T.U. Mehta, J.
1. The question which is principally involved in this references is whether the annual subscriptions received by the assessee, who is a mercantile association working at Surat, from its members is liable to be included in its income. This question arises in the following manner.
2. The respondent-assessee is an association known as Shree Jari Merchants Associations, Surat. It was established in the year 1944, and it is an admitted position that it is registered as a trade union under the Trade Unions Act, 1926 (which is hereinafter referred to as 'the Act'). The Tribunal in its order has stated that the respondent-associations is registered under the Societies Registration Act, 1860, but that statement is admittedly wrong.
3. The assessment years with which we are concerned in this reference are 1962-63 to 1964-65. For these years the respondent-assessee filed returns accompanied by statements showings how its business income was worked out. While returning its income, the assessee deducted the annual subscription received from members was exempt from tax. In section (F) of the return of the income, the assessee showed the figure of annual subscription from members but there too a note was added to the effect that the annual subscription received from members was exempted.
4. The respondent is also found to have received entrance fees from its members but these fees were not shown in the return and, were, therefore, not processed by the concerned Income-tax Officer during the course of the assessment.
5. In the statement of accounts submitted by the assessee it was found that it had debited expenses for entertaining its members. During the course of the assessment, these expenses were disallowed by the Income-tax Officer and being aggrieved thereby, the assessee approached the Appellate Assistant Commissioner in appeal. So far as the dinner expenses were concerned the Appellate Assistant Commissioner agreed with the view taken by the Income-tax Officer on the footing that these expenses could not be considered as expenditure laid out or expended wholly and exclusively for the purposes of making or earning income. During the course of the scrutiny of the papers in the appeal before him, the Appellate Assistant Commissioner noted that the Income-tax Officer, who had carried out the assessment, was in error in holding that the annual subscription and entrance fees received by the assessee from its members were not liable to tax. He, therefore, issued a notice to the enhanced by including the above items in the total income of the assessee for the relevant years. This notice of the appellate assistant Commissioner was resisted by the assessee. Finally, the Appellate Assistant Commissioner took the view that the subscription as well as the entrance fees received by the assessee from its members were liable to tax because the assessee-association was not a 'mutual concern'. The Appellate assistant Commissioner accordingly enhanced the assessment by the including the annual subscription and entrance fees received by the assessee from its members during the course of different accounting periods.
6. Against this order of the Appellate Assistant Commissioner the assessee approached the Appellate Tribunal. There the assessee contended that the Appellate Assistant Commissioner had no authority to enhance the assessment, and in alternative it contended that, in any case, the amounts received by the assessee as annual subscription and entrance fees from its members were not liable to be included in its total income for the relevant years. The tribunal held, relying upon the various decisions, that the Appellate Assistant Commissioner had jurisdiction to enhance the assessment in respect of the annual subscriptions received by the assessee from its members, because this income was processed by the Income-tax Officer during the course of the original assessment. However, so far as the entrance fees received by the assessees were concerned, the tribunal held that the Appellate Assistant Commissioner had no jurisdiction to enhance the assessment by including these amounts because the entrance fees did not form the subject-matter of assessment carried out by the Income-tax Officer. On merits, the Tribunal held that the assessee was a 'mutual concern' and the annual subscription as well as the entrance fees received by it from its members did not fall within the ambit of the definition of the word 'income' and since the surplus of the assets of the assessee after deducting expenditure were to be returned to the members, the said surplus was not liable to tax.
Being Aggrieved by this decision of the Appellate Tribunal, the revenue has preferred this reference wherein 3 questions have been referred to us for our opinion :
'(1) Whether, on the facts and in the circumstances of the case, it was open to the Appellate Assistant Commissioner to exercise his power of enhancement in respect of the annual subscriptions received by the assessee from its members
(2) Whether, on the facts and in the circumstances of the case, it was competent for the Appellate Assistant Commissioner to exercise his powers of enhancement with reference to entrance fees received from its members
(3) Whether on the facts and in the circumstances of the case -
(i) the annual subscription received by the assessee; and
(ii) the entrance fee received from the new members;
are liable to be included in the total income of the assessee ?'
Out of these three questions, question No. 1 has been referred to us by the Tribunal at the instance of the assessee.
7. During the course of the hearing of this reference, the learned advocate of the assessee did not press question No. 1 and the learned advocate for the revenue did not press question No. 2 in view of the decided case law on the subject. So far as question No. 3 is concerned, that part of the question which relates to the entrance fees received from the members was not passed on behalf of the revenue, because that question has not been processed by the Income-tax Officer during the course of the assessment. Under these circumstances, the only question which remains to be answered is whether the annual subscription received by the assessee from its members is liable to be included in the total income of the assessee.
8. While considering this question, the first point which would arise for determination is whether the assessee-association is a mutual concern. So far as the legal position is concerned, it is not in dispute that if the respondent-assessee is a mutual concern, the annual subscription would not be liable to tax. The Appellate Tribunal has held that even apart from the principle of mutuality, the annual subscription received by the assessee from its members cannot be treated as 'income' and, therefore, the next question which would arise for consideration is whether, if the assessee-association is not found to be a mutual concern, the annual subscription received by it from its members would be covered by the concept of 'income', and if so, whether it would be taxable under any of the provisions of the Income-tax Act, 1961.
9. Since the assessee-association is registered as a trade union under the Act, and since it is constituted by certain rules framed by it, it would first be necessary to consider the relevant provisions of the Trade Unions Act and the Rules under which the assessee-association is constituted. It is in the light of the provisions of the Act and the Rules above referred to that the disputed points can be best decided.
The Trade Unions Act, 1926, is enacted with a view to provide for the registration of trade unions and to define the law relating to registered trade unions. Section 2 of the Act contains definition clauses and clause (h) thereof defines 'trade union' as under :
'(h) 'Trade union' means any combination, whether temporary or permanent, formed primarily for the purposes of regulating the relations between workmen and employers or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business, and includes any federation of two or more trade unions.'
10. There is a proviso to this section with which we are not concerned in this reference. Section 6 of the Act says that a trade union shall not be entitled to registration under the Act, unless the executive thereof is constituted in accordance with the provisions of the Act and the rules thereof provide for the matters which are enumerated in this section. The section contains clauses (a) to (j). So far as this reference is concerned, it is only clause (j) which is relevant. This clause (j) says that the rules of a trade union should provide for 'the manner in which the trade unions may be dissolved'. Then we go to section 13 which says that every registered trade union shall be a body corporate by the name under which it is registered and shall have perpetual succession and a common seal with power to acquire and hold both movable and immovable property and to contract and shall by the same name sue and be sued. Section 15 of the Act provides for the object on which the general funds of a registered trade union should be spent. We may then proceed to Section 27 which is very important for consideration of the disputed question involved in this reference. The said section is in the following terms :
'27. Dissolution - (1) When a registered trade union is dissolved, notice of the dissolution signed by the seven members and by the secretary of the trade union shall, within fourteen days of the dissolution, be sent to the Registrar and shall be registered by him if he is satisfied that the dissolution has been effected in accordance with the rules of the trade union, and the dissolution shall have effect from the date of such registration.
(2) Where the dissolution of a registered trade union has been registered and the rules of the trade union do not provide for the distribution of the funds of the trade union dissolution, the Registrar shall divide the funds amongst the members in such manner as may be prescribed.'
11. From the above referred provisions, it becomes evident that the assessee-association is registered trade union which is a body corporate as contemplated by section 13. The manner in which this dissolution is contemplated is very important in order to decide whether the principle of mutuality applies to it or not. If a reference is made to the rules governing the constitution of the assessee-association it will found that rule 38 thereof contains the manner in which the assessee-association is required to be dissolved. This rules 38 is in the following terms :
The English rendering of the clause is as under :
'The extraordinary general meeting with 14 days notice shall have to be called for the dissolution of the Mandal. A proposal regarding dissolution shall be mentioned in such notice. Mandal can be dissolved only if 3/4th of the members present in the meeting cast their votes in favour of proposal of such dissolution. If it is resolved to dissolve the Mandal, the assets at the time of such dissolution shall be assets as decided in the resolution for such dissolution.'
We find that the English version which is given by the parties is not quite correct so far as the last clause about the assets of the association at the time of its dissolution is concerned. The correct translation of that clause would be as under :
'If it is resolved to dissolve the Mandal, the assets at the time of such dissolution shall be 'used' as decided in the resolution of such dissolution'.
12. Thus, rule 38 of the constitution of the association contemplates that at the time of the dissolution of the association, its assets should be used or utilised as decided in the resolution for dissolution. The point to be noted is that this clause does not contemplate the distribution of the assets of the association amongst its members. This particular point is noted by us at this stage because it has a great bearing in considering whether the association is a mutual concern or not.
13. Now reference to sub-section (2) of section 27 of the Act shows that where the dissolution of a registered trade union has been registered and the rules of the trade union do not provide for the distribution of funds of the trade union on dissolution, the Registrar shall divide the funds amongst the members in such manner as may be prescribed. This manner is prescribed by regulation No. 16 of the Gujarat Trade Union Regulations, 1963, which are framed under the powers conferred by section 29 of the Act. This regulation No. 16 is as under :
'16. Where it is necessary for the Registrar, under the sub-section (2) of section 27, to distributed the funds of a registered trade union which has been dissolved, he shall divide the fund among the members in proportion to the amounts contributed by them by way of subscription during their membership.'
14. Thus, this regulation shows that if the rules of the trade union do not provide for distribution of its funds on dissolution and if the Registrar finds it necessary to utilise his powers under sub-section (2) of section 27, then the Registrar shall divide the funds among the members of the trade union in proportion to the amounts contributed by them by way of subscription. Therefore, if the distribution is made by the Registrar in accordance with regulation No. 16, then the funds go only to the subscription themselves. But this is made subject to the rules, if any, framed by the trade union concerned for distribution of its funds on its dissolution.
15. Having thus considered the provisions of the Act and the relevant regulations as well as the rule as regards the dissolution, we may now shortly state the relevant provisions of the other rules of the constitution of the association, so that we may have a comprehensive idea about the nature of the activities of the association. Rule No. 3 of the constitution of the association shows various objects which the association is expected to achieve. These objects are of general nature and they show that they are for the general benefit of the trade and the members of the association. There is nothing in these objects to show that the association is a trading concern. Rule 13 and 14 are relevant for the purpose of this reference. They are as under :
'13. A member shall have no right in the assets of the Mandal after he has resigned or for any reason his membership is cancelled. However, he shall be liable for all the liabilities that have arisen during his membership including all the fees of the Mandal.'
'14. Rights of the members of the Mandal shall be as under :
(i) To receive free all the publications published by the Mandal.
(ii) To attend and vote in all the general meetings;
(iii) To be elected as office bearer of the Mandal.'
Rules Nos. 33, 34 and 35 are as under :
'33. Annual membership fee shall be Rs. 21 and entrance fee shall be Rs. 101. A member may be admitted at any time during the year, but the annual membership fees paid shall for the year being ended on 31st March; that means annual membership fees shall be collected for the period from 1st April to 31st March only. When a member ceases to be a member he shall have no right of any kind on the entrance fee and the assets acquired by the Mandal during his membership.
34. Any amount received by the Mandal from any source shall be credited to the Mandal's capital fund and be deposited in the name of the Mandal in any bank or banks selected by the managing committee and that shall be considered as assets of the Mandal.
35. Capital of the Mandal shall be used for the following purposes, if fund necessary, and not for any purposes :
(i) For the payment of salaries and amenities of the employers of the Mandal and for other expenses of the Mandal.
(ii) For auditing the books of the Mandal.
(iii) Expenses for defending or complaints made to safeguard the interest of the Mandal or the interest of the members in the Mandal;
(iv) Expenses for trade dispute with the Mandal or related to any member of the Mandal.
(v) Expenses for pamphlets, informations or magazines published by the Mandal.
(vi) Expenses for implementing the objects of the Mandal or giving contribution for the works of immense importance to members or related to their business.
However, the amount of such contribution should not exceed at any time 1/4th of the total balance sum of capital in the beginning of the particular year and the total income of the said year, during any one financial year.'
16. The above rules of the constitution of the assessee-association make it clear that the assessee is a trade association but not a trading association. A trade association is an association of the tradesmen, businessmen or manufacturer for the production and advancement of their common interest. But a trading association is an association which indulges in some sort of business activity and which, apart from preserving the interest of its members, also works for profit. The assessee-association does not work for profit but it does work for the common good of its members and for preservation of the business interest of jari industry. Section 28(iii) of the Income-tax Act, 1961, brings to tax under the head of 'profits and gains of business or profession' the income derived by such association from specific service performed for their members. But, during the accounting periods the assessee-association has not performed any such services for its members. Therefore, the first question is whether from these facts can the assessee be treated as a mutual association nor not.
17. But what is a mutual association and why is the income derived by a mutual association in the form of subscriptions and admission fees from its members, exempt from tax The reported case law on the subjects reveal that a mutual association is an association of person who agree to contribute funds for some common purpose mutually beneficial, and receive beck the surplus left out of these funds in the same capacity in 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 after meeting with 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 which thus comes in their hands is not a profit, because, as pointed out in many cases on the subjects, no man can make a profit out of himself, just as he cannot enter into a trade or business with himself. Therefore, the main test of mutuality is complete identity of the contributors with the recipients. This identity need not necessarily be of individuals, because it is the identity of status or capacity which matters more. Thus, individuals members of an association may be different at different times; but so long as the contributors and recipients are both holding the memberships status in the association, their identity would be clearly established and the principle of mutuality would be available to them. Nothing would detract from this principle even if their association is a body corporate, and, hence, a legal person. If such a mutual concern receives any income, the surplus which 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.
18. The leading and often quoted, case on the subject of mutuality is the English case of Styles v. New York Life Insurance Co.  2 TC 460 (HL). The ratio of this decision is stated by Lord Normand, in English and Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural Income-tax  16 ITR 270 in the following observations :
'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 and policyholder, in other words as an instruments obedient to their mandate, and (3) the impossibility that contributors should derive profits from contributions made by them-selves to a fund which could only be expended or returned to themselves.' The Supreme Court has reviewed the whole case law on the subject in Commissioner of Income-tax v. Royal Western India Turf Club Ltd : 24ITR551(SC) and has decided that case on the tests of mutuality prescribed by Styles' case  2 TC 460 (HL). All the courts in India have accepted the principles prescribed by styles case  2 TC 460 (HL) and, therefore, if the assessee-association is found to be a mutual concern the income which it receives in the form of subscriptions from its members would not be liable to tax.
19. We shall, therefore, presently proceed to consider whether the principle of Styles' case  2 TC 460 (HL) apply to the assessee-association. We find that the only obstacle which prevents the assessee from having the character of mutuality is rule 38 of its constitution which is quoted by us in the foregoing portion of this judgment. That rule shows that at the time of the dissolution of the assessee-association its surplus is liable to be distributed even amongst the non-members. According to this rule, the surplus assets 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 the surplus assets only amongst the members of the association. If, therefore, the assets of the association are not liable to be returned to the members, the identity between the contributors and recipients would be lost. This would militate against the very basic principles of mutuality. This is, therefore, not a case which would be governed by the principles of Styles' case  2 TC 460 (HL).
20. Shri Patel, the learned advocate of the assessee, realising this position, contended that, on its true construction, rule 38 does not contemplate the distribution of the assets among non-members, because, according to him, this rule contemplates the 'use' of the surplus asset, and, according to rule 35, the 'use' of the funds of the association can be made only for the six items mentioned therein. He pointed out that all six items of rule 35 are relating to the various activities of the association in which only the members are interested. We find that this arguments had on force whatever because a bare perusal of rule 35 shows that it refers to the application of the 'funds' of the association for its day-to-day working such as payments to salary to its employees, office expenditure audit expenditure, expenditure incurred for protecting the interest of a members of the association, for trade disputes, for issuing circulars and other literature and the carrying out the objects of the association. When the association is dissolved there would be no scope for incurring such day-to-day expenditure which is required to be incurred only when the association is active. Moreover, rule 38 is not limited merely to the 'funds' of the association because it refers to all the 'assets' of it. Therefore, when rule 38 is required to be implemented, consideration of rule 35 would not enter into picture at all.
21. Shri Patel then contended that even if it is believed that rule 38 permits the association to utilise its assets for non-members, that portion of the rule which gives this permission is rendered illegal and void in view of sub-section (2) of section 27, which, when read with regulation 16, contemplates the distributions of the assets only among the members. The arguments was that no trade union can act a rule which offends the spirit of regulations No. 16. In this connection Shri Patel drew our attention to section 14 of the Societies Registration Act and section 115 of the Co-operative Societies Act, which, unlike section 27(2) read with regulation 16, prohibit distribution of assets among members of these societies, and contended that distribution of a trade union's assets among its members on its dissolution is an integral part of the scheme of the Act, and, hence, even if a rule of a trade union provides for the distribution of assets among the non-members, the same can be ignored as illegal and void.
22. These contentions of Shri Patel are not acceptable, because, though it is true that if assets of a trade union are required to be distributed by the Registrar under sub-section (2) of section 27, then they should be distributed only among the members as provided by regulation No. 16, it is not correct to say that if the relevant rule of the union provides otherwise, the same is rendered void and illegal. The languages of sub-section (2) of section 27 itself makes it clear that the power of the Registrar to make distribution in accordance with regulation 16 can be utilised only when 'the rules of the trade union do not provide for the distribution of' its funds. Sub-section (2) of section 27 thus expressly states the rule making power of the trade union for the distribution of its funds in case of its dissolution. The Act nowhere puts an obligation upon a trade union to frame its rule on the question of distribution of its assets only in a particular manner. Therefore, it is not possible to hold that part of rule 38 which enables the assessee to distribute its assets among non-members is, in any manner, illegal and void.
23. Shri Patel then contended that, at the time of the dissolution of the assessee-association, its assets and funds would recovery to its members by way of a resulting trust. Even this contention is not acceptable in view of the specific provisions contained in rule 38 of the constitutions of the association because, this rule, being a rule of the constitution, is the very foundation of the formation of the association. Under the circumstances, there is no scope for holding that the assets and funds of the association would revert back to its members as and by way of a resulting trust.
24. In the result, we conclude that the assessee is not a mutual concern and cannot claim exemption from tax on that ground. In our opinion, the Tribunal was not right in holding that the assessee-association is a mutual association.
25. The Tribunal has held that even apart from the principle of mutuality, these subscriptions realised by the assessee from its members do not partake of the character of income in its hands, and, therefore, also, they are not subject to tax On this point the Tribunal has treated the assessee as an association in the nature of a club, and has observed that the consequences of judicial opinion is that any surplus accruing to a members' club or association from the subscription paid by the members is not income or profit at all.
26. We find that, though it is true that in the case of a trade association a mere receipt of subscriptions paid by the members does not amount to a receipt of business profits or gains, it is not correct to say that the said receipt is not 'income' or that the same would not be taxable under the provision of the Income-tax Acts of 1922 and 1961.
27. Judicial decisions pronounced in 'club cases' fall into two categories. The first category consists of those cases wherein the principle of mutuality as defined in Styles' case  2 TC 460 (HL) and other cases is satisfied. The second category of cases proceeds to consider whether the subscription and other income received by the clubs from their members amount to profits and gains from business. The case falling in the first category are not required to be considered in view of our findings that so far as the assessee is concerned, the identity of contributors and recipients of surplus is not established on account of the peculiar provisions of rule 38 of its constitutions. So far as the cases of the second category are concerned, they all proceeded on the consideration of the question whether the receipt of subscription by a non-trading association amounts to a receipt of business profits. English decisions in Commissioners of Inland Revenue v. Eccentric Club Ltd.  12 TC 657 (HL) and National Association of Local Govt. Officers v. Watkins  18 TC 499 (KB) and the Indian decisions i Commissioner of Income-tax v. Karachi Chamber of Commerce  7 ITR 575 and Commissioner of Income-tax v. Karachi Indian Merchants Association  7 ITR 594 fall within the second category of cases because they have considered the question whether the club's dealings with its members were in the nature of trade or business and whether the income derived from such dealings could be charged to tax as profits and gains. We find that on the principle accepted in these cases, 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 can, therefore, not be charged to tax under to tax under the head 'D - Profits and gains or business or profession' of section 14 of the Income-tax Act, 1961, or clause (iv) of section 6 of the Act of 1922. But that does not settle the question of taxability of subscriptions received by the assessee from its members because, if these subscriptions amounts to 'income', tax on that 'income' would be chargeable under the residuary head 'F', which relates to income from other sources.
28. Therefore, the pertinent question which arises to be considered is whether the receipt of subscriptions 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 fall 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  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.
29. If once it is believed that receipts of subscription is 'income', it is difficult to escape from the conclusion that 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 of profits and gains from business, it becomes so chargeable under the residuary head.
30. The contention of Shri Patel was that the since section 28, clause (iii), contemplates tax on income derived by a trade association from specific services performed for its members, we should hold that income derived by such trade association from other sources was not intended to be taxed under the Income-tax Acts of 1922 and 1961. According to Shri Patel, since section 28 contemplates a charge of tax on specific services performed by such associations, the legislature has, by implication, commanded that the income of such association falling under any other head of income, should be exempted from the tax. We find that it is not possible to construe section in 28 in any such manner. The plain reading of section 28 suggests that the income derived by a trade association from specific services rendered by it should be brought to tax. From such a reading no exclusion of any other type of income can be implied, if such other income can otherwise be taxed under other provisions of the Act. Section 14 of the Act of 1961, when read with section 4 thereof, makes it clear that every type income falling within any of the head mentioned in section 14 is chargeable to tax unless a specific exemption is given by the provisions of the Act itself Under the circumstances, we see no force even in this contention of Shri Patel.
31. Under these circumstances, our answer to clause (i) of question No. 3, which relates to the annual subscriptions received by the assessee is in the affirmative and in favour of the revenue. The reference is accordingly disposed of The respondent-assessee shall bear the costs of the Commissioner in this reference.