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Jamnagar Motor Truck Owners Vs. Income Tax Officer. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Ahmedabad
Decided On
Reported in(1982)2ITD402(Ahd.)
AppellantJamnagar Motor Truck Owners
Respondentincome Tax Officer.
Excerpt:
.....derives income from the same way as in the past.2. in the previous year relevant to the assessment year, assessee received membership fee to the tune or rs. 9,102. before the ito, the assessee took the stand that it is a mutual association formed to guard and protect their interest. the sources of income are from membership subscriptions, donations and bank interest. it was submitted that the membership fee is not liable to tax on principle of mutuality. it was also pointed out that subscription fee is a charge on members, a condition precedent to becoming a member, and not income from its specific services performed. thus, it was claimed that the subscription fee received from the members was not liable to tax.3. the ito was not satisfied with the contentions of the assessee.according.....
Judgment:
Per Shri D. D. Vyas, Judicial Member - This is an appeal by the assessee ascertaining to the assessment year 1976-77. The assessee is an AOP. For the previous year relevant to the assessment year under consideration, it filed the return on 30-7-1976 declaring income of Rs. 59,024. It derives income from the same way as in the past.

2. In the previous year relevant to the assessment year, assessee received membership fee to the tune or Rs. 9,102. Before the ITO, the assessee took the stand that it is a mutual association formed to guard and protect their interest. The sources of income are from membership subscriptions, donations and bank interest. It was submitted that the membership fee is not liable to tax on principle of mutuality. It was also pointed out that subscription fee is a charge on members, a condition precedent to becoming a member, and not income from its specific services performed. Thus, it was claimed that the subscription fee received from the members was not liable to tax.

3. The ITO was not satisfied with the contentions of the assessee.

According to him, similar point was in issue in the assessment year 1974-75 and in the year also such income was taxed. The ITO invoked the decision in the case of CIT v. Calcutta Stock Exchange Association Ltd. [1959] 36 ITR 222 [SC] and held that membership fee received by the association was taxable income. Accordingly a sum of Rs. 9,102 was included in the total income of the assessee. The ITO completed the assessment on 19-8-1978 on a total income of Rs. 74,910.

4. The assessee took up the matter in appeal and again reiterated the same points which were canvassed before the ITO. The learned AAC held that the assessee was not a mutual association and as such cannot claim exemption from tax on that ground. Thus, the learned AAC agreed with the finding of the ITO.5. Before the Tribunal on behalf on the assessee, it was contended that finding of the authorities below is incorrect. The object of the association is to propagate the understanding of the law, its advantages and disadvantage, and to stop harassment of members from businessmen and authorities, to stave for economic relief and for proper, guidance and to take steps for economic progress. The institute will also organize coaching classes trips and entertainment programs.

Any truck owner of JAMNAGAR District or his manager who is over 18 years of age can become the member of the institute will recites funds by fees varying from time to time. The institute will raise its funds by fees, donations or by entertainment programmes. The institute can disburse the amount from its funds for salaries, office rent entertainment programs. The institute can disburse the amount from its funds for salaries, office rent, entertainment programmes. education, over and above for audit, administrative or other matters as deemed fit by the institute. It was also contended that if the institute stops its activities and its members by majority vote declare it closed, the balance of movable or immovable properties of the institute can be transferred or distributed to any charitable institute or social institute, as per the meetings decision. As a matter of fact, the association acts for protecting the interests of its members, Thus, it was contended that the assessee is a mutual concern and as such the membership fee is not taxable under the Income-tax Act. 1961[the Act].

6. On behalf of the revenue it was contended that the assessee is not a mutual concern. It is also not registered under any Act. As a matter of fact, the assessee is a trading association of tradesmen. It indulges in some form of business activities and which, apart from preserving the interests of its members, also works for profit. At least the assessee-association does work for common good of its members and for preservation of the business interests of truck owners. The assessee itself filed the return declaring income of Rs. 59,024. The relevant clauses of the articles of association, would go to show that there is no complete identity of the contributors with the assessee. According to the departmental representative, in the case of mutual concern the surplus would also go back to those who contributed the income in the initial stage. Reliance was placed on the ratio of the decision in the cases of CIT v. Shree Jari Merchants Association [1977] 106 ITR 542 [Guj.], Ludhiana Central Co-operative Consumers Stores Ltd. v. CIT [1980] 122 ITR 942 [Punj. and Har.] and CIT v. Royal western India Turf Club Ltd. [1953] 24 ITR 551 [SC].

7. In our considered opinion, the contention of the assessee could hardly be accepted, In our opinion, a mutual association is an AOP who agree to contribute funds for some common purposes mutually beneficial and receive back the surplus left out of those funds, in the same capacity is which they have made the contributions. Their capacity as contributors and as recipients remains the same. They contribute, not with an idea to trade but, with an idea of rendering mutual help. They receive back the surplus which is left out after meeting the expenditure which they have incurred for their common purpose, in the same capacity in which they have contributed. Thus they receive back what was already their own. The receipt thus coming in their hands is not a profit because no man or business with itself. Therefore, the main test of mutuality is complete identity of the contributors with the recipients. If such a mutual concern received any such income and the surplus goes back to those who contributed the said income, it is not liable to tax because, on account of the operation of the principle of mutuality, the income remains, in reality, the income of the contributors.

8. The leading case on the subject of mutuality is the English case of New York Life Insurance Co. v. Styles [1889] 2 TC 460. The ratio of this decision is stated by Lord Normand, in English and Scottish Joint Co-operative Wholesale Society Ltd. v. CAIT [1948] 16 ITR 270 [PC], in the following observation.

"From these quotations it appears that the exemption was based on [1] the identity of the contributors to the fund and the recipients from the fund, [2] the treatment of the company, though incorporated as a mere entity for the convenience of the members had police holders. In other words as an instrument obedient to their mandate, and [3] the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to them selves (p. 279) The law laid down in the said decision was reviewed by the Supreme Court in the case of Royal Western India Turf club Ltd. [supra].

9. We shall, therefore, presently proceed to consider whether the principles of the aforesaid decisions are applicable in the cas of the assess association. There is a clause in the articles of association which deals with closing of the institute. It reads as under : "In any circumstances if this institute stops its activities and its members by majority vote declare it closed, the balance or movable or immovable proprieties of the institute can be transferred or distributed to any charitable institute or social institute as per the meetings decision." The said clause shows that at the time of the dissolution of the association its surplus was liable to be distributed even amongst the non members. As a matter of fact, the surplus of the assessee shall at the time of its dissolution be used in the manner proposed in the resolution passed by the association. It is apparent that any resolution which may come up for consideration in future would not necessarily provide for the distribution of surplus assets of the association are not liable to be returned to the members, the identity between the contributors and the recipients would be lost. This would militate the very basic principle of mutuality. In support of this, we are also fortified by the ratio of the decision in the cases of Shri Jari Merchants Association [supra] and Ludhiana Central Co-operative consumers Stores Ltd. [supra].

10. From the aforesaid decision, it is clear that the assessee is not a mutual association.

11. The other continuation of the learned counsel for the assessee was that the assessee is not a trading association and any amount received by it from the members in the shape of subscriptions or donations is not from any specific services performed for its members. As such, the receipts in question are not chargeable to income-tax under Section 28 of the Act.

12. On behalf of the revenue it was contended that though it is true that in the case of the assessee, provisions of Section 28 may not be attracted but nevertheless, the receipts in question are income and the same are taxable under the residuary clause income from other sources.

13. In our opinion, the contention of the assessee is not correct Before discussing the contentions of the parties, we would like to discuss the scope of word income in brief. The word income as used in the Act is wide and vague in its scope. It is a word of elastic import and its extent is not controlled and is not governed by the words profits and gains in Section 10 of the 01922 Act or in Section 28 of the Act. Every receipt generally may be described as income, unless it is expressly exempt. There is nothing in the Act to indicate that the source must be one which is recognised under the law. Even income derived from an illegal business could be liable to tax. Reference may be made to the ratio of the decisions in the case of CIT v. Smt. Shanti Meattle [1973] 90 ITR 385 [All.] The word income came up for consideration before the Privy Council observed as under : "... Income ... in this Act connotes a periodical monetary return coming in with some sort of regularity, or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return excluding anything in the nature of a mere windfall. Thus income has been likened periodically to the fruit of a tree, or the crop of a field. It is essentially the produce of somethings, Which is often loosely spoken of as capital. But capital, though possibly the source in the case of income from securities, is in most cases hardly more than an element in the process of production" [p. 180] In the subsequent case, Maharajkumar Gopal Saran Narain Singh v. CIT [1935] 3 ITR 237 [PC]. It was held as under : "....... Anything which can properly be described as income, is taxable under the ACt unless it is specifically exempted ...." [p. 242] In the decision in Raja Bahadur Kamakshya Narain Singh of Ramgarh v.CIT [1943] 11 ITR 513 the Privy Council again reiterated as under : "..... Income is not necessarily the recurrent return from a definite source, though it is generally of that character. Income again may consist of a series of separate receipts, as it generally does in the case of professional earnings. The multiplicity of forms which income may assume is beyond enumeration." [p. 523] 14. From the material on record and especially form the extracts of the articles of association, it is clear that the subscriptions received by the assessee in the instant case from its members cannot be treated as profits or gains from business or profession. The assessee is obviously a non trading association and does no business with any of its members.

The subscriptions received by it from its members cannot, therefore, be charged to tax under the head profits or gains of business or profession. But that does not settle the question of taxability of subscriptions received by the assessee from its, members because if these subscriptions amount to income, tax on that income would be chargeable under the residuary head F - Income from other sources which relates to income from other sources.

15. Therefore, the pertinent question which would arise, and to be considered, is whether the receipt of subscription by the assessee form its members amounts to the receipt of income. From the aforesaid decision, it is clear that the assessee gets the receipts with some sort of regularity or expected regularity. It is a common ground that the assessee is not a registered association under any Act. Even if it was not so registered, for the purpose of the Act, it would be a person as defined under Section 2[31] of the Act. According to the said definition, person, includes an AOP or a BOI, whether incorporated or not. The assessee is an AOP. The assessments were made in the status of an AOP. This fact was not disputed by the assessee.

16. It is significant to note that the assessee as an AOP filed its return in the assessment year 1975-76. In that year, the membership fee was to the extent of Rs. 7,320. It was taxed by the department, and the assessee took up the matter before the Tribunal. In the assessment year 1976-77, the assessee filed a return disclosing income or Rs. 59,024.

It means that the assessee itself proceeds on the understanding that it does drive income, Looking to the aforesaid fact and the entirety of circumstances, it is clear that the receipt of subscriptions is income and as such, it is taxable under the residuary clause of income from other sources. Therefore, even if this income is not chargeable to tax under the head Profit and gains of business or profession, It becomes so chargeable under the residuary head.

17. We may also point out that Section 14 of the Act, when read with Section 4 thereof, makes it clear that every type of income falling within any of the heads mentioned in Section 14 is chargeable to tax, unless a specific exemption is given by the provisions of the Act itself,. In support of our conclusion we are also fortified by the decision of the Punjab and Haryana High Court in the case of Ludhiana, Central Co-operative Consumers Stores Ltd., [supra] and also by the Gujarat High Court decision in the case of Shree Jari Merchants Association [supra].

19. For the reasons discussed above, we are of the view that the learned AAC was right in sustaining the finding of the ITO that membership fee to the extent of Rs. 9,102, received by the assessee in the year of account is taxable.


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