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Commissioner of Income-tax Vs. Chamber of Commerce, Alleppey. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Reported in195527ITR535(Coch.)
AppellantCommissioner of Income-tax
RespondentChamber of Commerce, Alleppey.
Excerpt:
.....indian income-tax act, 1922, provides : "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 shall be liable to tax accordingly," and the contention of the alleppey chamber of commerce which found favour with the income-tax appellate tribunal, madras b bench, was that the two amounts in question do not form remuneration definitely related to specific performed and so cannot be taxed under the provisions of sub-section (6) of section 10 as was done in the assessment order dated 15th september, 1952, for the years 1950-51 and 1951-52. the order of the.....
Judgment:
M. S. MENON, J. - This is a reference by the Income-tax Appellate Tribunal, Madras B Bench, on the application of the Commissioner of Income-tax, Mysore, Travancore-Cochin and Coorg, Bangalore, the question referred being :- "Whether the sums of Rs. 22,621 and Rs. 14,972 are taxable under section 10 (6) of the Indian Income-tax Act, for 1950-51 and 1951-52 assessment years respectively." 2. Section 10 (6) of the Indian Income-tax Act, 1922, provides : "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 shall be liable to tax accordingly," and the contention of the Alleppey Chamber of Commerce which found favour with the Income-tax Appellate Tribunal, Madras B Bench, was that the two amounts in question do not form remuneration definitely related to specific performed and so cannot be taxed under the provisions of sub-section (6) of section 10 as was done in the assessment order dated 15th September, 1952, for the years 1950-51 and 1951-52. The order of the Appellate Tribunal, Madras B Bench, dated 30th June, 1953, reads as follows : "The assessee runs a produce exchange. It collects from its members certain sums of money based on the quantum of transactions passed through it. The Departmental authorities brought this income to tax on the ground that it came within the mischief of the provisions corresponding to section 10 (6) of the Indian Income-tax Act. We are unable to discover any specific services rendered by the exchange in return for the collections made, except maintaining that status of an association and presenting a united from in its dealings with the outside world. No specific services appear to have been rendered by the produce exchange to its members. The only specific service rendered is a respect of arbitration for which a separate fee is charged. The learned advocate admitted that the receipts under the head are chargeable to income-tax. The general collection of so many pies per candy of pepper, etc., is only a general collection. Moreover section 10 (6) clearly lays down that there should be correlation between the remuneration and the services rendered. Such relationship is lacking in this case and therefore it cannot be brought to tax within the meaning of the above referred sub-section. This is supported by the unreported case of Seeds Traders Association Ltd. v. Commissioner of Income-tax, Bombay City (Referred Case No. 33 of 1952). The Income-tax Officer should therefore delete from the assessments the general collections included in the assessments, already referred to above.

3. It is admitted that only members of the Alleppey Chamber of Commerce can be members of the produce section and there is no dispute on the ground that the services performed are not "services for its members." The only questions, therefore, that arise for consideration are : (1) Can the contribution of six pies per candy on the total turnover of the monthly transactions be considered as "remuneration definitely relates" to services performed by the Alleppey Chamber of Commerce; and (2) Can those services be considered as "specific services" within the meaning of section 10 (6) of the Indian Income-tax Act, 1922.

The answer to the two questions will depend on the construction of the bye-laws and rules of the produce section which are appended as Annexure A to the order of reference dated 18th January, 1954. Rules 3 and 5 of the rules in Annexure A are the relevant rules for answering question No. (1). They as well as rules 4, 6 and 7 come under the general heading "Membership Fees" and read as follows : "3. An admission fee of Rs. 25 and a monthly fee of Rs. 5 shall be paid along with an advance of three months fees before enrollment.

4. Subsequent monthly fees of Rs. 5 per mensem shall be paid by every member within a week of the receipt of the monthly bill and in any case before the end of the month for which the bill has been received.

5. In addition to the above fees, each member shall also contribute six pies per candy on the total turnover of his monthly transactions of either pepper, oil or copra.

6. Members who do not pay the monthly fees contributions regularly ever month are liable to be removed from the register of members by the Committee if such members fail to pay the dues when called upon to do so.

7. Membership fees and contributions due from any member who has a coupon deposit may be deducted from that deposit amount at the time of refund or withdrawal as the case may be." On a reading of rules 3 to 7 we entertain no doubts that the admission fee of Rs. 25, the monthly fee of Rs. 5 and the contribution under rule 5 all form part of the levy for the services rendered to the members of the produce section and should be considered as "remuneration definitely related to those services." The contention of the assessee that such is not the case is clearly unsustainable and has to be negatived.

4. The answer to question No. (2) will also depend on the construction of Annexure A which is the only piece of evidence available in this case. The objects with the produce section was formed as given therein reads as follows : "(a) The main objects of the produce section are to promote, support and protect, the character, status and interests of the merchants in general, and those engaged in produce trade in particular, to define the customs and usages of such trade, and to make rules and regulations, conducive to just and honourable practices therein, and to consider all questions affecting the interests of produce trade.

(b) to adjust controversies, to arbitrate upon and settle disputes of all kinds, to appoint arbitrators, umpires and experts, to make awards and decisions and generally to encourage and stimulate fair and honourable trading; (c) to collect, print, publish and circulate statistics and other information relating to the produce trade, and to do all such things necessary or conducive to the promotion of produce trade." The rest of the provisions in Annexure A are only intended to effectuate those objects and detail the privileges and obligations of membership and the financial contributions to be made.

5. The services rendered by the Alleppey Chamber of Commerce to its members can, we think, be conveniently divided into two categories : (1) those to which they are entitled by the subscription that they pay for the Chamber membership; and (2) those additional services to which they are entitled by becoming members of the produce section and paying the additional subscription, namely, the fees and contribution specified in rules 3 and 4 of the rules of the produce section.

6. What we are called upon to decide is whether the latter can be styled as "specific services" within the meaning of section 10 (6) of the Indian Income-tax Act, 1922, and we see no reason why they should not be so considered. The word "specific" only means definite, distinctly formulated or stated with precision and we think that the necessary definitions or precision obtains in this case as all the services we have to adjudge are services in pursuance of objects so clearly defined as objects (a), (b) and (c) of the produce section and not part of the general privileges traceable to an ordinary membership of the Alleppey Chamber of Commerce. The inauguration and continuance of the produce section is itself a specific service on the part of the Chamber and the provisions of rules for the conduct of trade, the settlement of disputes and the dissemination of correct and up-to-date information cannot also be considered as anything other than specific.

That extra fees may have to be paid for some of the services will not make the services fully covered by the fees and contributions under rules 3 and 4 any the less specific and the argument on behalf of the assessee that an inference to the contrary is implicit in the prescription of a special fee for arbitration cannot be accepted as correct.

7. Our attention has been drawn to the unreported decision of the Bombay High Court mentioned in the order of the Appellate Tribunal, Seeds Traders Association Ltd. v. Commissioner of Income-tax, Bombay City. The assessee in that case, Seeds Traders Association Ltd., collected as provided in its bye-laws sums from its broker members called "lagas" in respect of certain transactions at the rates specified in those bye-laws. Chagla, C.J., said that neither the Income-tax Officer nor the counsel for the Department was able to point out any specific service rendered by the Association for the "lagas" recovered and said that "as all the taxing departments have failed to find any specific service, we do not understand how on this reference we can find that any specific service is rendered by the Association and decide the question in favour of the Commissioner." The question as to whether in any particular case "specific service" are being rendered for the collection made and whether that remuneration is definitely related to those services must depend on the facts and circumstances alleged and proved, and on the facts and circumstances of the case before us we have no doubt that the conclusion to be reached is the one that we have indicated in the preceding paragraphs of this judgment.

8. It follows that the question referred has to be answered in the affirmative and we answer it accordingly. The Department will have the costs of this reference from the assessee, advocates fee Rs. 100.


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