1957 (1) TMI 42 - HC - Income Tax

Delhi Stock Exchange admission fees taxable as business income despite mutual society status

Commissioner of Income-Tax, Delhi, Etc. Versus Delhi Stock Exchange Association Ltd.

Commissioner of Income-Tax, Delhi, Etc. Versus Delhi Stock Exchange Association Ltd. - [1957] 32 ITR 3 Issues Involved:1. Whether the admission fee of members or authorized assistants received by the assessee is taxable income in its hands.2. Whether the assessee company qualifies as a mutual society exempt from the payment of income tax.3. Whether the admission fee falls within the ambit of 'profits and gains of business, profession or vocation' under section 10(1) of the Income-tax Act.4. Whether the admission fee is assessable under section 10(6) of the Income-tax Act.Issue-wise Detailed Analysis:1. Taxability of Admission Fee:The primary issue referred to the court was whether the admission fee received by the assessee, Delhi Stock Exchange Association Limited, from its members and authorized assistants is taxable income. The Income-tax Officer and the Assistant Commissioner concluded that the admission fee, being non-refundable and constituting the assessee's income, is a receipt of a revenue nature and thus assessable to income tax. The Appellate Tribunal, however, accepted the assessee's argument that the sums collected as entrance fees were intended for capital purposes like purchasing land and constructing a building, and therefore, should be treated as capital receipts exempt from taxation.2. Mutual Society Exemption:The assessee contended that it is a mutual concern, which is generally exempt from income tax. A mutual society is typically a voluntary association formed for the mutual benefit of its members, not for profit, and any surplus is returned to the members. The court reviewed several cases, including Styles v. New York Life Insurance Co. and Municipal Insurance Ltd. v. Hills, which established that for an association to be considered mutual, there must be complete identity between contributors to the common fund and participators in the surplus. The court found that the assessee did not meet this requirement as it had a capital structure with shares and dividends, and the profits were distributed among shareholders, not just the trading members or their authorized assistants.3. Admission Fee as Profits and Gains:The court examined whether the admission fee falls within the scope of 'profits and gains of business, profession or vocation' under section 10(1) of the Income-tax Act. The court rejected the assessee's argument that the admission fee, being a one-time payment, lacked periodicity and thus did not constitute income. The court reasoned that while a member pays the admission fee only once, the company receives it repeatedly as new members or assistants are admitted, thereby making it a recurring source of income.4. Assessment under Section 10(6):Although the primary finding rendered this issue secondary, the court briefly addressed whether the admission fee could be assessed under section 10(6) of the Income-tax Act. This section pertains to trade, professional, or similar associations performing specific services for their members for remuneration. The court found that the entrance fees and subscriptions were not related to specific services but were arbitrary sums charged for the privilege of membership, thus not falling under section 10(6).Conclusion:The court concluded that the Delhi Stock Exchange Association Limited is not a mutual society exempt from income tax and that the admission fees received from members and authorized assistants are taxable as 'profits and gains of business, profession or vocation.' The question referred to the court was answered in the affirmative, confirming the taxability of the admission fees.