Mitter, J. - (1.) The two questions referred to this Court under Section 66 (1) of the Income-tax Act are as follows: "1. Whether on the facts and in the circumstances of the case, the sums of Rs. 1,39, 439 and Rs. 1, 57, 453 were assessable as the income of the applicant company for the assessment years 1956-57 and 1957-58 respectively?
(2.) Whether on the facts and in the circumstances of the case, the applicant company was rightly denied the full rebate in super tax on account of dividends distributed during the relevant previous years?" 2. The facts are as follows: The assessee is a private company limited by guarantee not having a share capital incorporated in April 1941. Originally it had only five members all of whom were engaged in manufacturing gramophone records, perforated rolls and other contrivances for production of sound mechanically. In the relevant accounting years there were eight more members. The main objects of the company, according to clause 3 of its memorandum of association, are as follows; "To exercise and enforce on behalf of members of the company ...... all rights and remedies of the proprietors in respect of the public performance of records. In the exercise or enforcement of such rights and remedies to grant licences and to make arrangements or agreements with respect to the public performance of such records and to collect and receive all royalties, fees and other monies under any such licences agreements or arrangements. To distribute the net moneys received by the company in the exercise of the foregoing powers, after making provision thereof for the expenses and liabilities of the company, amongst the members of the company. To carry on any business which may seem to the company capable of being conveniently carried on in connection with the above objects or calculated, directly or indirectly to enhance the value of or render profitable any of the property or rights of the company or the proprietors."
(3.) The relevant clauses in the articles of association are as follows: Clause 6: Any owner of performing right, whether a manufacturer or otherwise, and any person entitled to the benefit of or having an interest in such performing right or otherwise in the public performance of records. ....... .shall be eligible as a member of the company, and may on application be admitted a member thereof by the directors at their discretion, but the Directors shall have full and unrestricted power to refuse any application for membership. Clause 7: Every member who is the proprietor of the whole or any part of the performing rights in any record may, on or at any time after his election, and shall, if and when requested by the Directors in writing so to do, assign to the company in the form prescribed by the company his interest, whether present or future, in such performing rights, and until such assignment and so far as such assignment may not extend, every member, by virtue of his application for membership, and his election as a member by the Directors, grants to the company for and during the period of his membership, the sole power and authority. (a) To authorise or permit or forbid the public performance of all or any records the performing right in which is or shall during his membership be or become vested in him; (b) To grant licences on his behalf for the public performance of all or any of such records. Clause 8: Every member, by virtue of his application for membership and his election as a member by the Directors, authorises the company for and during the period of his membership in their or his name, out at their sole charge and expense. (a) To collect fees and subscriptions and all moneys whether for the performance of any of the records the performing rights in which are vested in or controlled by the company or by way of damages or compensation for unauthorised performances thereof; Clause 29: Subject as provided, every member shall have one vote. Clause 36: Until otherwise determined by a general meeting, the number of the members of the Board shall not be less than three nor more than seven. Clause 47: The company in general meeting may declare dividends, but no dividends shall exceed the amount recommended by the Directors. Clause 48. The Directors may before recommending any distribution amongst the members of the company set aside out of the receipts such sums as they think proper as a reserve fund to meet contingencies ...... and to divide the reserve fund into such special funds as they think fit, and to employ the reserve fund or any part thereof for the general purposes of the company. Clause 49: No dividends shall be paid otherwise than out of the profits of the year or any other undistributed profits. Clause 65: The Directors shall as required by Sections 131 and 131-A of the Indian Companies Act 1913 cause to be prepared and to be laid before the company in general meeting such profit and loss accounts, income and expenditure accounts, balance sheets and reports as are referred to in those sections. Clause 69: The profit and loss account shall in addition to the matters referred to in Sub-sections (3) of Section 132 of the Indian Companies Act, 1913, show arranged under the most convenient heads the amount of gross income distinguishing the several sources from which it has been derived and the amount of gross expenditure distinguishing the expenses of the establishment, salaries and other like matter. Clause 70-A. A balance sheet shall be made out in every year and laid before the company in general meeting made up to a date not more than six months before such meeting. The balance sheet shall be accompanied by a report of the Directors as to the state of the company's affairs and the amount which they recommend to be paid by way of dividend, and the amount, if any, which they propose to carry to a reserve fund.;