COLLISTER, J. - (1.) -
(2.) THIS is a case which has been stated by the Income Tax Commissioner under Section 66(2) of the Indian Income Tax Act (XI of 1922). The assessee is the Chamber of Commerce at Hapur and the case relates to two assessment years, 1932-33 and 1933-34. The assessee is a company limited by guarantee which was registered in 1923 under Section 26 of the Indian Companies Act. The objects for which the assessee was incorporated, as set forth in its Memorandum and Articles of Association, are as follows :- (1) To promote and protect the trade, commerce and manufactures of India, and in particular the trade, commerce and manufactures of Hapur and district Meerut. (2) To promote unity and friendliness amongst all merchants in general and dealers in grain in particular in respect of all subjects of common interest. (3) To establish just and equitable principles in trade and to form a code or codes of practice to simplify and facilitate transaction of business between merchants dealing in grain, cotton seed, etc., at Hapur and elsewhere, and persons entering into those transactions with them. (4) To maintain uniformity in rules, regulations and usages of trade. (5) In case of mutual quarrels or dispute in business or settle them as between members of the association and between parties willing or agreeing to abide by the judgment and decision of the association. (6) To consider all questions connected with trade, commerce, manufactures and affecting the rights and privileges of the whole mercantile community, specially dealers in grain and cotton etc., and to remove all difficulties in a lawful and constitutional manner. (7) To acquire by purchase, taking on lease or otherwise lands and buildings and all other property, movable and immovable, which the association, for the purposes thereof, may from time to time think proper to acquire. (8) To sell, improve, manage, develop, exchange, lease, mortgage or otherwise deal with all or any part of the property of the association, or the business of the association. (9) To co-operate with other associations and Chambers similar to this association and to procure from and communicate to any such association such information as may be likely to forward the objects of the association. (9a) To spend such sums of money as may from time to time be resolved upon by the Executive Committee or general body of the association on charitable and benevolent object or objects of public utility with the sanction of the latter. (10) To do all such other things as may be conducive to the extension of trade, commerce or manufactures or incidental to the attainment of the above objects or any of them. Article (9a) did not originally occur in the memorandum; it was added in pursuance of a sanction to amend the Articles Association which was obtained from the High court on September 1, 1933. Application to that effect was made on the advice of the auditors, who had detected that the assessee was incurring without authority certain expenses in maintaining a hospital. The income of the assessee is as follows :- (1) Rs. 10 per month per member as admission fee. (2) Rs. 1 per member per annum as subscription. (3) Rs. 1 as registration fee for each khatti or gain-pit. (4) 0-2-0 commission on every purchase and sale of 25 tons on forward delivery contracts. The members of the assessee company are merchants of Hapur, some of whom are commission agents. It appears that the bulk of the income is derived from the commission which is paid on forward contracts. Any such contract may be entered into by two members inter se or it may be entered into by two outsiders or by an outsider and a member; but whenever an outsider is a party to the contract, he has to employ the services of a member of the assessee company who is a commission agent. Each contract is registered in the books of the assessee company, but it can only be registered in the name of a member and it is the member who has to pay the commission. He in his turn recovers it from the outsider or constituent, but so far as the company is concerned it is the member who is responsible for paying the commission.
(3.) THE assessee objected that it was not liable to assessment under the Act; but the Income-tax Officer of Meerut overruled that objection and assessed the company to income-tax in respect to commission or registration fees, declining at the same time to make any allowance on account of the expenses incurred in maintaining a hospital. THE admission fees and annual subscription only were held to be exempt. THE assessee appealed on the following grounds :- (1) That it was not an association working for profits and that no part of its income was liable to be distributed in the form of dividends or otherwise. (2) That its income was derived from its own members in the form of contributions for its maintenance and was as much outside the scope of the Act. (3) That it did not settle any profit or loss, but simply recorded the transactions and was not concerned with any payments. (4) That it was incorporated under Section 26 of the Companies Act as an association limited by guarantee. (5) That in any case the Income-tax Officer should have allowed the expenditure on charity. The Assistant Commissioner of Income Tax dismissed the appeal, and thereupon the assessee moved the Commissioner of Income-tax to state a case and refer certain questions of law to this Court. The questions of law set out in their application were as follows :- (1) Whether an association incorporated under Section 26 of the Indian Companies Act, as an association limited by guarantee not existing for earning profits, and prohibited under the law from dealing any dividends to its members, is liable to assessment, particularly in view of the fact that no relief under Section 43 of the Act is available to such an association, as in case of other association not incorporated under Section 26 of the Indian Companies Act. (2) Whether the income of the Chamber, derived from its members only in the shape of a certain fixed amount on each transaction registered in the Chamber, can be deemed to be income, gains or profits within the meaning of Section 4 of the Act, when such amount is to be spent not for distribution of any profits but for maintenance of its office and carrying out of objects enumerated in the memorandum of association. (3) Whether the income of the Chamber of Commerce, Hapur, can be deemed to be income of a religious or charitable institution derived from voluntary contributions or income derived from property held under trust or other legal obligation wholly for religious or charitable purposes within the meaning of Section 4, Sub-section (3), Clauses (i) and (ii) and as such is exempt from assessment. (4) Whether income of the chamber is in any event derived from business within the meaning of the Income Tax Act. (5) Whether the expenditure on charity, in accordance with its memorandum of association, even prior to its amendment by the Honourable High Court, is liable to assessment. ;