Case: Delhi Stock Exchange Association Limited Vs. Commissioner of Income Tax, Delhi

were taken into consideration by one of the members of the Tribunal and the learned judges of the High Court also decided the matter on that material which had been placed before the Income-tax authorities and which was expressly referred to in their orders and which again was placed before the High Court in the argument presented there on behalf of the appellant company.5. It is wholly immaterial in the circumstances of the present case to take into consideration as to how the appellant treated the amounts in question. It is not how an assessee treats any monies received but what is the nature of the receipts which is decisive of its being taxable. These amounts were received by the appellant as membership admission fees and as admission fees paid by the members on account of Authorised Assistants. As far as the latter payment is concerned that would fall within the decision of this Court in Commissioner of Income-tax v. Calcutta Stock Exchange Association Ltd. 1959-36 ITR 222 : (AIR 1959 SC 763 ) and therefore is taxable income. The former, i. e., members admission fees has to be decided in accordance with the nature of the business of the appellant company, its Memorandum and Articles of Association and the Rules made for the conduct of business. The appellant company was an association which carried on a trade and its profits were divisible as dividend amongst the shareholders. The object with which the company was formed was to promote and regulate the business in shares, stocks and securities etc., and to establish and conduct the business of a Stock Exchange in Delhi and to facilitate the transaction of such business. The business was more like that in Liverpool Corn Trade Association v. Monks, 1926-2 KB 110. In that case an association was formed with the object of promoting the interest of corn trade with a share capital upon which the association was empowered to declare a dividend. The Association provided a Corn Exchange market, newsroom and facilities for carrying on business and membership was confined to persons engaged in the corn trade and every member was required to be a shareholder and had to pay an entrance fee. The Association also charged the members and every person making use of facilities a subscription which varied according to the use made by them. The bulk of the receipts of the Association was derived from entrance fees and subscriptions. It was therefore contended that the Association did not carry on a trade and that it was a mutual association and entrance fees and subscriptions should be disregarded in computing assessment of the assessable profits. It was held that it was not a mutual association whose transactions were incapable of producing a profit; that it carried on a trade and the entrance fee paid by members ought to be included in the associations receipts for purposes of computing the profit. Rowlatt, J. said at p. 121 :"I do not see why that amount is not a profit. The company has a capital upon which dividends may be earned, and the company has assets which can be used for the purpose of obtaining payments from its members for the advantages of such use, and one is tempted to ask why a profit is not so made exactly on the same footing as a profit is made by a railway company who issues a travelling ticket at a price to one of its own shareholders, or at any rate as much a profit as a profit made by a company from a dealing with its own shareholders in a line of business which is restricted to the shareholders."In Commissioner of Income-tax, Bombay City v. Royal Western India Turf Club Ltd., 1954 SCR 289 at p. 308 : (AIR 1954 SC 85 at p. 91) this Court rejected the applicability of the principle of mutuality because there was no mutual dealing between members inter se. There was no putting up a common fund for discharging a common obligation undertaken by the contributors for their mutual benefit and for this reason the case decided by the House of Lords in Style v. New York Life Insurance Co., (1883-90) 2 Tax Cas 460 was held not applicable.6. In the present case the Memorandum of Association shows that the object with which the company was formed was to promote and regulate the business of exchange of stocks, shares, debentures, debenture stocks etc. The income, if any, which accrued from the business of the appellant company was distributable amongst the shareholders like in every joint stock company. According to the Articles of Association the members included shareholders and members of the Exchange and according to the rules and bye-laws of the appellant company member means an individual, body of individuals, firms, companies, corporations or any corporate body as may be on the list of working members of the Stock-Exchange for the time being. In the Articles of Association cls. 7 and 8, provision was made for the election of members by the Board of Directors and Rules 9 and 10 laid down the procedure for the election of these members. The entrance fees were payable by the trading members elected under the Rules and Bye-Laws of the Association, who alone with their Associates, could transact business in stocks and shares in the Association. Therefore, the body of trading members who paid the entrance fees, and the shareholders among whom the profits were distributed were not identical and thus the element of mutuality was lacking. It is the nature of the business of the company and the profits and the distribution thereof which are the determining factors and in this case it has not been shown that the appellants business was in any way different from that which was carried on in the case reported as 1926-2 KB 110.7. In our opinion the judgment of the High Court is right and the appeals are therefore dismissed with costs. One hearing fee.8.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]6. In the present case the Memorandum of Association shows that the object with which the company was formed was to promote and regulate the business of exchange of stocks, shares, debentures, debenture stocks etc. The income, if any, which accrued from the business of the appellant company was distributable amongst the shareholders like in every joint stock company. According to the Articles of Association the members included shareholders and members of the Exchange and according to the rules and bye-laws of the appellant company member means an individual, body of individuals, firms, companies, corporations or any corporate body as may be on the list of working members of the Stock-Exchange for the time being. In the Articles of Association cls. 7 and 8, provision was made for the election of members by the Board of Directors and Rules 9 and 10 laid down the procedure for the election of these members. The entrance fees were payable by the trading members elected under the Rules and Bye-Laws of the Association, who alone with their Associates, could transact business in stocks and shares in the Association. Therefore, the body of trading members who paid the entrance fees, and the shareholders among whom the profits were distributed were not identical and thus the element of mutuality was lacking. It is the nature of the business of the company and the profits and the distribution thereof which are the determining factors and in this case it has not been shown that the appellants business was in any way different from that which was carried on in the case reported as 1926-2 KB 110.7. In our opinion the judgment of the High Court is right and the appeals are therefore dismissed with costs. One hearing fee.