1. This reference is concerned with certain lagas recovered by the East India Chamber of Commerce Ltd., Bombay, which the assessee before us. Lagas are fixed at certain rates for every transaction of purchase done under the bye-laws of the Chamber of Commerce by a member on account of his client, and the various commodities in respect of which lagas could be charged are set our. It will be noticed that the lagas are only payable by members when they are doing business on behalf of a non-member. No laga is payable by a member when he does business on his own behalf. It will also further be noticed that lagas are not charged in respect of various commodities which come within the ambit of this Chamber of Commerce. They are restricted to only four commodities mentioned in the bye-laws.
2. The first question that has to be considered is whether tax is payable under section 10 (6), and in order to attract tax under that subsection it is necessary that we must have an association performing specific services for it members for remuneration definitely related to those services. The specific services which the Income-tax Officer relied upon in deciding that the case fell under section 10 (6) were that a trade ring was provided for members doing forward business, that the Chamber offered facilities for tendering and distributing delivery orders and ensuring payments thereof, that the Chamber provided clearing-house facilities, that the Chamber made provision for an appellate committee and an arbitration committee, and that non-members who did transactions in the market run under the auspices of the Chamber were insured against malpractices of the trade. The Appellate Assistant Commissioner took the view that the case did not fall under section 10 (6), but brought the lagas to tax under section 12. The Tribunal agreed with the Income-tax Officer that the case fall under section 10 (6) and the specific service which it found that the Chamber rendered was to help a member to clear a transaction. Now, in coming to this conclusion the Tribunal overlooked the fact that the services of giving facility for carrying our a transaction were not merely rendered to those members who paid the laga; the services were available to every member. Nor were these services restricted to those commodities in respect of which laga was paid. These services were available to members even when they did business in commodities other than those which attracted the payment of a laga. Further, under the rules and bye-laws of this Chamber, any one of the facilities mentioned by the Income-tax Officer could be suspended and notwithstanding the suspension of this facility the laga would still be payable. Therefore, it would be erroneous, in our opinion, to say that the Chamber was performing specific services for its members for remuneration definitely related to those services. The remuneration charged had no relation whatever to the services rendered, and it is also difficult to say that the services relied upon were specific services rendered in return for the remuneration charged by the Chamber. Therefore, in our opinion, the case clearly does not fall near section 10 (6).
3. The next question is whether the lagas are liable to tax under section 10 (1) as business income, and the answer given to it by the assessee, and which has been put forward before us by Mr. Palkhivala, is that this is a mutual association and that in the lagas paid by the members the principle of mutuality comes into play and therefore the lagas are not liable to tax. Now, the principle of mutuality is based on the principle that a person cannot make profit our of himself and similarly an association cannot make profit out of itself. But that principle does not prevent an association doing business with some of its members, because then the association is not doing business with itself but is doing business with a different entity. It is also well settled law that in order that the principle of mutuality should come into play there must be an identity between the contributors of the fund and the participators is that fund.
4. Before we deal with this question, perhaps we might look at what the nature of this fund is and what is its application. Bye-law 281 of the association provides :
'One-third from the laga money recovered as per bye-laws referred above shall be accounted to the Chamber's building reserve fund. 20 per cent. of the remaining two-third amount shall be paid to the Radhanpur Panjrapole and 30 per cent. shall be paid to any other Panjrapole and 50 per cent. shall be kept with the Chamber to be spent for by the board as it thinks proper for the purposes of any charitable, philanthropic, national public and for institutions and works purporting to science and research which are exempt from the income-tax according to the income-tax law.'
5. It was contended by the Department that there is no participation by the members in this fund at all because the fund is earmarked for specific purposes mentioned in bye-law 281. Mr. Palkhivala's contention was that there is a provision in article 100 of the articles of association that in the case of the winding up of the Chamber, the assets including the profits are divisible amongst the members, and according to Mr. Palkhivala this fund is subject to this article and would be divisible amongst the members on the winding up. The mere fact that the association chooses to provide for the application of the fund in a particular manner will not in any way militate against the fact that all the members are participators of this fund. This raises a rather important question and we do not think it necessary to decide it on this reference because in our opinion, as we shall presently point our, the position here is clear that all the members of the association are not contributors to this fund, and if that is so the question of participation of the fund does not arise.
6. It is clear that the only participators to this fund, which one might call the laga fund, are those members of the association who enter into transactions on behalf of non-members. Therefore, the only right, and perhaps the proper expression in this context is, obligation or liability, and not right, to contribute to this fund is in these members. But what is urged by Mr. Palkhivala is that even though only certain members of an association May in fact contribute to a fund, if the others have a right to contribute to that fund, then the test of mutuality is satisfied, and for this purpose reliance is placed on an unreported judgment of this Bench in I. T. Reference No. 47 of 1954, delivered on the 23rd February, 1955. In that case we laid down the ratio of mutuality with regard to contribution, and what we pointed our was that every member should have a right to contribute to the profits of the association, and we deduced this ration from an English decision in national Association of Local Government Officers v. Watkins (H. M. Inspector of Taxes). In that case the assessee was an unregistered trade union and it ran a holiday camp to provide cheap holiday facilities for its members, their wives, families and friends. The profits made by running this camp were credited to the general funds of the association and the funds endured for the benefit for the members of the association as a whole and not of the camp users only, and what was urged with regard to that case was that although profits from the camp were made by contribution made by only some of the members and the profits were spent on all the members and although there was no identity between the contributors and the participators, still the English Court held that it was a mutual association, and in dealing with that argument we pointed our that although only a few members of the association could avail themselves of the benefit of the holiday camp and contribute to the profits, every member had a right to be to the camp and contribute to the profits. Later on in that judgment we also pointed our that the proper question to be asked was whether even though all members had not contributed to the fund, did all the members have the right to contribute to the fund and if they so intended could they have contributed to this fund Therefore, it is clear from this judgment that the right we were referring to was a subsisting right, a right which could be exercised without the removal of any impediment, a right which could be exercised if the person intended to exercise it; in other words, it was left to the volition of any member of the club to contribute to this found and avail himself of the holiday camp.
7. Now, if we apply the ratio of that judgment to the facts of this case, the position here is entirely different. There is no subsisting right or subsisting obligation upon every member of this Chamber to pay the laga. The obligation is only a certain class of members. With regard to the others, the obligation to contribute to this fund would only arise provided they entered into a transaction on behalf of an non-member. Therefore, they had to do something and some condition had to be satisfied before they could become eligible to be contributors to this fund. Therefore, at no time could it be said that all the members of the Chamber had a subsisting right to be members of this fund or to be contributors to this fund. With regard to some there was a subsisting right, with regard to others the right would only arise provided a particular condition was satisfied. Let us look at it from another point of view. It is true that the facilities afforded by this Chamber with retard to maintaining a ring, making arrangements for delivery orders, etc., were open to all the members, but as far as the payment for these facilities was concerned, it was only restricted to a section of the members. The other members, although they availed themselves of the facilities, had no obligation to contribute to this fund. Therefore, whichever way one looks at it, it is clear that the first essential of mutuality is lacking in this case. Before we come to the question of participation in the fund, there must be contribution or it should be open to every member to make a contribution or it should be open to every member to make a contribution if he so intended and he could carry our his intention without satisfying any condition or removing any impediment. Therefore, we are of the opinion that the contention put forward by the assessee that the contributions received by its members and which formed part of the laga fund could not be brought to tax on the ground that the principle of mutuality came into play, cannot be accepted. In our opinion, it is a business income of the Chamber under section 10 (1) and to that extent we agree with the view of the Tribunal.
8. The second question has not been seriously pressed by Mr. Palkhivala. That seeks exemption of two-thirds of the laga receipts under section 4 (3) (i). It is true that two-thirds of the laga fund has to go to charity, but the income of an assessee is brought to tax at the moment when it accrues to him. The Taxing Authorities are not concerned with what the assessee does after the income has accrued to him. He May spend it on himself, he May give it to his relatives, he May give it to charity. That is a matter of utter unconcern to the Taxing Authorities, and there is no doubt that the application to charity by the assessee is subsequent to the accrual of the income. Therefore the case clearly does not fall under section 4 (3) (i) of the Act.
9. The result is that we must answer question (1) in the affirmative, and question (2) in the negative. Questions (3) and (4) do not arise.
10. Mr. Palkhivala says that the assessee has in fact paid to charity the two-third amount of the lagas received by it as provided by bye-law 281. We have no evidence of this on the record, but if what Mr. Palkhivala says is correct, then surely this is a case where the authorities should consider whether relief should not be given to the assessee with regard to the amounts spent on charity.
11. The assessee to pay the costs.
12. Reference answered accordingly.