JAGANMOHAN REDDY C.J. - The Income-tax Tribunal has referred the following question for the opinion of this court, viz. :
'Whether the income of the assessee-company is exempt from tax ?'
This question arose in the following circumstances :
The assessee, which is a public limited company, has amongst its objects :
(a) to enable the shareholders to save money;
(b) to enable persons with limited capital to make safe investment at reasonable rates of interest;
(c) to grant loans to shareholders on a security of jewels, Government bonds, immovable properties and also on personal security; and
(d) to do all such things incidental to and conducive to the attainment of the above objects.
The assessee claimed exemption from tax, as it was a mutual benefit society, contending mainly that, in a case where all the person contribute to a common fund in pursuance of a scheme for their mutual benefit and have no dealings or relationship with any outside body, it could not be said that the association had made any profits. The Tribunal in the statement of the case stated that this claim was based on the rule of mutuality on the ground that the surplus accruing to a mutual concern would not be regarded as income, profits or gains, for purposes of the Income-tax Act. The Income-tax Officer rejected the claim of the assessee on the grounds : firstly, that as the assessee was a public limited company, it was a separate and distinct juristic entity independent of the shareholders constituting it, and, secondly, that the members who contributed to the profits and the members who participated in the distribution of the profits were not one and the same. In appeal, the Appellate Assistant Commissioner confirmed this order. The Income-tax Tribunal, however, applying a decision of the Madras High Court in Secretary, Board Revenue, Madras v. Mylapore Hindu Permanent Fund Ltd. followed in Kumbakonam Mutual Benefit Fund Ltd. v. Commissioner of Income-tax allowed the appeal, as the respective companies in the above two cases were also doing similar business as the assessee. In both the above cases it was held that the income of the society was not taxable under the Income-tax Act. In a subsequent case, Commissioner of Income-tax v. Madura Hindu Permanent Fund Ltd. a Full Bench of the Madras High Court expressed disagreement with the earlier case, Secretary, Board of revenue Madras v. Mylapore Hindu Permanent Fund Ltd. By the time of the Tribunals order an appeal was pending in the Supreme Court against the decision of the Madras High Court in Kumbakonam Mutual Benefit Fund Ltd. v. Commissioner of Income-tax. Their Lordships of the Supreme Court in Commissioner of Income-tax v. Kumbakonam Mutual Benefit Fund Ltd. reversed that decision, on the ground that there was no such complete identity between the contributors and the participators in a common fund as attracted the principle of mutuality. It was observed that the respondent in that case was not different from that of an ordinary bank and its income was income from business within section 10 of the Indian Income-tax Act, 1922, and was, therefore, taxable, that a shareholder in the respondent company was entitled to receive his dividend as long as he held a share, that he did not have to fulfill and other condition and that his position was in no way different from that of a shareholder in a banking company. It was further observed that the essence of mutuality lies in the return of what one has contributed to a common fund, and if profits are distributed to shareholders, the principle of mutuality is not satisfied.
The principle of this decision applies with equal force to the facts and circumstances of this case, where, as observed by the Income-tax Officer, the members who contributed to the profits and the participants in the distribution of profits are not identical and there is no question of mutuality.
In this view, our answer to the question is in the negative and in favour of the department. But, having regard to the fact that the previous law as accepted in the Madras and Andhra Pradesh High Courts was in favour of the assessee till the decision of the Madras High Court was reversed by the Supreme Court which was after the question was referred to this court, we think interests of justice require that there should be do costs. We accordingly award no costs.
Question answered in the negative.