1953 (10) TMI 9 - SC - Income Tax

Company operating racecourse denied tax exemption under Section 10(6) for commercial profit-earning activities with members and non-members

Commissioner Of Income-Tax, Bombay City Versus The Royal Western India Turf Club Limited

The SC ruled that a company operating a racecourse could not claim tax exemption under Section 10(6) as it was not a trade or professional association. ... Claim exemption from tax liability under Section 10(1) - Receipts from Business -meaning of 'a trade or professional or similar association' - principles of Style's case - Whether those three items are receipts by a trade or professional or similar association performing specific services for its members for remuneration definitely related to those services? - No mutual dealing between the members inter se and no putting up of a common fund for discharging the common obligations to each other undertaken by the contributors for their mutual benefit Held that:- There is no dispute that the dealings of the company with non-members take place in the ordinary course of business carried on with a view to earning profits as in any other commercial concern. It is further admitted that some of the dealings of the company with its members take place in the ordinary course of business and the profits arising out of those dealings, e.g., the fourth item of receipt of Rs. 82,490, are taxable. The company gives to its members the same or similar amenities as it gives 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, use of the totalisator in that stand and the facility for refreshment. In fact the daily ticket fee for admission into the members' enclosure is exactly the same as that for admission into the first enclosure to which the public have access. The only difference is that a separate enclosure with a separate totalisator is provided for the members where they can meet their fellow members and not be disturbed by the intrusion of non-members. This privilege is referable to their membership of the company for which they pay an entrance fee on their election as members and for which they pay the periodical subscriptions both of which are not sought to be brought to charge. The rest of the facilities mentioned above which the members get are in substance the same as those enjoyed by the public. Those facilities are given to members and non-members alike for a price. The character of the charges made on members is precisely the same as or is similar to that of the charges made on non-members, for the company receives moneys from both members and non-members in return for the same or similar facilities, given to both in the course of one and the same business. The dealings in both cases disclose the same profit-earning motive and are alike tainted with commerciality. In the circumstances, all the four items of receipts from members must be taken into account in computing the total income of the company. The fact that the company has so long enjoyed exemption from taxation is neither here nor there, for there can be no question of acquiring any prescriptive right to exemption from taxation. In our view the company before us is not a 'trade association' in this sense although it carries on a business. In this view of the matter it is unnecessary to discuss the further question whether the facilities or amenities given by the company to its members may be regarded as 'services' within the meaning of Section 10(6). We are of opinion that Section 10(6) has no application, for the company is not a trade or professional or similar association within the meaning of that sub-section. All the items of receipts from members referred to in the questions were received by the company from business with its members within the meaning of Section 10(1) and that none of them was received by the company as a trade, professional or similar association within the meaning of Section 10(6). In our judgment the High Court should have answered question No. 1 in the affirmative and question No. 2 in the negative. The appeal is allowed Issues Involved:1. Whether the first three items of receipts from members are from business carried on by the company.2. Whether those three items are receipts by a trade or professional or similar association performing specific services for its members for remuneration definitely related to those services.Detailed Analysis:Issue 1: Receipts from BusinessThe company, Royal Western India Turf Club Ltd., argued that the first three items of receipts from members (season admission tickets, daily admission gate tickets, and use of private boxes) should not be considered as income from business. The High Court held that these items were not taxable under Section 10(1) of the Income-tax Act, as they were charges for amenities provided exclusively to members.The Supreme Court examined the objects of the company, which included carrying on the business of a Race Course Company and hotel-keeping. The Court noted that the company carried on horse racing business and earned income from both members and non-members. The rates charged to members and non-members for similar facilities were identical. The Court found no basis to exclude the first three items from the computation of the total business income of the company, as the dealings with members were similar to those with non-members and were part of the same business.The Court referred to the principle laid down in the case of New York Life Insurance Co. v. Styles, which involved mutual assurance and the identity of contributors and participators. However, the Court found that this principle did not apply to the present case as there was no mutual dealing between the members inter se, no common fund for mutual benefit, and no refund of surplus to the contributors.The Court concluded that the principles of mutual assurance could not be applied to an incorporated company carrying on a business like horse racing, which realizes money from both members and non-members for similar facilities. Therefore, the first three items of receipts were considered part of the income from the business carried on by the company.Issue 2: Trade or Professional AssociationThe second issue was whether the first three items of receipts were from a trade or professional or similar association performing specific services for its members for remuneration related to those services under Section 10(6) of the Income-tax Act.The Supreme Court analyzed the meaning of 'trade or professional or similar association' and concluded that the company was not a professional association. The Court referred to the definition of a 'trade association' as an association of tradesmen, businessmen, or manufacturers for the protection and advancement of their common interest. The Court held that the company did not fit this description, even though it carried on a business.The Court found it unnecessary to discuss whether the facilities provided by the company to its members could be regarded as 'services' under Section 10(6) since the company was not a trade or professional or similar association within the meaning of that sub-section.Conclusion:The Supreme Court held that all the items of receipts from members were received by the company from business within the meaning of Section 10(1) and that none of them was received by the company as a trade, professional, or similar association within the meaning of Section 10(6). The High Court's judgment was reversed, and the appeal was allowed, with costs awarded to the Commissioner of Income-tax.