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S.N.D.P. Yogam Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference Nos. 121 and 122 of 1979
Judge
Reported in[1985]154ITR624(Ker)
ActsSocieties Registration Act; Companies Act
AppellantS.N.D.P. Yogam
RespondentCommissioner of Income-tax
Appellant Advocate V.M. Kurien and; K.K. Gangadharan, Advs.
Respondent Advocate P.K.R. Menon, Adv.
Cases ReferredKamakshya Narain Singh v. Commissioner of Income
Excerpt:
direct taxation - membership fee - societies registration act and companies act - whether membership fee received by assessee from its members is income for purpose of taxation - appellant contended that amount is meant for expenditure for permanent institutions and receipts must be treated as capital and not revenue - authorities found that membership fee is not treated as corpus of appellant nor amounts to accretions to its capital - said finding not challenged in proceedings - held, membership fee receipts were capital in nature. - .....nature of the receipts, held that the membership fee was not income, and it was in the nature of a capital receipt. 4. the department took the matter in appeal before the appellate tribunal. the tribuual held that the membership fee is a receipt of a revenue nature, since clause 9 of the articles of association of the yogam did not contain any stipulation that the membership fee receipts were treated as corpus of the yogam or accretion to its capital. it was further held that the non-recurring nature of the receipt did not by itself make the receipt any the less income and make it a capital receipt. 5. on an application under section 256(1) of the i.t. act, 1961, the appellate tribunal has referred the following question to this court : 'whether, on the facts and in the circumstances of.....
Judgment:

Sivaraman Nair, J.

1. The question that arises in these references under Section 256(1) of the Income-tax Act is as to whether the membership fee received by the assessee, the S.N.D.P. Yogam, from its members is income for the purpose of taxation. The facts which are relevant are the following:

2. The assessee, S.N.D.P. Yogam, is an association of persons initially registered under the Societies Registration Act and later under the Indian Companies Act. According to Clause 4 of the articles of association of the Yogam, the membership fee is Rs. 5 per member. Clause 9 of the articles provides that the subscriptions are to be remitted to the head office and the head office is enabled to pay back such amounts to the branches for utilising the same for permanent institutions. Every year the Yogam enrols members, from each of whom, a prescribed fee of Rs. 5 is collected as membership fee. Clause 56 of the bye-laws framed by the Yogam indicating the sources of income mentions the receipts from membership fee as one of its sources of income. For the assessment years 1973-74 and 1974-75, the Yogam had received Rs. 25,853 and Rs. 33,030 as membership fee. Aparently, because Clause 56 of the bye-laws mentioned membership fee as one of the sources of income, the Yogam had included these amounts in the statement of income and expenditure. These amounts were not included in the return submitted by the Yogam. The ITO, however, included these amounts as the income of the Yogam for the respective years and finalised the assessments on that basis.

3. The assessee took the matter in appeal before the AAC, who, on the basis of Clause 9 of the articles of association and the non-recurring nature of the receipts, held that the membership fee was not income, and it was in the nature of a capital receipt.

4. The Department took the matter in appeal before the Appellate Tribunal. The Tribuual held that the membership fee is a receipt of a revenue nature, since Clause 9 of the articles of association of the Yogam did not contain any stipulation that the membership fee receipts were treated as corpus of the Yogam or accretion to its capital. It was further held that the non-recurring nature of the receipt did not by itself make the receipt any the less income and make it a capital receipt.

5. On an application under Section 256(1) of the I.T. Act, 1961, the Appellate Tribunal has referred the following question to this court :

'Whether, on the facts and in the circumstances of the case, Rs. 25,853 and 33,030 received by the assessee by way of membership feefrom its members are to be treated as taxable income for the assessment years 1973-74 and 1974-75, respectively ?'

6. The counsel for the assessee raised two submissions :

(1) that the membership fee is collected only once from a member; and it not being a recurring receipt, cannot be treated as income ; and

(2) that the amount is meant for the expenditure for permanent institutions as provided in Clause 9 of the articles of association and, therefore, the receipt must be treated as capital and not revenue.

7. Counsel for the assessee relies on a decision of the Privy Council in CIT v. Shaw Wallace, AIR 1932 PC 138, where it was held that income has got a necessary attribute of recurring regularity, and in the absence of such recurrence, a receipt cannot be Income and it would, therefore, be a capital receipt. The observations were made at a time when the Indian I.T. Act did not contain any definition of 'income' at all ; and their Lordships of the Privy Council had to adopt a narrower construction in the facts of that case.

8. The question as to whether the recurring periodicity of receipts is an essential and inviolable attribute of income had come up for consideration in subsequent decisions of the Supreme Court. It was held in Raghuvanshi Mills Ltd. v. CIT 0043/1952 : [1952]22ITR484(SC) , that a non-recurring receipt also can be income taxable under the I.T. Act. Referring to CIT v. Shaw Wallace, , it was held therein that the observations of the Privy Council adopting the narrower interpretation of 'income' should be confined to that case only.

9. The High Court of Calcutta in Maharajadhiraja Bahadur of Darbhanga v. Commr. of Agrl. I. T. : [1952]21ITR258(Cal) , observed at page 276 as follows :

'There is no absolute rule that a receipt, in order to be income, must always be of a recurrent nature. Income has an infinite variety of forms and a single receipt may be income.'

10. It was observed by the High Court of Madras in Janab A. Syed Jalal Sahib v. CIT : [1960]39ITR660(Mad) :

'As we have pointed out, under the scheme of the Act, even a casual receipt, a single item of receipt, would constitute income, independent of the question whether it is assessable income or not.'

11. In the light of these observations, it cannot be successfully contended now that only recurring receipts can be income, and all non-recurring receipts should always be capital in nature. In the present case, even though it is true that a member pays membership fee only once, receipts of this nature come in every year.

12. Counsel for the Revenue referred us to the following observations in CIT v. Shree Jari Merchants Association 0044/1973 : [1977]106ITR542(Guj) , to reiterate the submission that subscriptions received from members in the present case are really income taxable under the Act and not capital receipts (p. 554) :

'Therefore, the pertinent question which arises to be considered is whether the receipt of subscription by the assessee from its members amounts to the receipt of 'income'. While considering the question, it should be borne in mind that the assessee as a trade union registered under the Act is a body corporate and a legal person. Even if it was not so registered, for the purpose of the Income-tax Acts, it would be a 'person'. The word 'Income' is given an inclusive definition both in the Act of 1922 and in the Act of 1961. This definition, being not exhaustive, is not capable of supplying proper criteria for judging whether a particular item of receipt falls within its ambit. But the judicial decisions show that the word 'income' is of a very elastic ambit. Anything which comes in from an outside source is treated as 'income'. As remarked by Lord Wright in Kamakshya Narain Singh v. Commissioner of Income-tax [1943] 11 ITR 513, the word 'income' is of the broadest connotation. There is, therefore, no reason to believe that subscriptions received by the assessee, which is a distinct legal person, from its individual members, do not amount to 'income' within the meaning of the Income-tax Acts.'

13. We are aware that in the above decision, a question whether there should be recurring regularity in payment by the members did not arise for consideration. The above observations, however, indicate that receipts of the nature involved in the present case are income taxable under the I.T. Act.

14. The second aspect of the submission of the counsel is that the amount is meant for expenditure for permanent institutions and, therefore, the receipt must be treated as capital and not revenue. On this aspect of the question, it has been found by the authorities that the membership fee is not treated as corpus of the Yogam, nor amounts to accretions to its capital. These findings of facts are not under challenge in the present proceedings. No question has been referred as to whether these findings are correct. We have, therefore, to proceed on the basis that the facts found are not disputed. On the facts found by the Tribunal, it is impossible for the assessee now to contend that the membership fee receipts were capital in nature in view of the provisions contained in Clause 9 of the articles of association. It may also be observed that, the provisions in Clause 56 of the bye-laws indicating that membership fee was treated by the Yogam all along as a source of income and the conduct of the assessee in includingthis income in its income and expenditure statement would also go against its contention.

15. In view of the above, it has to be held that the question should be answered in the affirmative, that the membership fee receipts of Rs. 25,853 and Rs. 33,030 for the assessment years 1973-74 and 1974-75, must be treated as taxable income. We, therefore, answer the question in the affirmative, i.e., in favour of the Department and against the assessee.


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