Public Service Mutual Provident Association V. Commissioner Of Income Tax

1940     Present: Keuneman and Cannon JJ. 

PUBLIC SERVICE MUTUAL PROVIDENT ASSOCIATION v.
COMMISSIONER OF INCOME TAX. 

128-(Inty.) Income Tax. 

Income tax-Loans given by Provident Association to members-Interest on loans-Taxable profit-Income Tax Ordinance, s. 6 (Cap. 188). 

Money earned by the Public Service Mutual Provident Association as interest recovered from loans granted to its members is a taxable profit under section 6 of the Income Tax Ordinance. 

CASE stated to the Supreme Court by the Board of Review under section 74 of the Income Tax Ordinance. 

The question referred was whether the Public Service Mutual Provident Association is liable to pay Income Tax on interest received from the members of the Association on loans advanced to them by the Association.

 E. G. P. Jayetilleke, K.C., S.-G. (with him H. H. Basnayake, C.C.), for Commissioner of Income Tax.-The interest earned on the loans to the members of the Association is taxable under section 6 (1) (a) and (e) of the Income Tax Ordinance (Cap. 188).

The Board of Review upheld the objection of the Association on the authority of two Indian decisions, viz., Board of Revenue, Madras v. The Mylapore Hindu Permanent Fund1 and the English and Scottish Joint Co-operative Wholesale Society, Ltd. v. The Commissioner of Income Tax, Madras2. Those two cases cannot be relied on. They purport to follow The New York Life Insurance Co. v. Styles3, but in the later case of The Madura Hindu Permanent Fund, Ltd. v. The Commissioner of Income Tax, Madras4, Ramesam J. who had decided the Mylapore case admitted that Styles' case (supra) had no application to the Mylapore case.

 It was contended on behalf of the respondent Association that the income by way of interest came from the members themselves and, therefore, did not come under the definition of profits and that the transactions in question were carried on on a mutual basis between the corporation and the members. The answer to that contention is that the members who borrowed paid interest not in their capacity as members of the Association but as debtors. There were also debtors who were not members, e.g., Banks. According to the rules of the Association, the members were not bound to borrow. There were, thus, a large number of members who participated in the interest earned without contributing towards it. In order to claim exemption from tax there should be  complete identity between the contributors and the participators. The character in which they receive the money should be the same as that in which they paid it.

 The present case cannot fall within the ambit of Styles' case (supra). See dictum of Rowlatt J. in Jones v. South-West Lancashire Coal Owners' Association, Ltd5. A recent decision of the House of Lords in Municipal Mutual Insurance Ltd

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