no dividend is declared, the shareholders have no direct concern in the payment. If a dividend is declared, the company is entitled to deduct from such dividend a proportionate part of the amount of the tax previously paid by the company; and, in that case, the payment by the company operates in relief of the shareholder. But no agency, properly so called, is involved." The share-holders, however, get the benefit of the payment of the tax by the company. Though under ( l) [r940] A.G. 51, 56; (1939) 22 Tax Cas. 6o3, 636.

(2) [192rJ 2 A.C. 171, 201.

(2) S.C.R.

SUPREME COUH.T REPORTS 453

s. 16(2) of the Act their dividend is increased by' a

I959 proportionate amount of tax paid by the company, M

I-I l the payment of the tax by the company is deemed Tr:~;:~ cow{a'. under ss. 18(5) and 49B(l) to be payment by the v. shareholders. The rates of income-tax applicable to The Commissioner the company are, in most instances, higher than the 0! Income-tax, rates applicable to the individual shareholders, and by Calcutta this process of 'grossing up', as it is commonly call- I-Iidayatultah J. ed, the recipient of the diVidend gets some benefit.

The position of a shareholder who gets dividend when his name stands in the register of members of the company causes no difficulty whatever. But transfers of shares are common, and they take place either by a folly executed document such as was contemplated by Regulation 18 of Table A ofthe Indian Companies Act, 1913, or by what are known as 'blank transfers'.

In such blank transfers, the name of the transferor is entered, and the transfer deed sig.ned by the transferor is handed over with the share scrip to the transferee, who, if he so chooses, c9mpletes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of the share. The company recogn, ises no peri;; on except one whose name is on the register of members, upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable. Of course, between the transferor and the transferee, certain equities arise even on the execution and handing over of 'a bla.nk transfer', and among these equities is the right of the transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on behalf of the transferee.

These equities, however, do not touch the company, and no claim by th.e transferee whose name is not in the register of members can be made against the company, if 'the tranferor retains the money in his own hands and fails to pay it to him.

A glance at the scheme of the Indian Companies_ Act, 1913, shows that the words "member", "shareholder" and "holder of a share" have been used interchangeably in that Act.

Indeed, the opinion of most of the writers on the subject is also the same.

Buckley on the Companies Act, 12th Edition, page

Messrs. llow•ah 803 has pointed out that the right of a transferee is Trnding co .. Ltd. only to call upon the company to register his name v. and no more.

No rights arise till such registration

r959

T lie Conimissioner tak:es place. of Income-tax, Section 2(16) of the Indian Companies Act, 1913, Calcutta defines" share" as" Rh are in the share capital of the

Hidayatullah J. company''. Section 5 deals with the mode of forming incorporated companies, and in the case of companies limited by shares, the liability of the members is limited to the amounts, if any, unpaid on the shares respectively held by them. By s. 18, Table A is made applicable to companies, unless by the Articles of any company the terms of Table A have been excluded or modified.

Regulation 18 of Table A reads as follows: " The instrument of transfer of any share in the company shall be executed both by the transferor and transferee, and the transferor shall be deemed to remain holder of the share until the name of he transferee is entered in the register of members in respect

thereof." The words " holder of a share " are really equal to the word " shareholder ", and the expression " holder of a share " denotes, in so far as the company is concerned, only a person who, as a shareholder, has his name entered on the register of members.

A similar view of the Companies Clauses Consolidation Act, 1845, was taken in Nanney v. Morgan (1).

The learned Lord , Justices held that under s. 15 of that Act, the transferee had not the benefit of a legal title till certain things were done, which were indicated by Lopes, L. J., in the following passage:

" Therefore the transferor, until the delivery of the deed of transfer to the secretary, is subject to all the liabilities and entitled to all the rights which belong to a shareholder or stockholder, and, in my opinion, until the requisite formalities are complied with, he continues the legal proprietor of the stock or shares subject to that proprietorship being divested, which it may be at any moment, by a compliance with the requisite formalities. "

(I) (1888) 37 Ch. D. 346, 356.

(2) S.C.R.

SUPREME COURT :REPO:Rrs 455

The same position obtains in India, th_ough the com- '959 pletion of the transaction by having the name entered Messrs. Howrah in the register of members relates it back to the time Trading co, Ltd. when the transfer wa.s first made. See Nagabushanam v.

v. Ramachandra Rao (1).

The Commissioner During the period that the transfer exists between of Income-tax,

£ Calcutta the trans eror and the transferee without emerging as a binding document upon the company, equities exist 1-Iidayatullah 1. between them, but not between the transferee and the company. The transferee can call upon the transferor to attend the meeting, vote according to his directions, sign documents in relation to the issuance of fresh capital, call for emergent meetings and inter alia, also compel the transferor to pay such dividend as he may have received. See E. D. Sassoon & Go. Ltd. v.

Patch (2 ) approved in Mathalone v. Bombay Life Assurance Go. Ltd. (3).

But these rights though they, no doubt, clothe the transferee with an equitable ownership, are not sufficient to make the transferee a full owner, since the legal interest vis.a-vis the company still outstands in the transferor ; so much so, that the company credits the dividends only to the transferor and also calls upon him to make payment of any unpaid capital, which may be needed. The cases in Black v. Homersham (4) or Wimbush, In re Richards v.

Wimbush (5) hardly advance the matter further than this.

The position, therefore, under the Indian Companies Act, 1913, is quite clear that the expression " shareholder " or " holder of a share " in so far as that Act is concerned, denotes no other person except a "member". The question that arises in the present case is whether by reason of ss. 16(2) and 18(5) the assessee, who was a transferee on a 'blank transfer' is entitled to the benefits of the grossing up of the dividend income. Learned counsel for the assessee strenuously contends that the assessee being an owner in equity of the shares and thus also of the dividend is entitled to this benefit.

He ; refers to the use of the word 'assessee' in s. 16(2).

The Department, on the

(r) (r922) I.L.R. 45 Mad. 537.

(2) (r922) 45 Born. L.R. 46.

(3) [1954] S.C.R. rr7.

(4) (r878-79) L.R. 4 Ex. D. 24,

(5) [1940] I Ch. D. 92.

456 SUPREME COURT REPOR'.l'S [1959] Supp.

'959 other hand, says that the dividend can be increased

Mems. How, ah under s. 16(2) and credit allowed under s. 18(5) if the Trading co., Ltd. assessee is a 'shareholder', because the benefit of v. s. 18(5) can go only to the shareholder, i.e., a person The Commission" with his name on the register of members, and not to

0f Income-tax, a person holding an equity against such shareholder.

Calcutta The assessee contends that the word "shareholder"

Hidayatuilah J. includes even a person who holds a share as a result of a blank transfer, and does not necessarily mean a member of the company, whose name is on the register of members.

Authorities on this point are not wanting, and indeed, in the judgment of the Calcutta High Court they have all been referred to.

They are all against the assessee. See Skree Shakti Mills Ltd. v. Commissioner of Income-tax('), Jaluram Bhikulal v. Commissioner of Income-tax('), Arvind N. Mafatlal v. Incometax Officer (3) and Bikaner Trading Co. v. Commissioner of Income-tax(').

The question: that falls for consiqeration is whether the meaning given to the expression "shareholder " used in s. 18(5) of the Act by these cases is correct.

No valid reason exists why" shareholder" as used in s. 18(5) should mean a person other than the one denoted by the same expression in the Indian Companies Act, 1913. In In re Wala Wynaad Indian Gold Mining Company('), Chitty, J., observed:

" I use now myself the term which is common in the Courts, 'a shareholder', that means the holder of the shares. It is the common term used, and only means the person who holds the shares by having his name on the register. " Learned counsel for the assessee cited a number of authorities in which the ownership of the dividend was in question, and it was held that the transferee whose name was not registered, . was entitled to the dividend after transfer had been made. These cases are Commissioners of Inland Revenue v. Sir John Oakley (0), Spence v. Commissioners of Inland Revenue(')

(1) [1948] 16 I.T.R. 187,

(2) [1952] 22 I.T.R. 490.

(3) [1957] 32 I.T.R. 350.

(4) [1953] 24 I.T.R. 4r9.

(5) (1882) 21 Ch. D. 849, 854.

(6) (1925) 9 Tax Cas. 582.

(7) (1941) 24 Tax Cas. 31I.

(2) S.C.R. SUPREME COURT REPORTS 457

and others cited at page 367 in Multipar Syndicate, r959 Ltd. v. Devitt ( 1 ). • • Messrs. Howrah No one can doubt the correctness of the propos1t1on Trading co., Ltd. in these cases, but from an equitable right to compel v. the transferor to give up the dividend to the trans- The Commissioner feree, to a claim to the dividend by him as a " shareof Income-tax, holder" against the company is a wide jump. In so Calcutta far as the company is concerned, it does not even Hidayatullah 1. issue the certificate under s. 20 of the Income-tax Act in the name of an unregistered transferee but only in the name of the transferor whom it recognises, because his name is borne on its books. Section 20 lays down:

" The principal officer of every company shall, at the time of distribution of dividends, furnish to every person receiving a, dividend a certificate to the effect that the company has paid or will pay income-tax on the profits which are being distributed, and specifying such other particulars as may be prescribed. " The meaning of s. 20 as also of s. 18(5) is clear if they are read with s. 19A, under which information regarding dividends has to be supplied by the company when demanded by the Income-tax Officer. It lays down:

"The principal officer of every company ... shall, on or before the 15th day of June in each year, furnish to the prescribed officer a return in the prescribed form and verified in the prescribed manner of the names and of the addresses, as entered in the register of shareholders maintained by the company, of the shareholders to whom a dividend or aggregate dividends ex• ceeding such amount as may be prescribed in this behalf has or have been distributed during the preceding year and of the amount so distributed to each such shareholder." (Italics supplied).

Section 19A makes it clear, if any doubt existed, that by the term" shareholder" is meant the person whose name and address are entered in the register of "shareholders" maintained by the company.

There is but one register maintained by the Company. There

(r) (1945) 26 Tax Cas. 359. 58

1959 is no separate register of " shareholders" such as the assessee claims to be but only a register of " mem- Mems. Howrnh b " Th' t k . d' t 1 t th . t f Trading co., Ltd. ers b. 1sd a es us 1mme h1a e y o c e reg1s er o v. mem ers, an demonstrates t at even 1or the purpose 1 he Commission" of the Indian Income-tax Act, the words "member"

oJ Income-tax, and "shareholder " can be read as synonymous.

Calcutta The words of s. 18(5) must accordingly be read in

Hidayatullak ;. the light in which the word "shareholder" has been used in the subsequent sections, and read in that manner, the present assessee, notwithstanding the equitable right to the dividend, was not entitled to be regarded as a " shareholder "· for the purpose of s. 18(5) of the Act. That benefit can only go to the person who, both in law and in equity, is to be regarded as the owner of the shares and between w horn and the company exists the bond of membership and ownership of a share in the share capital of the company.

In view of this, we are satisfied that the answer given by the Calcutta High Court on the question posed by the Tribunal was correct.

The appeal fails, and is dismissed with costs.

Appeal dismissed.

HOWRAH TRADING CO., LTD

L. KAPUR

s. 16(2)

Income-tax Act

s. 18(5)

ss. 16(2) and 18(5)

s. 18(5)

Indian Companies Act, 1913

s. 66A(2)

Income-tax Act

s. 16(2)

s. 18(5)

Income-tax Act

s. 16(2)

s. 18(5)

Income-tax Act

section 16

section 20

section 3

section 16

s. 16(2)

s. 18(5)

Companies Act

s. 16(2)

ss. 18(5) and 49B(l)

Buckley on the Companies Act

Section 2(16)

Indian Companies Act, 1913

Section 5

s. 18

s. 15

Indian Companies Act, 1913

ss. 16(2) and 18(5)

s. 16(2)

s. 16(2)

s. 18(5)

s. 18(5)

s. 18(5)

s. 18(5)

Indian Companies Act, 1913

s. 20

Income-tax Act

Section 20

s. 20

s. 18(5)

s. 19A

Section 19A

Income-tax Act

s. 18(5)

s. 18(5)


(2) S.C.R.

SUPREME COURT REPORTS 459

THE COMMISSIONER OF INCOME.TAX,

WEST BENGAL v.

THE CALCUTTA STOCK EXCHANGE ASSOCIA-

TION LTD. (B. P. SINHA, J. L. KAPUR and

M. HIDAYATULLAH, JJ.)

Income Tax-Stock Exchange Association-Authorised Assistants-Admission fee and monthly subscriptions in respect of them paid by members-Fee for putting the names of companies on QHotations List-Income therefrom-Assessability to tax-" Performing specific services", Meaning of-Indian Income-tax Act, r9zz (XI of r9zz), s. ro(6). .

By sub-s. 6 of s. ro of the Indian Income-tax Act, r922: "A trade, professional or similar association performing specific services for its members for remuneration definitely related to those 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 members of the respondent company, whose principal object was to facilitate the transaction of business on the Stock Exchange, were enabled under the by-laws to have a certain number of Authorised Assistants so that the latter could use the premises of the company and transact business therein in the names and on behalf of the members who, for that purpose, were required to pay admission fees and monthly subscriptions in respect of each of them.

The by-laws of the company also provided that no dealings in respect of the shares of any particular company should be permitted on the Stock Exchange, unless an application made by a member of the respondent company and accompanied by a fee of Rs. rooo, for putting the name of that company on the Quotations List was approved by the prescribed Authority of the respondent company. During the accounting year in question the company received from its members admission fees and subscriptions in respect of the Authorized Assistants and fees for putting the names of companies on the Quotations List.

The question was whether the aforesaid amount was liable to be taxed under s. ro(6) of the Indian Income-tax Act,

~~ .

Held, that with reference to a trade, professional or similar association, the performing of specific sel'vices under s. ro(6) of the Indian Income-tax Act, r922, mean conferring on its members some tangible benefit which otherwise would not be available to them as such, except for payment received by the association in respect of those services.

I959

Marek 26.

r959 Accordingly, the income received by the respondent company towards the admission fees and the subscriptions in respect The Commissioner of the. Authorized Assistants. being the price paid for the services of Inconie-tax, of the respondent con1pany in making suitable arrangements for West Bengal an absentee member to transact business on his behalf and in his v. name by his representative or agent within the Stock Exchange, The Calcutta Stock as well as the fees received from members for enlisting the names

Exchange of companies not already on the Quotations List so as to permit Association Ltd. transactions in respect of the shares of the companies concerned, was remuneration definitely related to specific services performed by the respondent for its members within the meaning of s. rn(6) of the Indian Income-tax Act, r922, and was assessable to income-tax.

Sinha ].

Native Share and Stock Brokers' Association v. The Commissioner of Income-tax, Bombay, [r946] r4 I.T.R. 628, approved.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 204 of 1958.

Appeal from the judgment and decree dated January 6, 1956, of the Calcutta High Court in Income-tax Reference No. 74 of 1953.

K. N. Rajagopal Sastri, R. H. Dhebar and D. Gupta, for the appellant.

Radha Binod Pal, Panchanan Pal and D. N. Mukherjee, for the respondents.

1959. March 26. The Judgment of the Court was delivered by

SINHA, J.-The question for determination in this appeal on a certificate of fitness granted by the High Court of Calcutta, is whether the respondent's admitted income under certain heads, is chargeable to income-tax under the provisions of s; 10(6) of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the Act). The Calcutta High Court, by its judgment dated January 6, 1956, answered the question in the negative, disagreeing with the determination of the Income-tax Appellate Tribunal by its order dated April 23, 1949.

The facts of this case, upon which the decision of the appeal depends, may shortly be stated as follows: The respondent is a limited liability company incorporated on June 7, 1933, with a view to taking over the assets and liabilities of an unincorporated association called " The Calcutta Stock Exchange Association"

and to carrying on the affairs of the Stock Exchange z959 which had been founded by that Association. Th c - ..

The principal object of the Respondent Company 0; 1:::::;::~' is to facilitate the transaction of business on the West Bengal Calcutta Stock Exchange. In view of that objective, v. the Company had to make rules and by-laws, regulat- The Calcutta Stock . h d d h d. . • d b • t t Exchange mg t e mo e an t e con 1t10ns m, an su 3ec o, A . 1.

Ltd which the business of the Stock Exchange bad to be ssocia ' 0n transacted. The Company is composed of" members" Sinha J. who may be either individuals or firms, who, except in the case of parties who had been members of the unincorporated Association have to be elected as such, and upon such elections, have to acquire a share of the Company and pay an entrance fee.

The members have to pay a monthly subscription according to the by-laws of the Company. Under the by-laws of the Respondent Company, members with a certain standing, are allowed to have "Authorized Assistants ", upto a maximum of six in number. Such Authorized Assistants are permitted the use of the premises of the Association and to transact business therein in the names and on behalf of the members employing them.

The members have to pay an admission fee for such Authorized Assistants according to the following sea.le:

"(a) for the first two Assistants Rs. 1,000

(b) for the third Assistant Rs. 2,000 ( c) for the fourth Assistant Rs. 3,000

(d) for the fifth Assistant Rs. 4,000

(e) for the sixth Assistant Rs. 5,000

(f) for replacement Rs. 1,000 ".

The last item of replacement fee of Rs. 1,000/- is meant to cover the fee for substituting one Assistant by another. Before these by-laws were amended with effect from July 10, 1944, a member could have more than six such Assistants, but the number was limited to six by the new amendment which also provided that "Members who have more than six Assistants, at present, shall not be allowed any replacement unless the number of Assistants in their firms has come down to six (maximum fixed)." Rule (5), as amended, is in these terms :-

1 95~ "Every candidate applying for admission as - Assistant to a member must serve at least for one The Commissione. b · h fi f h b A of income-tax, year as a pro at10ner m t e rm o t at mem er.

w,,1 Bengol probationer must apply to the Committee (through v. the member in whose office he will serve as proba- The Calcuua Stock tioner) in such form as may be prescribed by the

fachnge Committee by paying Rs. 100/- as probationer fee Assomatwn Ltd. h" h "Jl b f d d . . t ,, w IC w1 not e re un e m any mrcums ances .

Sinha J.

It would, thus, appear that the rules relating to the admission of members' Assistants, confer the benefit upon those members only-either individuals or firms-who are qualified according to the by-laws to have such Assistants, and who have paid admission fees and pay a monthly subscription in respect of each of them, besides thefr own dues, to the Company.

The number of such Assistants has been sought by the by-laws to be limited upto a maximum of six, by imposing a progressively enhanced admission fee, apparently, with a view to discouraging the empToyment of a large crowd of such " Authorized Assistants". The by-laws also provide that" an authorized assistant shall not enter into any contracts on his own behalf and all contracts made by him shall be made in the name of the member employing him and such member shall be absolutely responsible for the due fulfilment of all such contracts and for all transactions entered into by the authorized assistant on his behalf." It is also contemplated by the by-laws that. tickets have to be issued to the Authorized Assistants, besides the members' tickets. The bylaws also contemplate that a member shall give to the prescribed Authority of the Company, an immediate notice in writing, of the termination of the em ployment by him of any Authorized Assistant, and on such termination, the right of the Assistant to use the rooms of the Association, shall cease, and he shall not be at liberty to transact business in the name and on behalf of his employer. The by-laws also make provision for the supervision of the work of the Authorized Assistants to see that they function within the limits of their powers, and do not transact

business on behalf of persons or firms other than 1959 I those employing them. . . . • h · ( 1 lte Commissioner Durmg t e accountmg year 1944-45 assessn; ient of Income-tax, year 1945-46), the Re-spondent Company received west Bengal from its members the sum of Rs. 60,750/- as entrance v. fees, and the sum of Rs. 15,687 /- as subscription in The Calcutta Stock respect of the Authorized Assistants. The Company fachnge also received during the aforesaid year, a sum of Association Lid.

Rs. 16,000/- as fees for putting the names of companies Sinha 1. on the Quotations List. Unless a particular company's name is placed on the Quotations List, no dealings in respect of the shares of that company are permitted on the Stock Exchange. An application has to be made by a member to place on the Quotations List any company not already included in that List, and _on approval by the prescribed Authority of the Company, the name of the company thus proposed, is included in the List upon payment of a certain fee.

The companies themselves cannot apply to the Assoqiation for such enlistment. The application has to be made by a member, and has to be accompanied by a fee of Rs. 1,000/-, and it is only after the necessary scrutiny and investigation into the affairs of the proposed company have been made, that the enlistment applied for is granted. That is another source of income to the Respondent Company. It is no more necessary to refer to another item of income, which was admitted, during the course of the assessment proceedings in their appellate stage, to be liable to the payment of tax. We are, thus, concerned in the present controversy with the aforesaid sums of Rs. 60,750/-, Rs. 15,687/- and Rs. 16,000/-which were held by the Income-tax Officer, by his order dated March 27, 1946, to be liable to income-tax.

The Income-tax Officer rejected the contention raised on behalf of the assessee Company that the Authorized Assistants aforesaid were themselves members of the Company, and that therefore, the moneys received from them were exempt from taxation. He also held that though the Respondent Company was a mutual Association, each one of the three items of income, referred to above, was remuneration definitely related

464 SUPREME OOUR'r REPORTS [1959] Supp.

t959 to specific services performed, and was thus, charge-

Th C -. . able to tax within the meaning of s. 10(6) of the Act. e ommission" O I h A JI

A C · b of Income-tax, !1 appea , t e ppe ate ssJStant . omm1ss10ner, y west Brngal his order dated June 30, 1947, considered the pomts v. at great length, and came to the conclusion that the The Calcuua Stock authorized Assistants were not members or substitute

Exchange members.

He held that the Authorized Assistants Association Ltd. h ' f h b were no more t an representatives o t e rnem ers

Sinha 1 . who employ thJJm, and they transact business on their behalf, and that the Association had framed rules and by-laws, regulating the admission, supervision and discontinuance of such Authorized Assistants. For

~ coming to this conclusion, he relied upori the decision of the Bombay High Court in the case of Native Share and Stock Brokers ' Association v. The Commissioner of Income-tax('). The case was then taken up in appeal to the Income-tax Appellate Tribunal, which dismissed the appeal.

The Tribunal agreed with the finding of the taxing authorities that the Authorized Assistants were not members of the Company within the meaning of the Articles of Association of the Company, and that their position was analogous to that of the "authorised clerks in Native Share and Stock Brokers' Association at Bombay". In the course of its order, the Tribunal observed as follows:-

" The provision made in the regulations of the company, by which a member can take advantage of sending his authorised assistants to the company for transacting the business in the member's name is nothing but giving extra facilities to the members. By controlling the institution of authorised assistants the company renders specific services to the members and in particular to the member whose assistants work for him. The amounts received by the company from these sources are clearly covered by the provisions of section 10(6) ".

At the instance of the assessee, the Tribunal stated a case and referred the following questions of law to the High Court for its decision under s. 66(1) of the Act:-

" (1) Whether on the facts of this case the Incometax Appellate Tribunal was right in holding that

(1) [1946) 14 I.T.R. 628.

Authorised Assistants were not members of the comr959 parry and as such the amounts of Rs. 15,687 /- and Th c - .. , d h b . ,· e ommissioner 60,750/- receive from t em as su scnpt10ns and of Income-tax entrance fees respectively should be included in the West Bengal assessable income. v.

(2) Were these amounts received for specific servi- The Calcutta Strek ces performed by the Association or its members with- Exchange th • f b t" (6) f t' 10 f th Association Ltd. m e meaning o su .sec 10n o sec 10n o e _ Indian Income-tax Act ?

(3) Whether the sums of Rs. 16,000/- and Rs. 600/- were remuneration definitely related to specific services performed by the Association for its members within the meaning of sub-section (6) of section 10 ".

The reference was heard by a Di vision Bench consisting of Sir Trevor Harries, C. J., and Banerjee, J., of the Calcutta High Court.

Before that Bench, certain concessions were made. It was conceded by Dr. Pal, who also appeared before that Bench, that the Authorised Assistants were not members of the Company.

It was also agreed at the bar, on behalf of both the parties, that the two sums of Rs. 60, 750 and 15,687 were not received from the Authorized Assistants, as suggested in the question formulated, and that it. was common ground that they were received from members of the Association in respect of their Authorized Assistants. Therefore, the High Court took the view that the questions framed by the Tribunal did not arise, and that the Tribunal bad proceeded on a wrong basis of facts.

The High Court, therefore, re-cast the questions in these terms :-

" Whether in the facts and circumstances of this case the Income-tax Appellate Tribunal was right in holding that

(a) the amounts of Rs. 15,687 / and Rs. 60, 750/. received from the members of the Association as subscriptions and entrance fees in respect of Authorized Assistants, and

(b) the amounts of Rs. 16,000/- and Rs. 600/- received as fees for enlisting names of newly floated companies and for recognition of changes in the styles of firms respectively should be included in the assessable income of the assessees ",

Sinha ].

c959 The Tribunal was asked to re-state a case upon the

The Commission" questions as re-cast, extracted above. of Income-tax, Accordingly, the Tribunal drew up a fresh state- West Bengal ment of the case and re-submitted it to the High v.

Court. On this re-statement of the case, the matter was The Calcutta Stock heard by a Bench consisting of Chakra varti C. J. and

Exchange S k J T H" h C . ' ' Association Ltd. ar ar, . he 1g ourt considered the terms of s. 10(6) of the Act, and came to the conclusion that Sinha J. the case had not been brought within those terms.

The High Court, in the course of its opinion, observed that though the assessee is undoubtedly a trade association, it did not perform any specific services for its members for remuneration. It then examined in detail the decision of the Bombay High Court in the case of Native Share and Stock Brokers' Association v. The Commissioner of Income-tax('), relied upon by the Department, and observed that the differences pointed out between the case in hand and the case decided by the Bombay High Court, were" not vital, though they are not immaterial ", but it was not prepared to take the same view of the facts of this case as had been taken by the Bombay High Court in the case referred to above, or by the Travancore-Cochin High Court in the case of Commissioner of Income-tax v. Chamber of Commerce, Alleppey (2).

The High Court accepted the argument of Dr. Pal, which is also addressed to us, that the words "performing specific services for " were far stronger and more definite than the words "render service to", and that those words meant the actual doing of definite acts in the nature of services. The Court further observed that those words meant " execute certain definite tasks in the interests and for the benefit of the latter(that is to say, the members) under an arrangement of a direct character". It further observed that the words "for remuneration" and " definitely related to those services " meant that " certain specific tasks must be performed or functions of a specific character must be discharged for payment and such payment is to be made to the association as wages for its labour in respect of those tasks or functions". In this connection,

(1) [1946) 14 I.T.R. 628.

(2) [1955) 27 l.T.R. 535.

(2) S.C.R. SUPREME COUltT B, EPORTS 467

it may be addd that the High Court also made the r959 following observations bearing on the construction of The Commissioner the crucial words of s. 10(6) :- of Income-tax, "When section 10(6) speaks of a trade, professio- Wesl Bengal nal or other similar association performing specific v. services for its members for remuneration, it contem- The Calcutta Stock plates, I think, services in regard to matters outside Ass!7:~::g•Ltd the mutual dealings for which the Association was formed and for the transaction of which it exists as a Sinha f. mutual association. If performance of functions even in regard to matters within the objects of the association as a mutual association be performance of specific service within the meaning of the sub-section, discharge of no function can be outside it and everything done would be specific service performed. That, I do not think, is what the sub-section means and intends".

It is manifest that unless the assessee is brought within the terms of sub-s. (6) of s. 10, the three items of income coming into the hands of the Association, would not be chargeable to income-tax. That subsection is in these terms :-

" (6) A trade, professional or similar association performing specific services for its members for remuneration definitely related to those 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 ".

It has to be observed at the outset that the performing of the services of the description mentioned in that sub.section, may not, but for the words of that section, have amounted to carrying on business in respect of those services. The use of the word "deemed " shows that the legislature was deliberately using the fiction of treating something as business which otherwise it may not have been. It is also noteworthy that the sub-section is couched in rather emphatic terms. We have, therefore, to examine the terms of the sub-section to see whether the three sums of money in question, or any of them, are or is within the ambit of those terms.

The words " performing specific services", in our opinion, mean, in the context, "conferring particular benefits " on the members. The word

468 SUPREME COURT ItEPORTS [1959] Supp.

'959 " services " is a term of a very wide import, but in the

Th C-. . context of s. 10 of the Act, its use excludes its theolo- • ommimoncr . l t' W'th ,. t d of Income-tax gwa or ar 1st1c usage. 1 re1erence to a ra e, prowest Bengal• fessional or similar association, the performing of v. specific services must mean conferring on its members The Cafrutta StocA some tangible benefit which otherwise would not be

Exchange available to them as such, except for payment received Association Lid. by the association in respect of those services. The

Sinha 1. word" remuneration", though it includes "wages", may mean payment, which, strictly speaking, may not be called "wages". It is a term of much wider import including " recompense '', "reward ", " payment ", etc.

It, theref9re, appears to us that the learned Chief

Justice was not entirely correct in equating "remuneration " with "wages ". The sub-section further requires that the remuneration should be "definitely related" to the specific services. In other words, it should be showh that those services would not be available to the members or such of them as wish to avail themselves of those services, but for specific payments charged by the association as a fee for performing those services.

After these observations bearing on the interpretation of the crucial words, we shall now examine each of the three items of income, separately, to determine the question whether they answer, or any of them answers, the description of "services " contemplated by the sub-section.

Firstly, the sum of Rs. 60,750 has been realised from such members as applied for and obtained permission of the Association to have the use of Authorized Assistants within the precincts of the Stock Exchange.

There cannot be the least doubt that unless those members paid the prescribed entrance fees for one or more Authorized Assistants upto a maximum of six, they could not have the benefit thus conferred upon such members. Ordinarily, a member has to transact business in the precincts of the Association by himself or by his business partner if there is a firm; but if that member is a very busy person, and wishes to avail of the services of Authorized Assistants, he has to pay the the prescribed foe. A member of the Association, with the ad vantage of mutuality, so long as he transacts

business within the precincts of the Association, by z959 himself or by his partner in the case of a firm, is not The c;.;;:ssioner required to pay any such entrance fee but only the of Income-tax, fee payable by every member as such. The entrance West Bengal fee, thus, is clearly chargeable only from such of the v. members as avail themselves of the benefit conferred The Calcutta Stock by the rules of the Association in that behalf. The A Echa 1

. ngeLtd fi . , 'd fi h _ f ssocia ion • entrance ee IS, thus, a price pa1 or t e services o the Association in making suitable arrangements for Sinha fan absentee member to transact business on his behalf and in his name by his representative or agent. The entrance fee in question, therefore, cannot but be ascribed . to the specific services rendered by the Association in respect of Authorized Assistants who thus become competent to transact business on behalf of their principal.

Coming next to the sum of Rs. 15,687 which was realised from the members by way of subscription in respect of their Authorized Assistants, it is clear that this sum consists of the contributions severally made by the members periodically, so as to continue to have the benefit conferred by the Association of having the use of their representative or agent even during their absence.

There cannot be the least doubt that this is a very substantial benefit to those members who found it worth their while to engage the services of Authorized Assistants.

A member is not obliged, as indicated above, to have such an Assistant, but the fact that he chooses to have such an Assistant on payment of the prescribed fee or subscription, itself, is proof positive that a businessman, who ordinarily thinks in terms of money, has found it worth-while to have the services of an Assistant by making an additional payment to the Association by way of recompense for the benefit, thus conferred upon him.

Lastly, the sum of Rs. 16,000 represents fees received from members for allowing their application for enlisting the names of companies not already on the Quotations List, so that the shares and stocks of these companies, may be placed on the Stock Market. As already indicated, it is not the company concerned which has directly to pay this fee, but the fee has to

ry59 be paid by the member who initiates the proposal

Th• c0-;;;,-;;; ssioner and, apparently, finds it worth his while to pay that of Income-tax, prescribed fee to the Association. He would not make

w,,, Bengal the payment unless he found it worth his while to do

v. so. Apparently, such a member is interested in placing The Calc,, tta Stock the stocks of that company on the market. It cannot,

A Exc, hngeLtd therefore, be denied that that sum of money is definitessocia ton . . . . ly related to the specific services performed by the Sinha ;.

Association, namely, to permit transactions in respect of the shares of the company concerned, which services would not otherwise be available to the members as a body or to the individual member or members interested in that company.

In our opinion, therefore, each one of the three sources of income to the Association, accrues to it on account of its performing those specific services in accordance with its rules and by laws. Each one of the three distinct sources of revenue to the Association, is specifically attributable to the distinct services performed by the Association for its members or such of them as avail themselves of those benefits. And each one of those services is separately charged for, according to the rate or schedule laid down by the rules and by-laws of the Association. In our opinion, therefore, the requirements of sub-s. (6) of s. 10, have been fulfilled in the present case.

But we have yet to deal with the last argument accepted by the High Court, with reference to the terms of sub-s. (6) of s. 10, namely, that the services contemplated therein, have reference to "matters outside the mutual dealings for which the Association was formed ". In the first place, there is no warrant for limiting the application of the words used by the legislature, in the way suggested. Secondly, the mutuality of the Association extends only to such benefits as accrue to every member on the payment made by him to the Association, but even if additional items of payment have to be made for additional services to be performed by the Association only for such of the members as avail themselves of those benefits, it cannot be said that the mutuality extends to those additional benefits also. It is, in our opinion,

equally wrong to suggest that the services in question x959 should have been outside the objects of the Associa- Th c - .. If h A • d h f e ommissioner t1on. t e sso01at10n ren ers services to sue o of Income-tax, its members as avail themselves of such services as west Bengal are not within the scope of the business activities of v. the Associiation, those benefits, if any, would not be The Calcutta Stock conferred by the Association as such, because the Exchange Association has to function within the scope of its Association Ltd.

objects of incorporation.

Sinha J.

Hence, on a true construction of the provisions of the sub-section in question, we have come to the conclusion that the facts and circumstances of the present case, bring the three items of income of the Association within the taxing statute. In our opinion, the decision of the Bench of the Bombay High Court, consisting of Stone, C. J., and Kania, J., (as he then was), in the case of Native Share and Stock Brokers' Association v. Commissioner of Income-tax (1) is correct, and the facts of that case run very parallel to those of the case in hand, though there may be minor differences in the rules and by-laws of the Association then before the Bombay High Court. In that case, as in the present one, the rules of the Stock Brokers' Association (the Bombay Stock Exchange) contemplated a definite scheme for allowing members to employ authorized clerks and for the admission, conduct, control and supervision of those clerks, for the benefit primarily of the members who employed them. It was held by the High Court that the income received by the Association by way of fees in respect of those authorized clerks, was within the taxing statute and liable to income-tax.

After examining in detail the provisions of the rules an<l the by-laws of the Association, Stone, C. J., made the following observations which are equally applicable to the rules and by-laws of the Association in the present case:-

" In my judgment these rules lay down a definite scheme and provide an organised arrangement, controlled and supervised by the Association for the benefit of its members. In my opinion the carrying

(1) [1946] 14 l.T.R. 628.

1959 of their scheme into effect is performing services for - its members by tire Association. No doubt the benefit The Commissioner f h h Id d d h b fi

" II of Income-tax, o t e sc eme wou re oun to t e ene t o: a. west Bengal members since all would have the advantage of d1s01v. plined supervision exercised over the authorised clerks The Calcutta Stock and remisiers of the others. I do not think that

Exchange because the payment for the carrying of the scheme Association Ltd. h I l is provided for only by members w o avai themsC' ves Sinha ;. of the use of the authorised clerks it makes any difference." Kania, J., (as he then was), in a separate but concurring judgment, made the following very pertinent observations:-

" 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 ben(lfits only of those who pay remuneration of Rs. 100 instead of going to the market and carrying on their business themselves. Individual members are permitted to work through an agent. For that the charge is made. The rules provide for the application and grant for such permission, registration of the authorised clerks on the individuals being recognised as clerks of particular members, supervision over the work of such clerks and particularly to prevent them from registering contracts either in their own name

or in the name of another member; and a general supervision over their good behaviour is contemplated ......... " . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . "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 their business. Taken as a whole I consider that as a performance of services by the Association for the benefit of members who pay the remuneration."

We have made these copious quotations from the judgment of the Bombay High Court, because, in our

(2) S.C.R.

SD_PREME COURT REPORTS 473

I959 opinion, they truly apply the provisions of sub-s. (6) of s. 10 to associations like the one before us.

The Commissioner The other case to which our attention was drawn, of Income-tax, is Commissioner of Income-tax v. Chamber of Commerce, west Bengal Alleppey (1).

The facts of that case are not similar to v. those of the case before us, but the ratio decidendi of The Calcutta Stock that case are relevant. That case referred to the Exchange Alleppey Chamber of Commerce.

The Chamber inaugurated a produce section with the object of promoting the interests of merchants in general, and of those engaged in the produce trade, in particular, of acting as arbitrators and collecting and publishing information relating to the produce trade. Members were admitted to the produce section on payment of admission fees, monthly fees and contributions at certain prescribed rates. The question which was referred to the High Court, was whether the receipts by way of fees and contributions, could be chargeable under s. 10(6) of the Act, and it WMI answered in the affirmative.

Though cases in England, by way of precedent for the decision of the case in hand, have not been cited at the Bar, apparently because the scheme of the Income-tax law in England is different and the words of the statute are not in parti materia, yet there are ' some cases which throw some light on the controversy before us.

For example, the case of The Carlisle and Silloth Golf Club v. Smith (Surveyor of Taxes) (2) related to a golf club which was not incorporated. It was admittedly a bona fide members' club, but under one of the terms of its lease, it had to admit non-members to play on its course on payment of " green fees " at certain prescribed rates. Those fees were paid by nonmembers. Receipts from those fees were entered in the general accounts of the Club, thus, showing an annual excess of receipts over expenditure of the Club as a whole. It was held by Hamilton, J., (as he then was), that the Club carried on a concern or business in respect of which it received remuneration which was assessable to income-tax. He pointed out that the

(1) [1955] 27 I.T.R. 535

(2) (1912) 6 Tax Cas. 48.

Association Ltd.

Sinha J.

x959 receipts from non-members 'went to augment the funds -. . of the Club, and the revenue thus received was applied

T~~ 1commissioner for the purposes of the Club-towards its general exoj ncome-tax, .

West Bengal pend1ture.

The case was taken up to the Court of v.

Appeal, and the decision of that Court is reported in The Calcutta Stockthe same Volume at p. 198.

The Court of appeal

E':cange affirmed the decision and dismissed the appeal.

Asso"ation Ltd.

The Judgment of the King's Bench Division in The

Sinha J.

Liverpool Gorn Trade Association, Limited v. Monks (H. M. Inspector of Taxes) (1) was based on facts which are similar to the facts of the present case. In that case, the Liverpool Corn Trade Association, Limited, was an incorporated body under the Companies Act, with the object, inter alia, of protecting the interests of the corn trade, and of providing a clearing house, a market, an exchange, and arbitration and other facilities to the trade. Membership of the Association was confined to persons engaged in the corn trade. Each member was required to have one share in the company, and had to pay an entrance fee and an annual subscription.

Non-members could also become subscribers. Payments were made to the Association by members and others for services rendered through the clearing house, etc. The assessee was taxed on the excess of its receipts over expenditure. On appeal to the Special Commissioners, they upheld the assessment. One of the points raised before the Special Commissioners, was that transactions with its members were mutual ones, and that any surplus arising from such transactions, was not a profit assessable to income-tax. On appeal, the High Court agreed with the determination of the Special Commissioners, and held that any profit arising from the Association's transactions with members, was assessable to incometax as part of the profits of its business, and that the entrance fees and subscriptions received from members must be included in the computation of such profits.

It was suggested that the service in this case, if any, was extremely trivial and the remuneration which was large was for that reason not definitely related to the

(r) (1926) ro Tax Cas. 442.

service. It was held by Upjohn, J., in Bradbury z959 (H. M. Inspector of Taxes) v. Arnold (1) that the extent The commissioner of the services was of no materiality. There, the quesof Income-tax. tion was being dealt with under Case VI of Schedule West Bengal Dbof thJ Income-tax Act, 1918. The learned Judge The Calc:; ta Stock 0 Serve !

Exchange "There is no doubt that a contract for services Association Ltd. may, and clearly does, form a matter for assessment under Case VI of Schedule D, and not the less so that Sinha J. the services to be rendered are trivial or that they are to be rendered once and for all so that the remuneration may be regarded as a casual profit arising out of a single and isolated transaction".

The same view was expressed by Harman, J., in Housden (Inspector of Taxes) v. Marshall (2).

In that case, a well-known jockey contracted with a newspaper company to make available to its nominee " reminiscences of his life and experiences on the turf for the purpose of writing a series of four articles ", and to provide photographs, press cuttings, etc. He was paid £ 750.

The question was whether this amounted to sale of property, or was a payment for services renaered. It was held that it was the latter, and that it did not matter if the service rendered was trivial.

In view of what we have said above as to the nature of the service which the Association performed in respect of the Assistants, the payment of the fee was definitely related to that service. It is, therefore, plain that the case fell within s. 10(6) of the Act. It must, therefore, be held that the question referred to the High Court should have been answered in the affirmative, and that the High Court was in error in giving its opinion to the contrary.

The appeal must, accordingly, be allowed with costs here and below.

Appeal allowed.

(1) [1957] 37 Tax Cas. 665, 669.

(2) [1958] 3 All E.R. 639.

THE COMMISSIONER OF INCOME-TAX, WEST BENGAL

THE CALCUTTA STOCK EXCHANGE ASSOCIATION LTD

L. KAPUR

M. HIDAYATULLAH, JJ.

Meaning of-Indian Income-tax Act

s. 6

Income-tax Act

Income-tax Act

Income-tax Act

Income-tax Act

Indian Income-tax Act, 1922

s. 10(6)

section 10(6)

s. 66(1)

sec 10

sec 10

Indian Income-tax Act

section 10

s. 10(6)

s. 10(6)

section 10(6)

s. 10

s. 10

s. 10

s. 10

s. 10

s. 10(6)

Companies Act

Schedule D

s. 10(6)