SINHA - (1.) THE following Judgment of the court was delivered by
(2.) 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 tinder certain heads, is chargeable to income-tax under the provisions of s. 10(6) of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the Act). THE Calcutta High court, by its judgment dated 6/01/1956, answered the question in the negative, disagreeing with the determination of the Income-tax Appellate tribunal by its order dated 23/04/1949. 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 7/06/1933, 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 mode 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 `, upto 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 : JUDGEMENT_763_AIR(SC)_1959Html1.htm The last item of replacement fee of Rs. 1,000.00 is meant to cover the fee for substituting one Assistant by another. Before these by-laws were amended with effect from 10/07/1944, 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. 100.00 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 upto 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 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 transactions entered into by the authorized assistant on his behalf` It is also contemplated by the by-laws that tickets have to be issued to the Authorized Assistants, besides the members' tickets. The bylaws 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. During the accounting year 1944-45 assessment year 1945-46), the Respondent Company received from its members the sum of Rs. 60,750.00 as entrance fees, and the sum of Rs. 15,687.00 as subscription in' respect of the Authorized Assistants. The Company also received during the aforesaid year, a sum of Rs. 16,000.00 as fees for putting the names of companies on the Quotations List. Unless a particular company's name is 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 listupon 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. 1,000.00, 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. 60,750.00, Rs. 15,687.00 and Rs. 16,000.00 which were held by the Income-tax Officer, by his order dated 27/03/1946, to be liable to income-tax. The Income-tax Officer rejected the contention raised on behalf of the assessee Company that the Authorized Assistants aforesaid were themselves members of the Company, and that therefore, the moneys received 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 30/06/1947, considered the points at great length, and came to the conclusion that the authorized Assistants were not members or substitute members. He held that the Authorized 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 suchAuthorized 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. The Commissioner of Income-tax(1). 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 Authorized 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 that of the ` authorised clerks in Native Share and Stock Brokers' Association at Bombay `. In the course of its order, the tribunal observed as follows:` The provision made in the regulations of the company, by which a member can take advantage of sending his authorised assistants to the company for transacting the business in the member name is nothing but giving extra facilities to the members. By controlling the institution of authorised 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 section 10(6) `. At the instance of the assessee, the tribunal stated a case and referred the following questions of law to the High court for its decision under s. 66(1) of the Act:` (1) Whether on the facts of this case the Incometax Appellate tribunal was right in holding that, Authorised Assistants were not members of the company and as such the amounts of Rs. 15,687.00 and 60,750.00 received from them as subscriptions and entrance fees respectively should be included in the assessable income. (2) Were these amounts received for specific services performed by the Association or its members within the meaning of Ss. (6) of section 10 of the Indian Income-tax Act ? (3)Whether the sums of Rs. 16,000.00 and Rs. 600.00 were remuneration definitely related to specific services performed by the Association for its members within the meaning of subsection (6) of section 10 `. The reference was heard by a division bench consisting of Sir Trevor Harries, C. J., and Banerjee, J., of the Calcutta High court. Before that bench, certain concessions were made. It was conceded by Dr. Pal, who also appearedbefore that bench, that the Authorised Assistants were not members of the Company. It was also agreed at the bar, on behalf of both the parties, that the two sums of Rs. 60,750.00 and 15,687.00 were not received from the Authorized Assistants, as suggested in the question formulated, and that it was common ground that they were received from members of the Association in respect of their Authorized Assistants. Therefore, the High Court took the view that the questions framed by the tribunal did not arise, and that the tribunal bad proceeded on a wrong basis of facts. The High court, therefore, re-cast the questions in these terms:` Whether in the facts and circumstances of this case the Income-tax Appellate tribunal was right in holding that (a)the amounts of Rs. 15,687.00 and Rs. 60,750.00 received from the members of the Association as subscriptions and entrance fees in respect of Authorized Assistants, and (b) the amounts of Rs. 16,000.00 and Rs. 600.00 received as fees for enlisting names of newly floated companies and for recognition of changes in the styles of firms respectively should be included in the assess. able income of the assessees The tribunal was asked to re-state a case upon the questions as re-cast, extracted above. Accordingly, the tribunal drew up a fresh statement of the case and re-submitted it to the High court. On this restatement of the case, the matter was heard by a bench consisting of Chakravarti, C. J., and Sarkar, J. The High court considered the terms of s. 10(6) of the Act, and came to the conclusion that the case had not been brought within those terms. The High court, in the course of its opinion, observed that though the assessee is undoubtedly a trade association, it did not perform any specific services for its members for remuneration. It then examined in detail the decision of the Bombay High court in the case of Native Share and Stock Brokers' Association v. The Commissioner of Income-tax (1), relied upon by the Department, and observed that the differences pointed out between the case in hand and the case decided by the Bombay High court, were ` not vital, though they are not immaterial `, but it was not prepared to take the same view of the facts of this case as had been taken by the Bombay High court in the case referred to above, or by the Travancore-Cochin High court in the case of Commissioner of Income-tax v. Chamber of Commerce, Alleppey (2). The High court, accepted the argument of Dr. Pal, which is also addressed to us, that the words ` performing specific services for ` were far stronger and more definite than the words ` render service to `, and that those words meant the actual doing of definite acts in the nature of services. The court further observed that those words meant ` execute certain definite tasks in the interests and for the benefit of the latter (that is to say, the members) under an arrangement of a direct character `. It further observed that the words ` for remuneration` and ` definitely related to those services ` meant that ` certain specific tasks must be performed or functions of a specific character must be discharged for payment and such payment is to be made to the association as wages for its labour in respect of those tasks or functions `. In this connection, it may be added that the High court also made the following observations bearing on the construction of the crucial words of s. 10(6):` When section 10(6) speaks of a trade, professional or other similar association performing specific services for its members for remuneration, it contemplates, I think, services in regard to matters outside the mutual dealings for which the Association was formed and for the transaction of which it exists as a mutual association. If performance of functions even in regard to matters within the objects of the association as a mutual association be performance of specific service within the meaning of the sub-section, discharge of no function can be outside it and everything done would be specific service performed. That, I do not think, is what the Ss. means and intends `. It is manifest that unless the assessee is brought within the terms of subs. (6) of s. 10, the three items of income coming into the hands of the Association, would not be chargeable to incometax. That subsection is in these terms:` (6) A trade, professional or similar association performing specific services for its members for remuneration definitely related to those services shall be deemed for the purpose of this section to carry on business in respect of those services' and the profits and gains therefrom shall be liable to tax accordingly `. It has to be observed at the outset that the performing of the services of the description mentioned in that sub-section, may not, but for the words of that section, have amounted to carrying on business in respect of those services. The use of the word ` deemed ` shows that the legislature was deliberately using the fiction of treating something as business which otherwise it may not have been. It is also noteworthy that the Ss. is couched in rather emphatic terms. We have, therefore, to examine the terms of the Ss. to see whether the three sums of money in question, or any of them, are or is within the ambit of those terms. The words ` performing specific services `, in our opinion, mean, in the context, ` conferring particular benefits ` on the members. The word ` services ` is a term of a very wide import, but in the context of s. 10 of the Act, its use excludes its theological or artistic usage. With reference to a trade, professional or similar association, the performing of specific services must mean conferring on its members some tangible benefit which otherwise would Dot be available to them as such, except for payment received by the association in respect of those services. The word ` remuneration `, though it includes ` wages `, may mean payment, which, strictly speaking, may not be called wages `. It is a term of much wider import including recompense `, ` reward `, ` payment `, etc. It, therefore, appears to us that the learned chief justice was not entirely correct in equating ` remuneration ` with ` wages `. The Ss. further requires that the remuneration should be ` definitely related ` to the specific services. In other words, it should be shown that those services would not be available to the members or such of them as wish to avail themselves of those services, but for specific payments charged by the association as a fee for performing those services. After these observations bearing on the interpretation of the crucial words, we shall now examine each of the three items of income, separately, to determine the question whether they answer, or any of them answers, the description of ` services ` contemplated by the subsection.
(3.) FIRSTLY, the sum of Rs. 60,750.00 has been realised from such members as applied for and obtained permission of the Association to have the use of Authorized Assistants within the precincts of the Stock Exchange. There cannot be the least doubt that unless those members paid the prescribed entrance fees for one or more Authorized Assistants upto a maximum of six, they could not have the benefit thus conferred upon such members. Ordinarily, a member has to transact business in the precincts of the Association by himself or by his business partner if there is a firm ; but if that member is a very busy person, and wishes to avail of the services of Authorized Assistants, he has to pay the the prescribed fee. A member of the Association, with the advantage of mutuality, so long as he transacts business within the precincts of the Association, by himself or by his partner in the case of a firm, is not required to pay any such entrance fee but only the fee payable by every member as such. The entrance fee, thus, is clearly chargeable only from such of the members as avail themselves of the benefit conferred by the rules of the Association in that behalf. The entrance fee is, thus, a price paid for the services of the Association in making suitable arrangements for an absentee member to transact business on his behalf and in his name by his representative or agent. The entrance fee in question, therefore, cannot but be ascribed to the specific services rendered by the Association in respect of Authorized Assistants who thus become competent to transact business on behalf of their principal. Coming next to the sum of Rs. 15,687.00 which was realised from the members by way of subscription in respect of their Authorized Assistants, it is clear that this sum consists of the contributions severally made by the members periodically, so as to continue to have the benefit conferred by the Association of having the use of their representative or agent even during their absence. There cannot be the least doubt that this is a very substantial benefit to those members who found it worth their while to engage the services of Authorized Assistants. A member is not obliged, as indicated above, to have such an Assistant, but the fact that he chooses to have such an Assistant on payment of the prescribed fee or subscription, itself, is proof positive that a businessman, who ordinarily thinks in terms of money, has found it worth-while to have the services of an Assistant by making an additional payment to the Association byway of recompense for the benefit, thus conferred upon him. Lastly, the sum of Rs. 16,000.00 represents fees received from members for allowing their application for enlisting the names of companies not already on the Quotations List, so that the shares and stocks of these companies, may be placed on the Stock Market. As already indicated, it is not the company concerned which has directly to pay this fee, but the fee has to be paid by the member who initiates the proposal and, apparently, finds it worth his while to pay that prescribed fee to the Association. He would not make the payment unless he found it worth his while to do so Apparently, such a member is interested in placing the stocks of that company on the market. It cannot, therefore, be denied that that sum of money is definitely related to the specific services performed by the Association, namely, to permit transactions in respect of the shares of the company concerned, which services would not otherwise be available to the members as a body or to the individual member or members interested in that company. ;