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Commissioner of Income-tax Vs. Hill Goods Truck Owners Union - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference Nos. 47 of 1978 and 18, 19 and 50 of 1979
Judge
Reported in(1980)16CTR(P& H)42; [1980]124ITR224(P& H)
ActsIncome Tax Act, 1961 - Sections 28
AppellantCommissioner of Income-tax
RespondentHill Goods Truck Owners Union
Appellant Advocate D.N. Awasthy and; B.K. Jhingan, Advs.
Respondent Advocate Bhagirath Dass,; S.K. Hirajee and; B.K. Gupta, Advs.
Excerpt:
.....passing of the said order. - the purpose of the partnership was to create and maintain good and friendly relations amongst ice manufacturers in ferozepur and arrange conditions in business which would prevent under-selling and harmful competitions......or profession',--... (iii) income derived by a trade, professional or similar association from specific services performed for its members.' 6. it is not disputed before us that the assessee-union is a trading association within the meaning of the said clause and the only dispute between the parties is as to whether the income derived by the union is from specific services performed for its members or is only the result of voluntary contributions. somewhat similar words in the indian i.t. act, 1922, came up for interpretation before the supreme court in cit v. calcutta stock exchangeassociation ltd. : [1959]36itr222(sc) and sinha j., who spoke for the bench, interpreted the words, 'performing specific services', in the following terms (pp. 227, 228):'the words 'performing specific.....
Judgment:

S.P. Goyal, J.

1. This judgment will dispose of Income-tax References Nos. 47 of 1978, 18, 19 and 50 of 1979, which involve similar questions though the assessment years are different. For the purposes of this judgment, the facts from the statement of case in Income-tax Reference No. 47 of 1978 have been noticed.

2. The question referred to us by the Tribunal is :

'Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the provisions of Section 28(iii) are not applicable in this case and that the income of the assessee is not taxable '

3. The facts found by the AAC, Jullundur, and which were not controverted by the Tribunal are that all the truck owners of Hoshiarpur district who had permits to ply their trucks on the hill routes formed a union in order to cut down the competition amongst themselves and set up a device to regularise the working of the trucks for the maximum benefit of itsmembers. Any truck owner could get himself registered with the union on payment of Rs. 4. As and when any load was received by the union, it was allocated to its members turn by turn on payment of Re. 1, at the time of each loading. There was also a special provision for carrying of bricks. A special rebate of 20 per cent. was allowed to the customers and out of this rebate 15 per cent. was passed over to the actual consumer and 5 per cent. was retained by the union. On these facts, it was urged that there was no activity in the nature of trade which could result in profits and that a sum of Rs. 37,450 which was found as surplus was actually refunded to the members in the accounting period relevant to the assessment year. The plea was negatived by the ITO. On appeal, the AAC upheld that order with the following observation :

'Further I am of the opinion that in this case, there are no voluntary contributions by the members and all the contributions are a recompense for the services rendered by the union....It was the duty of the union to contact customers and the commission agents or in the alternative these parses to contact the union for seeking its assistance to procure trucks for transporting their goods....To my mind, it will not make any difference whether the commission has been paid by the truck owners or by the customers whose load had been transported. But it is evident that this receipt could directly co-relate with the services rendered by the union....'

4. The Tribunal took a contrary view on the ground that the main object of the union was to regulate the business of the various truck owners who got their trucks registered with the union in order to avoid competition amongst themselves, The primary object of the union was, therefore, not to carry on business itself, but only to regulate the working of the various members in such a way so as to avoid unhealthy competition amongst themselves. Such an activity does not constitute a trading activity and hence the surplus arising out of such activities is not chargeable to income-tax.

5. The answer to the question depends on the interpretation of Clause (iii) to Section 28 of the I.T. Act, which reads as under:

'28. The following income shall be chargeable to income-tax under the head 'Profits and gains of business or profession',--...

(iii) income derived by a trade, professional or similar association from specific services performed for its members.'

6. It is not disputed before us that the assessee-union is a trading association within the meaning of the said clause and the only dispute between the parties is as to whether the income derived by the union is from specific services performed for its members or is only the result of voluntary contributions. Somewhat similar words in the Indian I.T. Act, 1922, came up for interpretation before the Supreme Court in CIT v. Calcutta Stock ExchangeAssociation Ltd. : [1959]36ITR222(SC) and Sinha J., who spoke for the Bench, interpreted the words, 'performing specific services', in the following terms (pp. 227, 228):

'The words 'performing specific services' (in Section 10(6)) 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 isnot entirely correct in equating 'remuneration' with 'wages'. The subsection 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.'

7. Similarly, in Indian Tea Planters' Association v. CIT : [1971]82ITR322(Cal) , a Division Bench of the Calcutta High Court held that a trade association, rendering specific services to its own members for remuneration will come within s. 10(6) of the Indian I.T. Act, 1922, (now s. 28(iii) of the I.T. Act, 1961). From the perusal of these two authorities, it is evident that income from a trade association would be chargeable if the amounts paid by its members are for specific services rendered by the association. The statute, therefore, does not require that before income of such association would be chargeable, it should have been earned because of some trade activity by the association. It cannot be disputed in the prevent case that the payments made by the members in the shape of Rs. 4 for becoming a member and Re. 1 at the time of loading his truck are made for the services rendered because if these payments are not made, the truck owner would not be entitled to get business provided by the union. The decision relied upon in support of his contention by Mr. Bhagirath Dass, the learned counsel for the assessee, in CIT v. Ferozepur Ice Manufacturers' Association , has no bearing and is distinguishable on facts. In that case, nineteen individuals who were partners in seven ice factories executed a deed of partnership. The purpose of the partnership was to create and maintain good and friendly relations amongst ice manufacturers in Ferozepur and arrange conditions in business which would prevent under-selling and harmful competitions. The associationhad nothing else to do except the fixation of selling price of the ice from time to time and its income consisted solely of the contributions made by its individual members. It is thus evident that the association was not rendering any specific service to its members for the contributions made by them towards its fund. The ratio of this decision is, therefore, of no help to the assessee and the Tribunal misdirected itself and went wrong in holding that the surplus arising out of the activities of the assessee were not chargeable to income-tax because the activities of the association did not constitute trading activities.

8. Apart from what has been stated above, even on the facts found, it is apparent that' the assessee is carrying on trading activity. As a matter of fact, a truck owner who is a member of the union is not concerned with the procurement of the business directly and it is only the union which procures business for him and has direct relations with the customers. Again, a part of the income of the union is derived not from any contributions by its members but from 5 per cent. discount which they retain out of 20 per cent, discount payable to the customers. The view taken by the Tribunal would not, therefore, be sustainable even on the ground that the income of the union is not derived from trading activity.

9. In view of the above discussion, the question referred to us is answered in the negative, against the assessee and in favour of the revenue. No costs.

B.S. Dhillon, J.

10. I agree.


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