Case: The Commissioner Of Income-Tax, West Bengal Vs. The Calcutta Stock Exchange Association Ltd

2. The facts of this case, upon which the decision of the appeal depends, may shortly be stated as follows: The respondent is a limited liability company incorporated on June 7, 1933, with a view to taking over the assets and liabilities of an unincorporated association called "The Calcutta Stock Exchange Association" and to carrying on the affairs of the Stock Exchange which had been founded by that Association. The principal object of the respondent Company is to facilitate the transaction of business on the Calcutta Stock Exchange. In view of that objective, the Company had to make rules and by-laws regulating the made and the conditions in, and subject to, which the business of the Stock Exchange had to be transacted. The Company is composed of "members" who may be either individuals or firms, who, except in the case of parties who had been members of the unincorporated Association have to be elected as such, and upon such elections, have to acquire a share of the Company and pay an entrance fee. The members have to pay a monthly subscription according to the by-laws of the Company. Under the by-laws of the Respondent Company, members with a certain standing are allowed to have "Authorized Assistants", up to a maximum of six in number. Such Authorized Assistants are permitted the use of the premises of the Association and to transact business therein in the names and on behalf of the members employing them. The members have to pay an admission fee for such Authorized Assistants according to the followingfor the first two Assistants Rs. 1,000(b) for the third Assistant Rs. 2,000(c) for the fourth Assistant Rs. 3,000(d) for the fifth Assistant Rs. 4,000(e) for the sixth Assistant Rs. 5,000(f) for replacement Rs.last item of replacement fee of Rs. 1,000 is meant to cover the fee for substituting one Assistant by another. Before these by-laws were amended with effect from July 10, 1944, a member could have more than six such Assistants, but the number was limited to six by the new amendment which also provided that "Members who have more than six Assistants, at present, shall not be allowed any replacement unless the number of Assistants in their firms has come down to six (maximum fixed)." Rule (5), as amended, is in thesecandidate applying for admission as Assistant to a member must serve at least for one year as a probationer in the firm of that member. A probationer must apply to the Committee (through the member in whose office he will serve as probationer) in such form as may be prescribed by the Committee by paying Rs. 100 as probationer fee which will not be refunded in anywould, thus, appear that the rules relating to the admission of members Assistants confer the benefit upon those members only either individuals or firms-who are qualified according to the by-laws to have such Assistants, and who have paid admission fees and pay a monthly subscription in respect of each of them, besides their own dues, to the Company. The number of such Assistants has been sought by the by-laws to be limited up to a maximum of six, by imposing a progressively enhanced admission fee apparently, with a view to discouraging the employment of a large crowd of such "Authorized Assistants". The by-laws also provideauthorized assistant shall not enter into any contracts on his own behalf and all contracts made by him shall be made in the name of the member employing him and such member shall be absolutely responsible for the due fulfilment of all such contracts and for all the transactions entered into by the authorized assistant on hisis also contemplated by the by-laws that tickets have to be issued to the Authorized Assistants, besides the members tickets. The by-laws also contemplate that a member shall give to the prescribed Authority of the Company, an immediate notice in writing, of the termination of the employment by him of any Authorized Assistant, and on such termination, the right of the Assistant to use the rooms of the Association, shall cease, and he shall not be at liberty to transact business in the name and on behalf of his employer. The by laws also make provision for the supervision of the work of the Authorized Assistants to see that they function within the limits of their powers, and do not transact business on behalf of persons or firms other than those employing them.3. During the accounting year 1944-45 (assessment year 1945-46), the Respondent Company received from its members the sum of Rs. 60,750 as entrance fees, and the sum of Rs. 15,687 as subscription in respect of the Authorised Assistants. The Company also received during the aforesaid year a sum of Rs. 16,000 as fees for putting the names of companies on the Quotations List. Unless a particular companys name it placed on the Quotations List, no dealings in respect of the shares of that company are permitted on the Stock Exchange. An application has to be made by a member to place on the Quotations List any company not already included in that List, and on approval by the prescribed Authority of the Company, the name of the company thus proposed, is included in the List upon payment of a certain fee. The companies themselves cannot apply to the Association for such enlistment. The application has to be made by a member, and has to be accompanied by a fee of Rs. 1,000, and it is only after the necessary scrutiny and investigation into the affairs of the proposed company have been made, that the enlistment applied for is granted. That is another source of income to the Respondent Company. It is no more necessary to refer to another item of income, which was admitted, during the course of the assessment proceedings in their appellate stage, to be liable to the payment of tax. We are, thus, concerned in the present controversy with the aforesaid sums of Rs. 60,750, Rs. 15,687 and Rs. 16,000, which were held by the Income-tax Officer, by his order dated March 27, 1946, to be liable to income-tax. The Income-tax Officer rejected the contention raised on behalf of the assessee Company that the Authorised Assistants aforesaid were themselves members of the Company, and that therefore, the moneys receive from them were exempt from taxation. He also held that though the Respondent Company was a mutual Association, each one of the three items of income, referred to above, was remuneration definitely related to specific services performed, and was thus, chargeable to tax within the meaning of S. 10(6) of the Act. On appeal, the Appellate Assistant Commissioner, by his order dated June 30, 1947, considered the points at great length, and came to the conclusion that the Authorised Assistants were not members or substitute members. He held that the Authorised Assistants were no more than representatives of the members who employ them, and they transact business on their behalf, and that the Association had framed rules and by-laws, regulating the admission, supervision and discontinuance of such Authorized Assistants. For coming to this conclusion, he relied upon the decision of the Bombay High Court in the case of Native Share and Stock Brokers Association v. Commissioner of Income Tax, Bombay, 1946 14 ITR 628.   The case was then taken up in appeal to the Income-tax Appellate Tribunal, which dismissed the appeal. The Tribunal agreed with the finding of the taxing authorities that the Authorised Assistants were not members of the Company within the meaning of the Articles of Association of the Company, and that their position was analogous to at of the "authorised clerks in Native Share and Stock Brokers Association at Bombay". In the course of its order, the Tribunal observed asprovision made in the regulations of the Company by which a member can take advantage of sending his authorized assistants to the company or transacting the business in the members name is nothing but giving extra facilities to the members. By controlling the institution of authorized assistants the company renders specific services to the members and in particular to the member whose assistants work for him. The amounts received by the company from these sources are clearly covered by the provisions of S. 10(6)."

Reasoning:
13. Though cases in England, by way of precedent or the decision of the case in hand, have not been cited at the Bar, apparently because the scheme of the Income-tax law in England is different and the words of the statute are not in pari materia yet there are some cases which throw some light on the controversy before us. For example, the case of Carlisle and Silloth Golf Club v. Smith, (1952) 6 Tax Cas 48 related to a golf club which was not incorporated. It was admittedly bona fide members club, but under one of the terms of its lease, it had to admit non-members to play on its course on payment of "green fees" at certain prescribed rates. Those fees were paid by non-members, Receipts from those fees were entered in the general accounts of the Club, thus, showing an annual excess of receipts over expenditure of the Club as a whole. It was held by Hamilton J. (as he then was), that the Club carried on a concern or business in respect of which it received remuneration which was assessable to income-tax. He pointed out that the receipts from non-members went to augment the funds of the Club, and the revenue thus received was applied for the purposes of the Club - towards its general expenditure. The case was taken up to the Court of Appeal, and the decision of that Court is reported in the same Volume at P. 198. The Court of Appeal affirmed the decision and dismissed the appeal.14. The judgment of the Kings Bench Division inLiverpool Corn Trade Association Ltd. v. Monks, 1926-10 Tax Cas442 was based on facts which are similar to the facts of the present case. In that case, The Liverpool Corn Trade Association, Limited, was an incorporated body under the Companies Act, with the object, inter alia, of protecting the interests of the corn trade, and of providing a clearing house, a market, an exchange, and arbitration and other facilities to the trade. Membership of the Association was confined to persons engaged in the corn trade. Each member was required to have one share in the company, an had to pay an entrance fee and an annual subscription. Non-members could also become subscribers. Payments were made to the Association by members and others for services rendered through the clearing house, etc. The assessee was taxed on the excess of its receipts over expenditure. On appeal to the Special Commissioners, they upheld the assessment. One of the points raised before the Special Commissioners, was that transactions with its members were mutual ones, and that any surplus arising from such transactions, was not a profit assessable to income-tax. On appeal, the High Court agreed with the determination of the Special Commissioners, and held that any profit arising from the Associations transactions with members, was assessable to income-tax as part of the profits of its business, and that the entrance fees and subscriptions received from members must be included in the computation of such profits.It was suggested that the service in this case, if any, was extremely trivial and the remuneration which was large was for that reason not definitely related to the service.It was held by Upjohn, J. in Bradbury(H. M. Inspector of Taxes) v. Arnold, (1957) 37 Tax Cas 665 at p.669, that the extent of the services was of no materiality. There, the question was being dealt with under Case VI of Schedule D of the Income-tax Act, 1918.The learned Judgeis no doubt that a contract for services may, and clearly does, form a matter for assessment under Case VI of Schedule D, and not the less so that the services to be rendered are trivial or that they are to be rendered once and for all so that the remuneration may be regarded as a casual profit arising out of a single and isolatedsame view was expressed by Harman, J. in Housden(Inspector of Taxes) v. Marshall , 1958-3 All ERIn that case, a well-known jockey contracted with a newspaper company to make available to its nominee "reminiscences of his life and experiences on the turf for the purpose of writing a series of four articles", and to provide photographs, press cuttings, etc. He was paid ? 750. The question was whether this amounted to sale of property, or was a payment for services rendered. It was held at it was the latter, and that it did not matter if the service rendered was trivial.16. In view of what we have said above as to the nature of the service which the Association performed in respect of the Assistants, the payment of the fee was definitely related to that service. It is, therefore, plain that the case fell within S. 10(6) of the Act. It must, therefore, be held that the question referred to the High Court should have been answered in the affirmative, and that the High Court was in error in giving its opinion to the contrary.