1. Seven appeals of the assessee relating to the assessment years 1970-71 to 1976-77 and live cross-appeals of the revenue for the assessment years 1970-71 to 1974-75 are conveniently considered together and disposed of by a common order. One single issue is involved in the seven appeals of the assessee and again another single issue is involved in the live appeals of the revenue.
2. The assessee, a limited company, is a trade association consisting of film distributors and exhibitors, carrying on business in Punjab, Haryana, Himachal Pradesh, Jammu and Kashmir and Chandigarh, as its members. The members contribute to the assessee-association in the shape of an admission fee and periodical subscription against which they are entitled for general services to be rendered by it in respect of protecting their rights. In addition to providing such general services, the assessee-association renders specific services to members against which it charges separately. The various specific services undisputedly rendered by the assessee are following : Undisputedly the income of the assessee from the rendering of specific services is income of a trade association liable to tax under Section 28(7/0 of the Income-tax Act, 1961 ('the Act'). In its profit and loss account of each of the years under appeal the income and expenditure are classified under two heads, namely, 'service' and 'others'. Under the head 'service', the receipts and expenditure relating to the rendering of specific services are accounted for and under the head 'others' the receipts accounted for are from subscription, admission fee, re-admission fee and penalty. In these twelve appeals, we are concerned with the taxability of two items of income, namely, re-admission fee and penalty, under Section 28(iii). Appeals for all the seven assessment years 1970-71 to 1976-77 had come up before the Tribunal earlier also and these were disposed of by a combined order dated 16-2-1979. Orders of the AAC under appeal were set aside and he was directed to dispose of the appeals afresh after making proper enquiries, etc. The Tribunal also decided the assessee's appeal for the subsequent assessment year 1977-78 by its order dated 13-2-1981. In that order, the Tribunal was called upon to decide the question whether the receipts as per the assessee's classification under the head 'others' were exempt from tax on the principle of mutuality or not. No specific receipts under that head came up for consideration and the assessee's classification was not questioned. The Tribunal held that on the principle of mutuality the receipts under the head 'others' were exempt. However, for the assessment years under appeal now the controversy is whether two items of income, though classified by the assessee under the head 'others', really belong to the other head of income, namely, relating to the receipts on account of performing of specific services by the assessee for its members. It was from this angle that the AAC had dealt with the issue when he disposed of the appeals on the first occasion and the Tribunal found his treatment to be of confused nature and set aside those orders of the AAC. Instead of the AAC, now the seven set aside appeals have come to be disposed of by the Commissioner (Appeals) and the issue now to be tackled is whether the receipts under the heads 'penalty' and 're-admission fee' are derived from rendering specific services to the members and the income resulting from such receipts is taxable under Section 28(iii). The Commissioner (Appeals) after examining the issue, which he has analysed in para 2 of his order, has held that the receipts described as 'penalty' by the assessee are for specific services rendered to the members and are, therefore, taxable while the receipts now described by the assessee as 're-admission fee' were not taxable. Consequently, the Commissioner (Appeals) has held the receipts under the head 'penalty' of Rs. 3,075, Rs. 5,750, Rs. 13,450, Rs. 670, Rs. 3,500, Rs. 3,030 and Rs. 23,650 relating to the assessment years 1970-71 to 1976-77, respectively, to be liable to tax while he has held the receipts under the head 're-admission fee' to be non-taxable for all the seven years and we are concerned in the five cross-appeals with the amounts of Rs. 1,750, Rs. 15,250, Rs. 24,650, Rs. 28,500 and Rs. 23,500 for the assessment years 1970-71 to 1974-75. The assessee is in appeal against the taxing of the receipts under the head 'penalty' and the revenue is in appeal against the holding of the receipts under the head 're-admission fee' to be non-taxable.
3. We may revert to one more factual aspect, which the Commissioner (Appeals) in pursuance of the directions of the Tribunal has dealt with in para 2 of his order. It appears that the assessee was accounting for whatever is now described as 'penalty' and 're-admission fee' together under a common head of 'penalty'. The Commissioner (Appeals) has noted the assessee's authorised representative's explanation that the assessee was collecting two kinds of payments described as penalties.
One kind was a penalty where the member dealt with a non-member in connection with the exhibition or distribution rights of films. The penalty was payable at prescribed rates as per circular dated 19-1-J 970 issued by the association. In these appeals, this land of penalty is described as -penalty'. The second kind of payment to be made by the members was as per circular of theassessee-association dated 26-3-1958, which was later on modified to make some verbal changes by another circula dated 23-6-1976. The circular dated 26-3-1958 no doubt refers to the imposition of penalty to be imposed on the suspended members A suspended member could be reinstated on payment of certain specific sum as penalty to the association plus payment of prescribed reinstatement circulation charges. It was explained by the assessee's counsel Shri O P Vaish, before us that no doubt the circular describes the payment to be a penalty but in effect it was a payment for re-admission of a suspended member, which could be properly described as 're-admission fee' It was also stated by Shri Vaish that suspension in the case of a member meant that he ceased to enjoy the benefits of membership and the reinstatement meant re-admission of a member so as to start deriving the benefits of membership again. On this basis, it was submitted on behalf of the assessee that the second type of payment was appropriately in the nature of re-admission fee and this position has been brought out by the subsequent circular dated 23-6-1976. Looking to the facts explained before us, we are inclined to accept that the true nature of what is described as a penalty payment in the circular dated 26-3-1958 was a re-admission fee The Commissioner (Appeals) while summarising his findings in para 4 of his order has drawn up a chart and in that, he has followed this classification of penalty and re-admission fee. We approve of this bifurcation.
4. It will be noticed that a common set of principles will apply for deciding both the types of appeals as the issue involved is a common one namely, whether the payments received by the assessee and the consequent income derived therefrom arises from performance of specific services to its members. It will be thus important to know as to what is the scope of the words 'specific services performed for its members' used in Section 28(iii). Fortunately, so far as this aspect is concerned, similar words were used in Section 10(6) of the 1922 Act, which have received interpretation from the Supreme Court in the case of CIT v. Calcutta Stock Exchange Association Ltd.  36 ITR 222 and we quote the relevant passage of the judgment : It has to be observed at the outset that the performing of the services of the description mentioned in that Sub-section, may not, but for the words of that section, have amounted to carrying on business in respect of those services The use of the word 'deemed' shows that the Legislature was deliberately using the fiction of treating something as business which otherwise it may not have been.
It is also noteworthy that the subjection is couched in rather emphatic terms. We have, therefore, to examine the terms of the Sub-section to see whether the three sums of money in question, or any of them, are or is within the ambit of those terms. The words 'performing specific services', in our opinion, mean, in the context, 'conferring particular benefits' on the members. The word 'services' is a term of a very wide import, but in the context of Section 10 of the Act, its use excludes its theological or artistic usage. With reference to a trade, professional or similar association, the performing of specific services must mean conferring on its members some tangible benefit which otherwise would not be available to them as such, except for payment received by the association in respect of those services. The word 'remuneration', though it includes 'wages', may mean payment, which, strictly speaking, may not be called 'wages'. It is a term of much wider import including 'recompense', 'reward', 'payment', etc. It, therefore, appears to us that the learned Chief Justice was not entirely correct in equating 'remuneration' with 'wages'. The Sub-section further requires that the remuneration should be 'definitely related' to the specific services. In other words, it should be shown that those services would not be available to the members or such of them as wish to avail themselves of those services, but for specific payments charged by the association as a fee for performing those services. After these observations bearing on the interpretation of the crucial words, we shall now examine each of the three items of income, separately, to determine the question whether they answer, or any of them answers, the description of 'services' contemplated by the sub-section. (pp.
227-28) On a reading of the above passage, it appears to us that performance of a specific service to its member by a mutual association like the assessee will mean a service other than provided in general to its members at large and by paying a specific charge or fee for obtaining such service. In other words what emerges is a concept of individualised service to a member on making a payment at a fixed rate to the association. This concept will also include the aspect of a member soliciting a service specifically from his association by paying the price fixed by the association.
5. Judging in the light of above principles we are inclined to accept the argument of Shri Vaish, the assessee's counsel, that payment of a penalty for infringement of the rules of the association per se cannot amount to rendering of any specific service to a defaulting member. It cannot be said with some plausibility that by dealing with a non-member and infringing the rules and regulations of the association, a member is asking for a specific service for himself and for which he makes the payment by paying the penalty. In our view, the amount of penalty is not taxable under Section 28(iii). We are not impressed with the argument of the departmental representative that the object of the association being to promote the business of each of its members, the association ensures this object by not allowing its members to deal with outsiders and to discourage such activity it imposed the penalty and the whole act amounts to rendering of a specific service.
Consequently, we reverse the decision of the Commissioner (Appeals) on this point and hold that the amounts held by him to be taxable under the head 'penalty' for all the seven assessment years are not taxable under Section 28(iii) and allow the seven appeals of the assessee.
6. In regard to the five appeals of the revenue, we have considered the submissions of both the sides, which are of similar nature. The revenue's emphasis was that according to it the penalty considered earlier was for rendering specific services and the same was true about a penalty charged from a suspended member when he was reinstated. On behalf of the assessee, Shri Vaish submitted that this was a case of re-admission of a suspended member and the amount paid was in the nature of an admission fee, which is found to be non-taxable by the Punjab High Court at Delhi in CIT v. Delhi Stock Exchange Association Ltd.  32 ITR 3, a decision which has been affirmed by the Supreme Court in Delhi Stock Exchange Association Ltd. v. CIT  41 ITR 7. We have already in a preceding para accepted the argument of Shri Vaish that the true nature of the second kind of penalty was of re-admission fee. This being so, when admission fee is not held to be taxable by the revenue the re-admission fee will also not be taxable and the conclusion of the Commissioner (Appeals) is, therefore, upheld.Payment of re-admission fee does not amount to a payment for performance of specific services to a member. The appeals of the revenue thus fail.
8. In the result, the seven appeals of the assessee are allowed and the five appeals of the revenue are dismissed.