P. CHANDRA REDDY C.J - The question to be answered in this reference is in these words :
'Whether on the facts and circumstances of the case, the entrance fees is not an income from 'business' and whether the same is or is not assessable under section 10 of the Income-tax Act ?'
The reference relates to the assessment years 1953-54, for which the previous year was the year ending 30th June, 1952. The assessee is a co-operative society(doing banking business) and registered under the co-operative societies Act of 1912. The bank received during the previous year a sum of Rs. 498 as entrance fees. Exemption was claimed in regard to this amount as being income falling under the head 'profits or gains from this business, profession or vocation' with the meaning of section 19 of the Indian Income-tax Act, by virtue of the relevant notification dated August 25, 1925, issued under section 60 of the Indian Income-tax Act.
The relevant terms of the notification are as follows :
The following classes of income shall be exempt from the tax payable under the said Act, but shall be taken into account in determining the total income of the assessee, for the purpose of the said Act...
(2) The profits of any co-operative society... for the time being registered under the Co-operative Societies Act, 1912...
Explanation - For this purpose, the profits of co-operative society shall not be deemed to include any income, profits or gains from...
(1) Investment in (a) securities of the nature referred to in section 8 of the Indian Income-tax Act or (b) property of the nature referred to in section 9 of that Act,
(2) dividends, or
(3) the other sources referred to in section 12 of the Indian Income-tax Act.'
The concerned Income-tax Officer did not accept the assessees contention in this regard being of opinion that the entrance fees fell within the connotation of the expression 'other sources' in the section 12 of the Act. This was affirmed on appeal by the Appellate Assistant Commissioner and on further appeal by the Income-tax Appellate Tribunal.
The question that calls for determination in this reference is whether the entrance fees earned by the assessee-society constitutes the profits or gains of the society or whether it could be described as profits or gains other sources.
Before dealing with the signification of the expressions 'profits of any co-operative society' and 'other sources' occurring in section 12 we will do well to quote here section 10(1) of the Act and section 10(6) and section 12 of the Act. Section 10(1), in so far as it is of immediate relevancy says :
'10. (1) The tax shall be payable by an assessee under the head profits or gains, of business profession or vocation in respect of the profits and gains of any business, profession, or vocation carried on by him.'
Section 10(6) recites :
'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.'
Sub-section (1) of section 12, with which we are concerned, indicates
'The tax shall be payable by an assessee under the head 'income from other sources' in respect of income, profits and gains of every kind which may be included in his total income (if not included under any of the preceding heads).'
It is plain from section 12(1) that it is only cases that do not fall under the preceding sections, viz., sections 8, 9, and 10, that are attracted by section 12. If the income comes within the purview of section 10, then section 12 cannot govern the present case. There can be little doubt that the exemption granted under the notification relates to profits and gains of business envisaged by section 10. It is not necessary for us to consider whether it taken in the profits and gains contemplated by section 10(6).
Now, could it be posited that the 'entrance fees' collected from the members of a co-operative society constitutes profits and gains of a business. In our opinion the answer can only be in the affirmative and our reasons are as follows :
The main object of the assessee-society, as can be gathered from clauses (1) to (4) of bye-law No. 1 are to organise, supervise, and to finance co-operative societies registered either under act X of 1904, or Act II of 1912 or Madras Act VI of 1932, to carry on general business of banking not repugnant to the provisions of the Co-operative societies s act and the rules framed thereunder; and to appoint necessary staff and incur other expenditure for the conduct of the business; and to develop, assist and co-ordinate the work of the afflicted supervising unions and to secure for them financial help where necessary to arrange for the supervision of societies not affiliated to any supervising union and for the inspection of all societies and unions.
It is manifest that the bank was started primarily for the purpose of financing co-operative societies and developing and assisting and co-ordinating the work of the affiliated societies and also to secure fiances for the supervising unions. The assessee-society carries on the general business of banking not repugnant to the provisions of the Co-operative Societies Act.
Every co-operative society within the area of operation of this bank and every person over 18 years of age and fulfilling certain qualifications are eligible to become members of this society in order to secure financial assistance envisaged in bye-law, No. 1, Bye-law No. 21, required that every member shall on a admission pay an entrance fees of Re. 1 per share. It also appears from bye-law no. 18, that entrance is one of the sources of income of this bank. That being the real position could it posited that the entrance fees which is intimately connected with the banking business of the assessee and which is one of the sources of income mentioned in bye-law No. 18 is not profit and gain of the assessee-society ?'
Any co-operative society that intends to gain the facilities envisaged bye-law No. 1 has been to become a member of the assessee-bank. Thus the payment of the assessee. In such a situation the income must be held to have accrued from the business of the assessee. It must also be mentioned that this fee is treated as part of the income from the business of the assessee. In our considered judgment, it constitutes profits of the bank within the contemplation of the notification referred to describe it as income from other sources, as it is profits and gains of business within the range of section 10.
This view of ours is vouched by a judgment of the Supreme Court in Delhi Stock Exchange Association Ltd. v. Commissioner of Income-tax. It was decided there that the amounts received as admission fee by the Delhi Stock Exchange Association fell within the ambit of the expression 'profits and gains of business, profession or vocation.' Their Lordships observed that it is the nature of the business of the company and the profits and the distribution thereof which were the determining factors.
In support of their conclusion, their Lordships relied on the following dictum laid down by the Rowlatt J in Liverpool Corn Trade Association v. Monks :
'I do not see why that amount is not a profit. The company has a capital upon which dividends may be earned, and the company has assets which can be sued for the purpose of obtaining payments from its members for the advantages of such use, and one is tempted to ask why a profit is not so made exactly on the same footing as a profit is made by a railway company who issues a travelling ticket at a price to one of its own shareholders, or at any rate as much a profit as a profit made by a company from a dealing with its own shareholders in a, line of business which is restricted to the shareholders.'
In our opinion, the principle enunciated in this passage and the doctrine of Delhi Stock Exchange Association Ltd. governs the instant case. The entrance fees collected from the members of the bank is of the same character as the admission fee payable in the Delhi Stock Exchange case.
Another pronouncement of the Supreme Court which has some bearing on this enquiry is Commissioner of Income-tax v. Royal Western India Turf Club Ltd. It was ruled there that the receipts from the season admission tickets from members, daily admission gate ticket from members, use of private boxes by members etc. were profits and gains from the business within the meaning of section 10(1) of the Act and were, therefore, assessable to tax.
In this view of ours, we do not think it necessary to deal with cases bearing on section 10(6) of the Act.
We accordingly, answer the reference in favour of the assessee. There will be no order as to costs. Advocates fee Rs. 50.