1953 Supreme(SC) 103

SUPREME COURT OF INDIA
26th October 1953.
M. PATANJALI SASTRI, CJI., S.R. DAS, VIVIAN BOSE, GHULAM HASAN AND BHAGWATI, JJ.
Commr. of Income-tax, Bombay City, Appellant
Versus
Royal Western India Turf Club Ltd., Respondent.
Civil Appeal No. 165 of 1951.
Advocates appeared
Shri. M. C. Setalvad, Attorney-General for india (Shri G. N. Joshi, Advocate, with him), instructed by Shri G. H. Rajadhyaksha, Agent, for Appellant; Shri B. J. M. Mackenna, Senior Advocate. (Shri P. N. Mehta, Advocate, with him), instructed by Shri Rajinder Narain, Agent for Respondent.

Headnote:Section 10 (1), (6)-Turf Club dealing with its members.

       The Royal Western India Turf Club Ltd., 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 unincorporated club known as the Western India Turf Club;

       (b) to carryon 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 carryon 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 dealings of the company with non-members took place in the ordinary course of business carried on with a view to earning profits as in any other commercial concern. The company gave to its members the same or similar amenities as it gave 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. The company received large sums of money on admission tickets from members as well as from non-members, besides other monies 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, (2) daily admission gate tickets from members, (3) use of private boxes from members; (4) income from entries and forfeits, received from the members whose horses did not run in the races during the season.

       Held: (1) 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 exemptions from tax liability under S. 10 (1) of the Act under the principles of Styles case (1889) 2 Tax Cas. 460 need not be considered in this case. 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.

       (2) In the present 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 benefits. On the contrary, we have here an incorporated company authorised to carryon 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. 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 inclusion of non-members. In the circumstances, all the four items of receipts from members must be taken into account in computing the total income of the company. The 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 presumptive right to exemption from taxation.

       (3) "In our view the Company before us is not a "Trade Association" in thi3 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 S. 10(6) 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 S. 10 (1) and that none of them was received by the company as a trade, professional or similar association within the meaning of S. 10(6)".