Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1959 Supreme(SC) 36

SUPREME COURT OF INDIA
26th March 1959
B.P. SINHA, J.L. KAPUR AND M. HIDAYATULLAH JJ.
Commissioner of Income Tax, West Bengal, Appellant
Versus
Calcutta Stock Exchange Association, Ltd., Respondents.
Civil Appeal No. 204 of 1958.
Advocates appeared
M/s. K. N. Rajagopala Sastri, R. H. Dhebar and D. Gupta, Advocates, for Appellant; Dr. Radha Binod Pal, Senior Advocate, (M/s. Panchanan Pal and D. N. Mukherjee, Advocates, with him), for Respondents.

Advocates:
D.GUTPA, D.N.MUKHERJI, K.N.RAJAGOPAL SASTRI, Panchanan Pal, R.H.Dhebar, Radha Binod Pal

A trade association performing specific services for its members for remuneration is liable to pay income-tax on the remuneration received.

Headnote:
INCOME TAX - Association performing specific services for its members for remuneration - Whether entrance fees, subscription and fees for enlisting names of companies on Quotations List are chargeable to income-tax - Indian Income-tax Act (XI of 1922), S. 10(6).
Fact of the Case:

The assessee, a limited liability company incorporated to take over the assets and liabilities of an unincorporated association called "The Calcutta Stock Exchange Association" and to carry on the affairs of the Stock Exchange, received certain sums of money as entrance fees, subscription and fees for enlisting names of companies on the Quotations List. The Income-tax Officer held that these sums were liable to income-tax under S. 10(6) of the Indian Income-tax Act, 1922. On appeal, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld the order of the Income-tax Officer. On a reference to the High Court, it was held that the assessee was not liable to pay income-tax on the said sums.
Finding of the Court:

The Supreme Court held that the assessee was liable to pay income-tax on the said sums. The Court held that the assessee was a trade association performing specific services for its members for remuneration within the meaning of S. 10(6) of the Indian Income-tax Act, 1922. The Court further held that the entrance fees, subscription and fees for enlisting names of companies on the Quotations List were definitely related to the specific services performed by the assessee.
Issues: Whether the assessee was liable to pay income-tax on the entrance fees, subscription and fees for enlisting names of companies on the Quotations List.
Ratio Decidendi: The Court held that the assessee was liable to pay income-tax on the said sums. The Court held that the assessee was a trade association performing specific services for its members for remuneration within the meaning of S. 10(6) of the Indian Income-tax Act, 1922. The Court further held that the entrance fees, subscription and fees for enlisting names of companies on the Quotations List were definitely related to the specific services performed by the assessee.
Final Decision: The appeal was allowed with costs.

Judgment

SINHA J.: The question for determination in this appeal on a certificate of fitness granted by the High Court of Calcutta, is whether the respondent s admitted income under certain heads, is chargeable to income-tax under the provisions of S. 10(6) of the Indian Income-tax Act (XI of 1922) hereinafter referred to as the Act. The Calcutta High Court, by its judgment dated January 6, 1956, answered the question in the negative, disagreeing with the determination of the Income-tax Appellate Tribunal by its order dated April 23, 1949.

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 following scale:

"(a) for the first two Assistants Rs. 1,000

(b) for the third Assistant Rs. 2,000

(d) for the fifth Assistant Rs. 4,000

(e) for the sixth Assistant Rs. 5,000

(f) for replacement Rs. 1,000."

The 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 these terms:-

"Every candidate 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 any circumstances."

It would, 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 provide that

"an authorized assistant shall not enter into any contracts on his own behalf and all contracts made by him shall be made in

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