Commissioner of Income-Tax Bombay City
V. Royal Western India Turf Club Ltd.  INSC 67 (26 October 1953)
DAS, SUDHI RANJAN SASTRI, M. PATANJALI (CJ)
BOSE, VIVIAN HASAN, GHULAM BHAGWATI, NATWARLAL H.
CITATION: 1954 AIR 85 1954 SCR 289
CITATOR INFO :
D 1961 SC1144 (5) E 1965 SC 96 (10,11,15)
Income-tax Act (XI of 1922), s. 10(1), s.
10(6)-Race course company-Receipts from members-Whether receipts from business-Assess
ability-Applicability of rule in Styles' case-Difference between mutual
insurance societies and clubs and race course companies-"Trade
association" meaning of. I/B( )2SCI-5 290
The assessee, the Royal Western India Turf
Club Ltd. was formed inter alia for the purpose of carrying on the business of
a race course company in all its branches and to establish clubs, hotels and
other convenience in connection with the property of the company. It had two
classes of members, club members, whose number was limited to 350 and stand
members who were elected by ballot. Every member Paid an entries fee and an
annual subscription. The liability of the members was limited by guarantee and
if there was any surplus on winding up, it was to be paid to the members in
equal shares. An admission fee was levied from the members for admission to the
Members' Enclosure, and from nonmembers for admission to the other Enclosures,
and in each Enclosure there was a totalisator. The money's received from
members as well as non-members were included in one pool and distributed
amongst the holders of the winning tickets. In each Enclosure refreshments were
supplied on payment. The company admitted that moneys realised from non-members
were receipts from business and taxable, but contended that the following items
of receipts received from members were not assessable to income-tax, viz., (1)
season 0admission tickets from members, (2) daily admission gate tickets from
members, (3) use of private boxes by members (4) income from entries and
forfeits received from members whose horses did not run. The High Court of
Bombay held that items 1, 2 and 3 did not fall either under s. 10(1) or s.
10(6) of the Income-tax Act and were therefore not taxable, but item 4 fell
within s. 10(1) and s. 10(6) and was taxable. The Commissioner of Income-tax
Held, (i) that the principles of Styles' case
as explained by subsequent cases had no application to the company as there was
no mutual dealing between the members inter se in the nature of mutual
insurance and 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, but on the other hand, the company
realised moneys both from the members and non-members for the same consideration,
namely, by the giving of the same or similar facilities to all alike in the
course of one and the same business carried on by it;
(ii)that, as the company was formed for
carrying on a business it had dealings with its members also in the ordinary
course of business, and give the same or similar amenities to members and
non-members, and there were no mutual dealings between the members or a common
fund for the discharge of common obligations to each other, the principle
applicable to the surplus of contributions made by members of a club for
Providing themselves with amenities was also not applicable to the case;
(iii) a "trade association" means
an association of tradesmen businessmen or manufacturers for their common
protection and advancement, and the assessee was not therefore "a trade or
similar association" within s. 10(6) of the Income-tax Act;
291 (iv) that all the above mentioned 4 item
of receipts from members were received by the company from business carried on
by it with its members within the meaning of s. 10(1) and none of them was
received by the company as a trade, professional or similar association within
the meaning of s.
10(6), and ail the items were accordingly
assessable to income-tax.
The New York Life Insurance Co. v. Styles
(Surveyor of Taxes) (1889) 14 App. Cas. 381. The Cornish Mutual Assurance Co.
Ltd. v. The Commissioners of Inland Revenue L. R.  A. C 281, Jones v.
South Wales Lancashire Coal Owners' Association Ltd. L. R.  A.C. 827.
Municipal Mutual Insurance Co. Ltd. v. Hills (1932) 16 Tax Cas. 430, English
& Scottish Joint Co-operative Wholesale Society Ltd.
v. Commissioner of Agricultural Income-tax,
Assam  A. C. 405; 16 I.T.R. 270, Carlisle and Silhoth of Golf Club v. Smith
 L.R. 3 K.B. 75, Royal Calcutta Turf Club v. Secretary of State (1921)
I.L.R. 48 Cal. 844, United Services Club, Simla v. The Crown (1921) I.L.R. 2
Eccentric Club Case  L.R. 1 K.B. 390.
Dibrugarh District Club Ltd. v. Commissioner of Income-tax, Assam (1927) I.L.R.
55 Cal. 971, The Maharaj Bag Club Ltd. V. Commissioner of income-tex, C.P.
& Berar, (1931) 5 I.T.C.
201. Commissioners of Inland Revenue v.
Stonehaven Recreation Ground Trustees (1929) 15 Tax Cas. 419. The National
Association of Local Government officers v. Watkins (1934) 18 Tax Cas. 499
Commissioner of Income-tax. Bombay v. Karachi Chamber of Commerce  I.L.R.
 7 I.T.R. 575 and Commissioner of
Income-tax. Bombay v. Karachi Indian Merchants Association A.I.R. 1939 Sind 56:
7 I.T.R. 595, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 165 of 1951.
Appeal by special leave granted by the
Supreme Court on the 27th March, 1951, from the Judgement and Order dated the
22nd March, 1950, of the High Court of Judicature at Bombay (Chagla C. J. and
Tendolkar J.) in its Original Civil Jurisdiction in Income-tax Reference No. 30
M.C. Setalvad, Attorney-General for India (G.
N. Joshi, with him) for the Commissioner of Income-tax.
B.J. M. Mackenna (P. N. Mehta, with him) for
1953. October 26. The Judgment of the Court
was delivered by DAS J.
L/B(D)2SCI-5(a) 292 DAS J.-This is an appeal,
by special leave granted by this court, from the judgment and order pronounced
by the High Court of Judicature at Bombay on the 22nd March, 1950, on a
reference (I. T. Reference No. 30 of 1947) made by the Income-tax Appellate
Tribunal at the instance of the appellant under section 66(1) of the Income-tax
Act (XI of 1922).
The facts necessary to be stated for the
purpose of disposing of the present appeal are these: The Royal Western India
Turf Club Ltd. (hereinafter referred to as the "company") was
incorporated in 1925 under the Indian Companies Act, 1913. The objects for
which the company was incorporated were, inter alia as follows:(a) To take over
the assets, effects and liabilities of the then unincorported 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 assests 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
whatsoever, the same would be 293 paid to or distributed among the members of
the club in equal shares.
Under the company's articles of association
that were in force during the accounting year, besides Honorary Stand Members,
Visiting Members and Temporary Members there were two main categories of
members, namely, the Club Members and Stand Members. The number of Club Members
was limited to 350, exclusive of four designated high dignitaries and the
number of Stand, Members was liable to be limited by the committee at any time.
Club Members and Stand Members had to be elected by ballot by the committee. On
election every Club member had to pay an entrance fee of Rs. 150 and a stand
member had to pay an entrance fee of Rs. 75 Members of either class had also to
pay an annual subscription of Rs.
25. The entire management of the company and
the control over its funds and property were left in the hands of a committee
of nine Club Members elected as provided in the articles of association of the
The company was and is the lessee of two
plots of land,, one in Bombay and the other in Poona. Two race courses have
been laid out on these plots of land. On each race course there are three
enclosures known as Members' Enclosure, First Enclosure and Second Enclosure.
Each enclosure has a stand or stands from which races are watched. The Members'
Enclosure is for the exclusive use of the members, their wives and unmarried
daughters above the age of 12 years and their guests. The First and Second
Enclosures are open to the public. For admission into each of the three
enclosures an admission fee is charged. In the Members' Enclosure admission is
by season tickets or daily admission gate tickets. Private Boxes in the
Members' Enclosure are avilable to members on payment according to the number
of chairs in the box. In addition to the admission fees to the Members'
Enclosure, a member has to pay, in respect of his guests, an additional fee. In
each of the enclosures there is a totalisator run on the parimutuel system at
which 294 persons in that enclosure place their bets on each race.
These several totalisators are linked by
electric appliances, so that the moneys received from members and non-members
are included in one pool and distributed amongst the holders of the winning
tickets in equal proportions. In each enclosure there is arrangement for the
supply of refreshments 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
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 0officer
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 within the meaning of section
10(6) of the Act and assessed accordingly. On appeal by the company the
Appellate Assistant Commissioner dismissed the appeal. He held that the company
was carrying on business and that all the above-mentioned four on business and
that all the above mentioned four items were receipts from business within the
meaning of section 10(1), although none of those items fell within section
295 On a further appeal by the company to the
Income-tax Appellate Tribunal the latter came to the conclusion that none of
the sums in question could be said to be profits or gains of a business coming
under section 10(1). The Tribunal also held that items 1, 2 and 3 did not also
come within the ambit of section 10(6) of the Act. Apparently the Tribunal did
not consider the applicability of section 10(6) with regard to the fourth item.
On the application of the Commissioner of
Income-tax, Bombay, the Appellate Tribunal, under section 66(i) of the Act
referred the following two questions for the opinion of the Bombay High Court,
namely(1) whether on the facts found or admitted in the case, The Royal Western
India Turf Club Ltd., Bombay, received the sums of Rs. 23,635, Rs. 51,777, Rs.
21,490 and Rs. 82,490 from a business carried on by it with the members within
the meaning of section 10(1) of the Indian Income tax Act? (2) whether on the
facts found or admitted in the case, The Royal Western India Turf Club Ltd.,
Bombay, received the sums of Rs. 23,635, Rs. 51,777 and Rs. 21,490 [and Rs.
82,490 with regard to which sum the Tribunal did not consider the applicability
of section 10(6)] as a trade, professional or similar association performing
services for its members for remuneration definitely related to those services
within the meaning of section 10(6) of the Indian Income-tax Act? The reference
having come up for hearing the High Court found that the statement of the case
was insufficient and incomplete and accordingly it sent back the reference to
the Appellate Tribunal with directions to submit a proper statement of facts.
The Appellate Tribunal thereupon submitted a supplementary statement of the
case setting forth in greater detail the facts necessary for the disposal of
the reference. On further hearing of the reference in the light of this supplementary
statement of the case the High Court held that the company performed two
distinct functions, namely, the carrying on of the business of racing and the
carrying on of the club and that the first three items of 296 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. I 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 affirmative with regard
to the fourth item. In effect the High Court held that the first three items
were not taxable either under section 10 (1) or section 10(6) and that the
fourth item was taxable under both the said sub-sections of that section.
The Bombay High Court having dismissed the
application of the Commissioner of Income-tax under section 66-A (2) to appeal
to this court, the Commissioner applied for and obtained special leave to
appeal to this court. The company has not appealed from that part of the order
which declared that the fourth item of Rs. 82,490 was taxable. Therefore, the
questions we have to decide in this appeal are:
(1) whether the first three items are
receipts from business carried on by the company, and (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
On the first point our attention is drawn to
the objects of the company as set forth in its memorandum of associa297 tion.
It appears that the objects of the company are, inter alia, to carry on the
business of a Race Course company in all its branches and to carry on the
business of Hotel Keepers, tavern keepers, licensed victuallers and refreshment
purveyors. Although this circumstance may not be decisive, it cannot ,it the
same time be overlooked altogether. It has to be noted as one of the material
facts. Then we have the fact that so far as non-members are concerned the
company does carry on a horse racing business and the moneys it realises from
nonmembers for admission into the First and Second Enclosures to watch the
races from an unreserved seat therein and for the use of the totalisator and
other amenities are income, profits or gains of that business. It is also to be
noted that the rates of daily admission fee charged on the non-members for admission
into the First Enclosure and for the railway tickets are exactly the same as
those charged from the members for admission into the Members' Enclosure.
Finally, it has been declared by the High Court by the order under appeal-and
it is now accepted by the company-that the company derived the sum of Rs.
82,490 (the fourth item mentioned above) from the horse racing business carried
on by it with its members within the meaning of section 10(1) of the Act. If
this sum of Rs. 82,490 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 The New York Life Insurance Co. v. Styles (Surveyor of
Taxes)(1). 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 (1) (1889) 2 Tax Cas. 460. L.R. 14 App. Cas. 381.
298 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 for 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 members accordingly. An account used to be taken
annually and the greater part of the surplus of such premia over the
expenditure referable to such policies was returned to the members i.e.,
(holders of participating policies) and the balance was carried forward as fund
in hand to the credit of the general body of members. The question was whether
the surplus returned to the members was liable to be assessed to income-tax as
profits or gains.
The majority of the Law Lords answered the
question in the negative. It will be noticed that in that case the members had
associated themselves together for the purpose of insuring each other's life on
the principle of mutual assurance, that is to say, they contributed annually to
a common fund out of which payments were to be made, in the event of death, to
the representatives of the deceased members. Those persons were alone the
owners of the common fund and they alone were entitled to participate in the
surplus. It was, therefore, a case of mutual assurance and the individuals
insured and those associated for the purpose of meeting the policies when they
fell in and receiving the surplus, were identical and it was said that that
identity was not destroyed by the incorporation of the company. Lord Watson
even went to the length of saying that the company in that case did not carry
on any business at all, which perhaps was stating the position a little too widely
as pointed out by Viscount Cave in a later case; but, be that as it may, all
the noble Lords who formed the majority were of the view that what the members
received were not profits but were their respective shares of the excess amount
contributed by themselves.
The cases of The Cornish Mutual Assurance Co.
Ltd. v. The Commissioners of Inland Revenue(1) and Jones v. South (1) 
A.C. 281; 12 Tax Cas. 841.
299 Wales Lanacashire Coal Owners'
Association Ltd.(1), both of which were cases of mutual assurance companies
with the liability of the members limited by guarantee carry the mater no
further. Indeed, the decision in the Cornish case as to the surplus of the
contributions over the expenses would have been the same as in Styles' case
(supra) but for the special provisions of section 52(2)(b) according to which
profit was made to include in the case of mutual trading concerns the surplus
arising from transactions with members. Jones' case also shows that the fact
that under the rules the surplus was not distributable except on the winding up
of the company makes no difference in the application of the principle laid
down in Styles' case (supra).
Municipal Mutual Insurance Ltd. v. Hills(2)
was relied on by the learned Attorney-General as showing the real ground on
which Styles' case (supra) was decided. The appellant there was an incorporated
company. It was formed by the representatives of various local authorities by
cooperation 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 by the Court of Appeal and the House of Lords. The argument in that case
was that where the person with whom employers' liability or miscellaneous
insurance business was done happened to be also a fire policy holder, the
profit or surplus arising from that (1)  A.C. 827; 11 Tax Cas. 790.
(2)  16 Tax Cas. 430; 48 T.L.R. 301;
147 L.T. 62.
300 operation came back into a body of which
he himself was a member. This circumstance, it was claimed, made it mutual and
as such exempt from taxation under Styles' case. This argument was repelled by
Rowlatt J. on the ground, inter alia, that there was not the slightest
distinction between what was made out of a member in respect of non-fire business
and what was made out of a non-member out of non-fire business, for qua that
business the member was a stranger.
In other words, there was no identity in
character of the contributor and the participator. Said Viscount Dunedin in the
House of Lords:"In so far as the surplus arises from a fire policy they
are really entitled to the money as being those who contributed it and
accordingly it has been admitted that any profit made on the fire policies is
governed by the New York case. But as regards employers liability business and
miscellaneous business it does not go to the contributors for, as fire policy
holders in a body, they have not 00contributed and therefore the business is in
the same position as business with complete outsiders, the surpluses in which
are admitted to be profit. " Lord, Macmillan said at page 447 of the
report in Tax Cases: "The cardinal requirement is that all contributors to
the common fund must be entitled to participate in the surplus and that all the
participators in the surplus must be contributors to the common fund; in other
words there must be complete identity between the contributors and the
participators. If this requirement is satisfied, the particular form which the
association takes is immaterial." Styles' case (supra) has recently been
examined and explained by the Judicial Committee in English & Scottish
Joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural
Income-tax, Assam(1). After referring to various passages from the speeches of
the different Law Lords in Styles' case, Lord Normand, who delivered the judgment
of the Board, summarised the grounds of the decision in Styles' case as
(1)  A.C. 405; 75 I.A. 196; 16 I.T.R.
301 "From these quotations it appears
that the exemption was based on (1) the identity of the 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 (supra) were wholly inapplicable to that
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 participators need not be
raised or considered. Suffice it to say that in the absence, as there is in the
present case, of any dealing between the members inter se in the nature of
mutual insurance the principles laid down in Styles' case and the cases that
followed it can have no application here. The principle that no one can make a
profit out of himself is true enough but may in its application easily lead to
confusion. There is nothing per se to prevent a company from making a profit
out of its own members. Thus a railway company which earns profits by carrying
passengers may also make a profit by carrying its shareholders or a trading
company may make a profit out of its trading with its members besides the
profit it makes from the general public which deals with it but that profit
belongs to the members as shareholders and does not come back to them as
persons who had contribued 302 them. Where a company collects money from its
members and applies it for their benefit not as shareholders but as persons who
put up the fund the company makes no profit. In such cases where there is
identity in the character of those who contribute and, of those who participate
in the surplus, the fact of incorporation may be immaterial and the incorporated
company may well be regarded as a mere instrument, a convenient agent for
carrying out what the members might more laboriously do for themselves. But it
cannot be said that incorporation which brings into being a legal entity
separate from its constituent members is to be disregarded always and that the
legal entity can never make a profit out of its own members. What kinds of
business other than mutual insurance may claim exemption from tax liability
under section 10(1) of the Act under the principles of Styles' case need not be
here considered; 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 and from non-members for the same consideration,
namely, by the giving of the same or similar facilities to all alike in course
of one and the same business carried on by it.
Learned counsel for the company then contends
that the carrying on of the business of horse racing is not the only function
or activity of the company. It also runs a club, that is to say, an association
of persons who co-operate to provide for 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 right 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 303 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 members of the public who have no right of entry
in the Members' Enclosure and he cart also have the various other amenities
provided exclusively for members which are listed in the supplementary
statement of the case. Reference is made by learned counsel to several club
cases, English and Indian, and other cases in support of his contentions.
Styles' case and other cases of mutual dealing have already been dealt with and
need not be referred to again. It will suffice now to examine the club cases.
The earliest club case cited before us is
that of Carlisle and Silloth Golf Club v. Smith(1). In that case the club was
an unincorporated association of members who paid subscription and became
entitled to play on the golf links of the club. There was no question of
division of profits.
Under the lease between the club and its
lessors the club was bound to admit visitors on payment of "green
fees". The only question was whether the profits arising out of the
"green fees" collected from outsiders were taxable. In course of his
judgment Buckley L. J. referred to Styles' case and said that a man could not
make a profit or loss out of himself and, that that was the ground of decision
in Styles' case. It should not, however, be overlooked that the question
whether the profits arising out of the members' subscription were assessable or
not was not in issue in that case at all. That decision, therefore, does not
help the company in this case.
In the Royal Calcutta Turf Club v. Secretary
of State(1) the assessee was an unincorporated club. It was held that (1)
3 K.B. 75; 6 Tax Cas. 198.
(2) (1921) I.L.R. 48 Cal. 841; A.I.R. (1921)
(1921) 1 I.T.C. 108.
304 the club carried on business within the
meaning of the Excess Profits Duty Act (X of 1919) and was liable to pay tax in
respect of money received from the public by way of entrance fees to the stand,
entry fees for race horses, book makers' license fees and percentages of the
There, as in the Carlisle and Siiloth Golf
Club case (supra), no question was raised as to the taxability of moneys paid
by the members of the clubs.
The case of the United Services Club, Simla
v. The Crown(1) has been strongly relied on by learned counsel for the company.
There the club was an incorporated company. it had no dealings with outsiders
and derived no profit from outsiders. The question was directly raised as to
whether the income derived from its members was taxable profit. It was held, on
the authority of Styles' case and the Carlisle & 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 Carlisle & Silloth Golf Club case as in
the Royal Calcutta Turf Club case, as already stated, the question 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 (1) (1921) I.L.R. 2 Lah.
109; A.I.R.. 1921 Lab. 208; 1 I.T.C. 113.
305 club did not really carry on any business
with its members with a view to earning profits and, therefore, the surplus of
receipts from the members over the expenditure could not be said, to be profit
of any business which could be assessed to tax.
The next case is what is known as the
Eccentric Club case(1). In that case a company limited by guarantee carried on
a social club, its objects being to promote social intercourse amongst
gentlemen connected (directly or indirectly) with literature, art, music, the
drama, the scientific and liberal professions, sports and commerce, to
establish a club and generally to afford to members the usual privileges and
advantages of a club, to sell and deal in or arrange for supply of all kinds of
provisions and refreshments. By its memorandum of association the profits made
by it were not distributable among its members either before or even after its
winding up. Payments were made by the members for services they received at the
club premises, e.g., the provision of meals etc. The company's account showed a
surplus of income over expenditure. There was no receipt in the nature of trade
from non-members. It was held by the Court of Appeal that the company was not
carrying on any undertaking of a similar character to that of a trade or
business within the meaning of section 53(2)(h) of the Finance Act, 1920.
Warington L.J. observed at pages 421-422 of the report in the Law Reports
"The club proprietor, whether an
individual or a company, carries on a business with a view to profit as an
ordinary commercial concern. This the present company certainly does not do. I
think the proper mode of regarding the company in the present case is as a
convenient instrument for enabling the members to conduct a social club, the
objects of which are immune from every taint of commerciality, the transactions
of sale and purchase being purely incidental to the attainment of the main
object. What is in fact being carried on, putting technicalities aside, is a
members club and not a proprietary club nor any undertaking of a similar
character. " (1) [ 1924] 1 K. B. 390; 12 Tax Cas, 05 8.
306 There was in that case no carrying on of
any business with any outsider. The dealings with members were really not in
the way of any trade or business and it is only on that basis that the profits
were held not to fall within the Finance Act. The position of the company in
the United Services Club case (supra) 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(1), 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(2) follows the Dibrugarh Club case and carries
the matter no further.
In Commissioners of Inland Revenue v.
Stonehaven Recreation Ground Trustees(1) a recreation ground with facilities
for tennis, bowls etc. was held on lease and managed. by 9 trustees. Admission
to the ground was by daily, fortnightly, monthly or season tickets issued to
Of the 9 trustees 6 were elected by the
season ticket holders and the remaining by the Local Town Council. The trustees
were held assessable as carrying on a trade. The position of the trustees was
akin to that of the owner 'of a proprietary club who carried on the club with a
view to earning profits.
(1) 1.L. R. 55 Cal. 971 ; A.I.R.192S
Cal. 577 ;
(2) (1931) 5 I.T. C. 201.
(3) (1929) 15 Tax Cas. 419: 8 An n. Tax Cas.
307 National Association of Local Government
Officers v. Watkins(1) was concerned with an unregistered trade union having
for its object the protection of the interest of employees in Local Governments
and the promotion of the physical and social welfare of its members. The
Association 2purchased an existing holiday camp to provide cheap holiday
facilities for its members. Bookings were, however, for a short time accepted
from non-members who had previously used the camp. By its rules the property of
the Association belonged to the members and its profits enured for all members
as a whole and not only for those members who used the camp. The Association
contended that its liability should be confined to the profits made from
The Crown claimed, on the other hand, that as
the users of the camp were not identifiable with the whole membership there was
no mutual trading and the whole of the profits had been properly assessed.
Finley J. gave effect to the contentions of the Association. The learned Judge
laid emphasis on the fact that the Association was not a registered body and
that, therefore, the property was the property, not of the Association but of
the members themselves and that as the members owned the whole they had a right
to participate in the whole and, therefore, there could not be any trade
between the Association and a member or any sale to a member. The two decisions
of the Judicial Commissioners' Court, namely, Commissioner of Income-tax,
Bombay v. Karachi Chamber of Commerce(1) and Commissioner of Income-tax, Bombay
v. Karachi Indian Merchants Association(1) were concerned with mutual dealings
between members who had put up money for their mutual benefit. The surplus went
to them not as shareholders but as persons who had contributed in excess and
was in no sense a profit and could not, therefore, be brought to charge.
(1) (1934) 18 Tax Cas. 499, (2) I.L.R. (1940)
Ear. 140;  7 I.T.R. 675.
(3) A.I.R. 1939 Sind 56;  7 I.T.R. 595.
L/B(D)2SCI-6(a) 308 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 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 charge 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 309
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. In 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.
The second question need not detain us long.
The answer to that question depends on a true construction of section 10(6) of
the Act. What is the meaning of "a trade or professional or similar
association"? Does this company come within any of those descriptions? It is
certainly not a professional association. Learned counsel for the company
contends that a "trade association" is not the same thing as a
"trading association". According to Webster's New International
Dictionary, 2nd Edn., page 264 the meaning of a "trade association"
is an association of tradesmen, businessmen or manufacturers for the protection
and advancement of their common interest. 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
The result, therefore, is that we hold that
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. I in the affirmative
and question No. 2 in the negative.
310 The appeal is allowed and we award to the
Commissioner of Income-tax the costs of this appeal and those of the proceedings
in the High Court.
Agent for the appellant: G. H. Rajadhyaksha.
Agent for the respondent: Rajinder Narain.