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 of 1947
MC Setalvad Attorney General for India G N Joshi with him for the Commissioner of Income tax
BJ M Mackenna P N Mehta with him for the res pondent
October 26
The Judgement of the Court was deli vered by DAS J LBD2SCI 5a 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 661 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 com pany 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 Keeperslicensed 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 company
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 23635 2 Daily admission gate tickets from members Rs 51777 3 Use of private boxes by members Rs 21490 4 Income from entries and forfeits received from the members whose horses did not run in the races durring the season Rs 82490 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 101 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 106 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 ing 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 101 although none of those items fell within section 106
295 On a further appeal by the company to the Income tax Appel late 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 101
The Tribunal also held that items 1 2 and 3 did not also come within the ambit of section 106 of the Act
Apparently the Tribunal did not consider the applicability of section 106 with regard to the fourth item
On the application of the Commissioner of Income tax Bombay the Appellate Tribunal under section 66i 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 23635 Rs 51777 Rs 21490 and Rs 82490 from a business carried on by it with the members within the meaning of section 101 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 23635 Rs 51777 and Rs 21490 and Rs 82490 with regard to which sum the Tribunal did not consider the applicability of section 106 as a trade professional or similar association performing services for its members for remuneration definitely related to those services within the meaning of section 106 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 sub mitted 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 23635 Rs 51777 and Rs 21490 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 101 or section 106 of the Act
With regard to the sum of Rs 82490 the High Court held that it did not come under section 106 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 23635 Rs 51777 and Rs 21490 and in the affirmative as regards the fourth item of Rs 82490 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 106 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 82490 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 services
On the first point our attention is drawn to the objects of the company as set forth in its memorandum of associa 297 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 ad mission 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 82490 the fourth item mentioned above from the horse racing business carried on by it with its members within the meaning of section 101 of the Act
If this sum of Rs 82490 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 dis cussed case of The New York Life Insurance Co vs Styles Surveyor of Taxes1
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  LR 14 App
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 ie 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 vs The Commissioners of Inland Revenue1 and Jones vs South 1   299 Wales Lanacashire Coal Owners  Association Ltd1 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 522b 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 vs Hills2 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 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 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  2 1932 16 Tax Cas
430 48 TLR 301 300 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 busi ness 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 contri buted 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 vs Commissioner of Agricultural Income tax Assam1
After referring to various passages from the speeches of the different Law Lords in Styles  case Lord Normand who delivered the judg ment of the Board summarised the grounds of the decision in Styles  case as follows 1  75 IA 196 301 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 con venience of the members and policy holders in other words as an instrument obedient to their mandate and 3 the im possibility 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 case
It is clear to us taking the facts admitted or found in the case before us that the principles of Styles  case as ex plained 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 insur ance 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 com plete 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 per sons 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 incor porated 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 101 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 com pany 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 dis tinction it is said can be made between the entrance fees or the periodical subscriptions or any other sum eg ad mission 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 ex clusively 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 vs Smith1
In that case the club was an unincorporated association of members who paid subs cription 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 vs Secretary of State1 the assessee was an unincorporated club
It was held that 1 19133 KB 75 2 Cal 841 AIR 1921 Cal 633 304 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 totalisator
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 vs The Crown1 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 in come 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 Lah 109 AIR 1921 Lab 208 1 ITC 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 case1
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 eg 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 532h of the Finance Act 1920
Warington LJ observed at pages 421 422 of the report in the Law Reports series 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   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 vs Commissioner of Income tax Assam1 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 share holder 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 vs Commissioner of Income tax CP  Berar2 follows the Dibrugarh Club case and carries the matter no further
In Commissioners of Inland Revenue vs Stonehaven Recreation Ground Trustees1 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 fort nightly monthly or season tickets issued to any applicant
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 19271L R  AIR192S Cal
577  2ITC521
2 3 8 An n Tax Cas
307 National Association of Local Government Officers vs Watkins1 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 non members
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 vs Karachi Chamber of Commerce1 and Commissioner of Income tax Bombay vs Karachi Indian Merchants Association1 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  2 ILR 1940 Ear 140 3  LBD2SCI 6a 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 eg the fourth item of receipt of Rs 82490 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 sepa rate 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 privi lege 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 com merciality
In the circumstances all the four items of receipts from members must be taken into account in com puting 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 106 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 Inter national 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 106
We are of opinion that section 106 has no application for the company is not a trade or professional or similar association within the meaning of that sub section
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 101 and that none of them was received by the company as a trade professional or similar association within the meaning of section 106
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 pro ceedings in the High Court
Appeal allowed


Summary:
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 non members 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 section 101 or section 106 of the Income tax Act and were therefore not taxable but item 4 fell within section 101 and section 106 and was taxable
The Commissioner of Income tax appealed 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 iithat 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 section 106 of the Income tax Act 291 iv that all the abovementioned 4 item of receipts from members were received by the company from business carried on by it with its members within the meaning of section 101 and none of them was received by the company as a trade profes sional or similar association within the meaning of section 106 and ail the items were accordingly assessable to income tax
The New York Life Insurance Co vs Styles Surveyor of Taxes  The Cornish Mutual Assurance Co Ltd vs The Commissioners of Inland Revenue L R   Jones vs South Wales Lancashire Coal Owners  Association Ltd L R Municipal Mutual Insurance Co Ltd vs Hills 1932 16 Tax Cas
430 English  Scottish Joint Co operative Wholesale Society Ltd vs Commissioner of Agricultural Income tax Assam 1948 A C 405  Carlisle and Silhoth of Golf Club vs Smith  Royal Calcutta Turf Club vs Secretary of State Cal 844 United Services Club Simla vs The Crown Lah 109
Eccentric Club Case Dibrugarh District Club Ltd vs Commissioner of Income tax Assam Cal 971 The Maharaj Bag Club Ltd V Commissioner of income tex CP  Berar 1931 5 ITC 201
Commissioners of Inland Revenue vs Stonehaven Recreation Ground Trustees The National Association of Local Government officers vs Watkins Commissioner of Income tax
Bombay vs Karachi Chamber of Commerce  and Commissioner of Income tax
Bombay vs Karachi Indian Merchants Association  referred to