1. The assessee, the Bellary District Mine Owner's Association Ltd., is a company incorporated on September 5, 1953, under the Indian Companies Act, 1913, with its registered office situate in Hospet in the State of Mysore. The objects for which assessee company is established, inter alia, are to protect and safeguard the interests of the mine owners of the Bellary District; to effectively represent the mine owners in all matters connected with the business of mining and sale of mineral ores; to secure such facilities as may be required for the benefit of the company from the Government, the Railway and other authorities and concerns; to secure contracts from foreign purchasers for distribution among the members of the company; to buy and sell minerals on behalf of the mine owner who are members of the company; and to take all such steps as might be necessary to effectively carry out the said objects. It is a company limited by guarantee in which every member of the company has undertaken to contribute to the assets of the company in the event of its being wound up for the payments of the debts and liabilities of the company contracted before he ceases to be a member.
2. Clause 3 of the articles of association runs of follows :
'A person, firm or body corporate may be admitted as a member, who holds a valid mining lease in Bellary District in his or their name or names : (a) provided that the governing body reserves the right of admission or rejection of any application for membership without assigning any reasons, subject to the approval of the general body. Provided further that a member shall continue to be a member enjoying all benefits even after the expiry of the mining lease until and unless the Central Government finally refuses to renew the expired lease or to grant fresh lease and he shall ipso facto case to be the member from such date of endorsement by the Central Government received.'
3. Clause 4 of the articles prescribed the subscription for membership.
4. During the previous year ended June 30, 1958, relevant for 1959-60 assessment year, the assessee entered into a contract on August 26, 1957, with the State Trading Corporation of India for sale of 1,10,000 tons of Lemmatize iron ore as per the specification contained in the said contract. Sub-clauses (h) and (k) of clause 10 of the said contract are to the following effect :
'10(h) : The contracted quantity will be distributed by the sellers amongst all members who were holding mining leases as on 31st March, 1957, and who paid royalties up to 31st March 1957, in proportion to the royalties paid for four financial years ending 31st March 1957, subject to a minimum of one thousand tons per each member or their quota based on their past exports during the C.Ys. 1954, 1955 and 1956, whichever is higher.
10(k) : The members of the association will not be entitled for any separate contract with the State Trading Corporation for supply of iron ore based on their past exports in accordance with the State Trading Corporation's trade notice dated May 29, 1957.'
5. In accordance with the said contract, the assessee made a distribution of the contracted quantity among its members by its Circular No. 24 dated October 12, 1957. The assessee charged a commissioner of Re. 1 per ton of iron ore sold and moved by its members. During the previous year ended June 30, 1958, the sum so collected by the assessee amounted to Rs. 86,859 without taking into account any expenses incurred by the assessee with reference to the transaction with the State Trading Corporation and otherwise.
6. The assessee claimed that it was not liable to be taxed under the provisions of the Income-tax Act since its income did not arise out of any business, profession or vocation and since the objects of the assesses-association were mostly to protect and safeguard the interest of the mine owners.
7. The Income-tax Officer rejected the above contention and held that portion of the income of the company derived from earnings other than from subscription received from the members was liable to be taxed under the provisions of section 10(6) of the Act and in this view brought the sum of Rs. 86,859 to tax. The order of the Income-tax Officer is annexure 'A' and forms part of the case.
8. On appeal the Appellate Assistant Commissioner held that for ordinary services the assessee collects subscriptions, that it was only for specified services collections were made, that for the specific purposes of selling the products of its members the assessee charged a commission of Re. 1 per ton and that the Income-tax Officer rightly held that the commission so collected under section 10(6) of the Act. The order of the Appellate Assistant Commissioner is annexure 'B' and forms part of the case.
9. On further appeal the Appellate Tribunal held that it was not obligatory on all the members to participate in the sale of the State Trading Corporation; that no data had been filed before it to show as to whether all the members did utilise their quota which was distributed to them or whether any shortfall in the quota of any one member was made out in any the manner; that the assessee had not challenged the correctness of the statement by the Appellate Assistant Commissioner; that the assessee charged a commission of Re. 1 per ton only on such members, who had availed of the opportunity of selling their iron ore through the assessee; that some of the mine owners had dealt directly with the State Trading corporation and that it was open to some of the mine owners to sell at the pit-head to some intermediaries who, in their turn, sold it to the State Trading Corporation; that the payment of Re. 1 per ton would arise only in the event of any member choosing to avail himself of the benefit of the contract with the State Trading Corporation, that having regard to the manner in which the commission had been charged, and the purpose for which it was charged, it was clear that it was intended only as and by way of remuneration for specific services, that any member could stand out of the said arrangement and in view of the foregoing and in the light of the construction placed on section 10(6) by the Supreme Court and in the absence of any material furnished by the assessee to show that all the members were entitled to and did participate in the contract, the Tribunal held that the collection was covered by the provisions of section 10(6) and subject to the allowability of expenses therefrom the sum as assessed by the Income-tax Officer would be income assessable in hands of the assessee. The Tribunal after referring to clause 3 of the articles of the association observed :
'It is clear that there may be certain members who may not have actually carried on mining leases. We have no information in this case to show as to whether and how many members there were who did not have the benefit of such a licence to carry on business in the relevant accounting year. If a member had no licence, then the quota distributed would not be available in view of the consideration set out in clause 10(h) of the contract by the State Trading Corporation. In the absence of anything to show that all the members had subsisting mining licence and were in a position to anticipate in the contract with the State Trading Corporation we have to hold that certain non-participating members would be in a position to share in the benefit of the collection of Re. 1 mentioned above. This contribution and participation are not identical so as to bring in the principle of mutuality also. Considered from this aspect also, the assessment cannot be assailed. We would, therefore, hold that the assessment for the assessment year 1959-60 is proper.'
10. The order of the Tribunal ins annexure 'B' and forms part of the case.
11. The question of law is :
'Whether on the facts and circumstances of the case, the sum of Rs. 86,859 is income liable to be assessed under section 10(6) of the Income-tax Act, 1922 ?'
K.S. Hedge, J.
12. The assessee is an association of mine owners in Bellary District. The object with which it was stated was to safeguard the interests of the mine owners of that district, and to serve their interests in general. The members of that association have to pay fixed subscriptions.
13. During the previous year ended on June 30, 1958, relevant for the assessment year 1959 - 60, the assessee entered into a contract with the State Trading Corporation of India for sale 1,10,000 tons of iron ore as per the specifications contained in the contract. The sale quota thus obtained was distributed among some of the members of the association. Members who had to sell iron ore were charged by the assessee a commission of Re. 1 per ton of iron ore sold by them. The question for consideration is whether the sum collected as commission is chargeable to income-tax under section 10(6).
14. Section 10(6) reads :
'10. (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'.
15. It cannot be seriously disputed that the assessee is a trade association. A trade association is not the same thing as a trading association. A trade association means an association of tradesmen or businessmen for the protection or advancement of their common interests. Undoubtedly, the assessee is one such association.
16. The commission in question was earned by the assessee on account of its performing specific services for some of its members and the same is remuneration definitely related to distinct services performed by the assessee for some of its members. The Tribunals below did not find that all the members of the Mine Owners' Association (the assessee) had the benefit of the quota that was distributed. Therefore, it has to be held that the commission in question was paid only by some of its members. But the benefit of the commission realised has gone to all the members. Hence there was no mutuality in the sense that very contributors to these profits were the participators therein. In other words, there was no complete identity between the body of the contributors and the body of the participators. Hence, the case of the assessee clearly comes within the scope of sub-section (6) of section 10.
17. The assessee's case in my judgment falls within the rule laid down by the Supreme Court in Commissioner of Income-tax v. Calcutta Stock Exchange Association Ltd. . The material facts of that case are as follows : The Calcutta Stock Exchange Association was a company formed to facilitate transaction of business on the Calcutta Stock Exchange; under its by-laws members with a certain standing were allowed to have six 'authorized assistants' to transact business on the stock exchange in their names and on their behalf; members appointing such assistants had to pay an entrance fee for each assistant and also a periodical subscription for continuing the services of such assistant, in addition to the subscription payable by each member for his membership; every member who wished to have the name of any company included in the quotation list, so that its shares or stock may be placed on the stock market, had to make an application in that behalf with a fee of Rs. 1,000; the assessee in that case received during the accounting year Rs. 60,750 as entrance fees and Rs. 15,687 as subscriptions in respect of authorized assistants, and a sum of Rs. 16,000 as application fees from members for including new companies in the quotation list; the question for decision was whether these three sums of money were assessable to income-tax under section 10(6) of the 'Act'. The Supreme court held that each of the aforesaid sums of money accrued to the assessee on account of its performing specific services for its member or such of them as availed themselves of such services, and the said sums were, accordingly, assessable to incometax under section 10(6) of the 'Act' as profits and gains derived from carrying on business.
18. It must be remembered that 'business' referred to in section 10(6) is a 'deemed business' and not a business in the real sense of that world. The words 'performing specific services' in section 10(6) mean 'conferring particular benefits', that is conferring on the members some tangible benefit which would not be available to them unless they paid the specific fees charged for such special benefits.
19. The conclusion reached by me hereinbefore also receives support from the decision of the Supreme Court in Commission of Income-tax v. Royal Western India Turf Club Ltd.
20. On behalf of the assessee, strong reliance was placed on certain observations found in Kumbakonam Mutual Benefit Fund Ltd. v. Commissioner of Income-tax. In view of the decision of the Supreme Court referred to above, I have not thought it necessary to consider that decision. That apart, we were informed that the decision is under appeal to the Supreme Court.
21. For the reasons mentioned above, my answer to the question referred to us is in the affirmative and in favour of the department.
22. Assessee shall pay the costs of this reference. Advocate's fee Rs. 250.
23. Question answered in the affirmative.