Admission fees received by a company formed to promote and regulate the business of exchange of stocks, shares, debentures, etc., are taxable income.

Judgment

KAPUR, J. : These appeals are brought by the assessee company against a common judgment and order of the Punjab High Court by which four appeals were decided in Civil Reference No. 6 of 1953. The appeals relate to four assessment years, 1947-48, 1948-49, 1949-50 and 1950-51. Two of these assessments, i. e., for the years 1947-48 and 1948-49 were made on the appellant as successor to the two limited companies hereinafter mentioned.

2. Briefly stated the facts of the case are that the appellant company was incorporated in the year 1947. Its objects inter alia were to acquire as a going concern activities functions & business of the Delhi Stock and Share Exchange Limited and the Delhi Stock and Share Brokers Association Limited and to promote and regulate the business of exchange of stocks and shares, debentures and debenture stocks, Government securities, bonds and equities of any description and with a view thereto, to establish and conduct Stock Exchange in Delhi and/or elsewhere. Its capital is Rs. 5,00,000 divided into 250 shares of Rs. 2,000 each on which dividend could be earned. The appellant company provided a building and a hall wherein the business was to be transacted under the supervision and control of the appellant. The appellant company also made rules for the conduct of business of sale and purchase of shares in the Exchange premises. The total income for the years 1947-48 was Rs. 29,363 out of which a sum of Rs. 15,975 shown as admission fees was deducted and the income returned was Rs. 13,388. In the profit and loss account of that year Members admission fees were shown as Rs. 9,000 and on account of Authorised Assistants admission fees Rs. 6,875. The Income-tax Officer who made the assessment for the year 1947-48 disallowed this deduction. The return for the following year also was made on a similar basis but the return for the year 1949-50 and 1950-51 did not take into account the admission fees received but in the Director s report the amounts so received were shown as having been taken directly into the balance sheet. The Income-tax Officer, however, disallowed and added back the amount so received to the income returned by the appellant.

3. Against these orders appeals were taken to the Appellate Assistant Commissioner who set aside the additional assessments made under S. 34 in regard to the assessment years 1947-48, 1948-49 and 1949-50 and the 4th appeal in regard to the year 1950-51 was decided against the appellant. Both sides appealed to the Income-tax Appellate Tribunal against the respective orders of the Appellate Assistant Commissioner and the Tribunal decided all the appeals in favour of the appellant. It was held by one of the members of the Tribunal that the amounts received as entrance fees were intended to be and were in fact treated as capital receipts and were therefore excluded from assessment and by the other that as there was no requisite periodicity, those amounts were not taxable. At the instance of the respondent a case was stated to the High Court on the following question :-

"Whether the admission fees of Members or Authorised Assistant received by the assessee is taxable income in its hands ?" The High Court answered the question in favour of the respondent. The High Court held that the appellant was not a mutual society and therefore was not exempt from the payment of income-tax; that it had a share capital on which dividend could be earned and any person could become a share-holder of the company by purchasing a share but every shareholder could not become a member unless he was enrolled, admitted or elected as a member and paid a sum of Rs. 250 as admission fee. On becoming a member he was entitled to exercise all rights and privileges of membership. It also found that the real object of the company was to carry on business as a Stock exchange and the earning of profits. It was held, therefore, that the admission fees fell within the ambit of the expression "profits and ga