TaxTMI 
TaxTMI 
1953 (10) TMI 9
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....and liabilities of the then unincorporated club known as the Western India Turf Club ; (b) to carry on the business of a Race Course Company in all its branches....... ; (c) to establish any clubs, hotels and other conveniences in connection with the property of the company ; (d) to carry on the business of hotel-keepers, tavern-keepers, licensed victuallers and refreshment purveyors ; (e) to sell, improve, manage, develop, lease, mortgage, dispose of or otherwise deal with all or any part of the property of the company, whether movable or immovable, with power especially to sell and distribute or to permit to be sold and distributed wines, spirits, tobacco and other stores. The liability of the members is limited by guarantee, each member undertaking to contribute to the assets of the company, in the event of its being wound up, such sum as may be required, not exceeding one rupee, for payment of the debts and liabilities of the company and the costs, charges and expenses of the winding up. Clause 6 of the Memorandum provides that if upon the winding up or dissolution of the company there remains after the satisfaction of all debts and liabilities any property whats....
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....nts on payment. The present disputes arose in connection with the assessment of the company's income, profits or gains in the accounting year 1st July, 1938, to 30th June, 1939. The company received large sums of money on admission tickets from members as well as from non-members, besides other moneys on other accounts. The company claimed that in computing its total income, the following four items of receipts should be excluded :-- (1) Season admission tickets from members. Rs. 23,635 (2) Daily admission gate tickets from members. Rs. 51,777 (3) Use of private boxes by members. Rs. 21,490 (4) Income from entries and forfeits received from the members whose horses did not run in the races during the season. Rs. 82,490 There was no dispute as to the liability of the company in respect of moneys received from non-members and moneys received on all other accounts. The Income-tax Officer held that all the four items mentioned above were receipts from business falling under Section 10(1) of the Income-tax Act or, in the alternative, were receipts by an association performing specific services for its members for remuneration definitely related to those services ....
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.... on of the business of racing and the carrying on of the club and that the first three items of Rs. 23,635, Rs. 51,777 and Rs. 21,490 were charged to the members in respect of the various amenities specified in the supplementary statement of the case which were given by the club only to its members, namely, the use of the members' enclosure on payment of admission fee, the use of the members' totalisator, the right to watch the races from the lawn or from an unreserved seat in the members' stand, the use of a private box subject to payment and the use of the guest house at Poona. Accordingly the High Court held that the said first three items did not fall either under Section 10(1) or Section 10(6) of the Act. With regard to the sum of Rs. 82,490 the High Court held that it did not come under Section 10(6) but was a part of the income of the business of horse racing done by the company. Accordingly the High Court answered question No. 1 in the negative as regards the first three items of Rs. 23,635, Rs. 51,777 and Rs. 21,490 and in the affirmative as regards the fourth item of Rs. 82,490 and it answered question No. 2 in the negative in respect of the first three items and in the a....
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....2,490 received from members represents, as held by the High Court, a part of the income of the horse racing business, why are not the first three items of receipts also parts of the income, profits or gains of that very business ? On what principle or authority are those three items to be excluded from the computation of the total business income of the company ? In support of its claim for exemption from tax liability in respect of these three items the company relies on the principles laid down by the House of Lords in the much discussed case of New York Life Insurance Co. v. Styles (Surveyor of Taxes). The appellant in that case was an incorporated company. The company issued life policies of two kinds, namely, participating and non-participating. There were no shares or shareholders in the ordinary sense of the term but each and every holder of a participating policy became ipso facto a member of the company and as such became entitled to a share in the assets and liable form a share in the losses. A calculation was made by the company of the probable death rate among the members and the probable expenses and liabilities, and calls in the shape of premia were made on the mem....
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.... except on the winding up of the company makes no difference in the application of the principle laid down in Styles' case. Municipal Mutual Insurance Ltd. v. Hills was relied on by the learned Attorney-General as showing the real ground on which Styles' case was decided. The appellant there was an incorporated company. It was formed by the representatives of various local authorities by co-operation to insure against fire on favourable terms. Effective control was in the hands of the fire policy holders who alone were entitled, on winding up of the company, to participate in the surplus assets. In course of time the company undertook an extensive business in employers' liability and miscellaneous insurance. The Crown admitted that fire insurance business which was a mutual business was not taxable. The company admitted that the employers' liability and miscellaneous insurance business done with outsiders were liable to tax. The question was whether the employers' liability and miscellaneous insurance business done with fire policy holders who were members of the company were liable to be brought to charge. It was held by Rowlatt, J., that they were and this decision was upheld ....
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....contributors to the fund and the recipients from the fund, (2) the treatment of the company, though incorporated as a mere entity for the convenience of the members and policy holders, in other words, as an instrument obedient to their mandate and (3) the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves. " The Judicial Committee held that none of these grounds was available on the special facts of the case before them and, therefore, the principles laid down in Styles' case were wholly inapplicable to that case. It is clear to us, taking the facts admitted or found in the case before us, that the principles of Styles' case, as explained by subsequent decisions noted above, can have no application to this case. Here there is no mutual dealing between the members inter se in the nature of mutual insurance, no contribution to a common fund put up for payment of liabilities undertaken by each contributor to the other contributors and no refund of surplus to the contributors. There being no mutual dealing the question as to the complete identity of the contributors and the p....
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....r themselves social, sporting and similar amenities. If the contributions from the members of the club exceed the cost of providing the amenities and if the surplus is held for the benefit of the members such surplus, according to him, is not taxable. For this purpose no distinction, it is said, can be made between the entrance fees or the periodical subscriptions or any other sum (e.g., admission fee, daily or seasonal) paid by the members for the eight to make use of the amenities provided by the club. For the purposes of this argument it is said to be immaterial whether the club is an incorporated company or an unregistered association. Finally it is urged that the fact that a club has business dealings with the public in respect of which tax is payable does not render the club liable to tax in respect of the difference between the cost of providing amenities for its members and the contribution towards this cost which the club takes from its members either by way of subscription or of charges for the use of club amenities. The advantage of a member, it is pointed out, is that he can meet his fellow members in the members' enclosure without having to rub his shoulders with the m....
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....Silloth Golf Club case, that under the English law the income derived by a society or club from its members was not liable to tax and that the same principle should be followed in India. The proposition so broadly stated overlooks the real grounds of the decision in Styles' case as explained in later cases and cannot be accepted as an accurate statement of the English law. In the Carlisle & Silloth Golf Club case as in the Royal Calcutta Turf Club case, as already stated, the question of the taxability of the moneys received from members was not in issue at all. In this case, namely, in the United Services Club case, there was no dealing between the company and the outside public at all and the surplus was derived by the club only out of its dealings with its members. There was no mutual dealing between the members inter se and there was no question of distribution of any surplus amongst the members and, therefore, there could be no question of identity of contributors and participators and as such the company could not claim exemption from tax under the principles of either of the two cases relied on by Martineau, J. His decision can only be supported on the ground that the club d....
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....Club case was similar and, as already stated, that decision can be supported only on this principle. The case of Dibrugarh District Club Ltd. v. Commissioner of Income-tax, Assam, is, if anything, against the company. There an incorporated company carried on a club for the benefit of such persons as might become members. Under the articles of association no shareholder was entitled to the benefits and privileges of the club unless, he was elected as a member. All shareholders were not members and all members were not shareholders. Profits were distributable only amongst the shareholders every year. It was held that the company was assessable on the full amount of its profits derived from shareholder members as well as from non-shareholder members as the company was not a mutual trading society making quasi profits by trading with its own members and returning such profits to its members. The absence of identity between the contributors and participators was quite obvious. The case of The Maharaj Bag Club Ltd. v. Commissioner of Income-tax (C.P. & Berar) follows the Dibrugarh Club case and carries the matter no further. In Commissioners of Inland Revenue v. Stonehaven Recreati....
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..... As already stated, in the instant case there is 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. On the contrary, we have here an incorporated company authorised to carry on an ordinary business of a race course company and that of licensed victuallers and refreshment purveyors and in fact carrying on such a business. 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 ti....