RAJAGOPALAN, J. - The assessee is an association, known as the South Indian Planting and Commercial Representation Fund, which was formed in 1931. That the status in which it could be assessed to income-tax was that of an association of persons was never in dispute. It should be convenient to refer to the assessee as the Fund in the rest of this judgment.
The Fund consisted of representatives of trade and other associations to promote their commercial, planting and allied interests. The Fund maintained a secretariat, whose advice and services were available to the members as well as to those that represented their interests in the Central and State Legislatures and in the Local Boards. Annual contributions were levied by the Fund as subscriptions from its members, the quantum of which was determined by the resolutions of the executive committee of the Fund. The Fund had no written rules or by-laws to governs its constitution or to regulate its income and expenditure or to regulate the surplus, if any, of its receipts over the expenditure. That there was a surplus in each of its accounting years, the calendar year, from 1942 was not in dispute. In the relevant accounting year with which we are concerned., 1945, Rs. 4,609 was computed as a surplus of receipts over the expenditure that year. In the assessment year 1945-46, the Income-tax Officer treated this item as income from business and assessed the Fund to tax on that basis. The successive appeals preferred by the Fund to the Assistant Commissioner and to the Tribunal failed.
The Tribunal referred the following question under section 66(1) of the Income-tax Act for the determination of this Cour :
'Whether the sum of Rs. 4,609 was liable to be taxed as the income of the assesse ?'
The Income-tax Officer recorde :
'........the contentions raised by the auditors that it is a mutual benefit association and as such it is exempt from taxation is overruled. The surplus of contributions from the members after meeting the expenses of the association will be taxed as income from business.'
Earlier he recorde :
'The essential, requisite to claim exemption under mutuality is not satisfied as there is not complete identity between the contributors and the participators.'
The Income-tax Officer did not specifically discuss or decide whether the transactions carried on by the Fund constituted business. Nor did he specifically decide whether the surplus was taxable as income from business under section 10(6) of the Act. But apparently that was his view because he state :
'In the circumstances it is clear that there is definite correlation between contributions recovered from members and the services rendered to them by the association.'
The Assistant Commissioner agreed with the Income-tax Officer that the sum of Rs. 4,609 should be brought to charge as income under the head 'business'. He did not explain either the basis on which it could be held to be income of the Fund from any business that it carried on.
We confess we found it even more difficult to discover the real basis on which the Tribunal came to the conclusion that the surplus in question should be treated as income from business. In paragraph 6 of its order the Tribunal hel :
'There is no doubt that there is no mutuality so as to bring the case within section 10(6)...........'
Earlier in paragraph 5 it recorded the findin :
'Here there is no such trading of the assessee either with outsiders or with itself.'
That was repeated in paragraph :
'Moreover it is very significant that in this case the Association did no business either with its own members or with outsiders.'
Whether, in spite of these findings, the Tribunal confirmed the views of the Departmental authorities, that the surplus constituted income from business, is not clear from the order of the Tribunal. Paragraph 8 of the order ra :
'Under the scheme of the Indian Income-tax Act, where a certain amount is treated as income by the Department and sought to be taxed as such and exemption is claimed, it is the duty of the assessee to point out the provision of the law under which it claims exemption. This the assessee has not been able to do in this case. In the result it has to be held that the amount in question is income taxable in the hands of the assessee.'
The learned counsel for the Department contended that the tax levied by the Department could be sustained either under section 10(6) or, if that failed, under section 12 of the Act, treating the surplus as income from other sources.
The learned counsel for the assessee contended that, as the Fund was an association formed for the mutual benefit of its members, the annual surplus of the contributions over the expenditure of the Fund could not be viewed as income form business and could not be taxed on that basis. His further submission was that, as the requirements of section 10(6) of the Act were not satisfied, the Fund could not be deemed to have carried on business, and the surplus could not be treated as profits and gains from the activities of the Fund which the legal fiction enacted in section 10(6) constituted business.
Section 10(6) run :
'A trade, professional or similar association performing specific services for its members for remuneration definitely related to those services shall be deemed for the purpose of this section to carry on business in respect of those services, and profits and gains therefrom shall be liable to tax accordingly.'
The finding of the Department authorities, which was confirmed by the Tribunal, it should be remembered, was that the Fund was not a mutual benefit association. The object of the Fund, no doubt, was to protect the commercial and other interests of its constituent members and the services of its secretariat were made available to them. There were no written rules governing its constitution. But it was open to the assessee by other evidence to establish that it was a mutual benefit association. Such evidence was not forthcoming either. During the arguments before us, the minutes book of the Committee was offered for our perusal. That showed that the Fund was not wholly a trade association in the sense that its members were only trading concerns. The Madras European Association was one of the members of the Fund, and it was not claimed that that was a trading concern. The Fund was not a trade association but just an association of person. Its services were available not only to its members but also to members of the Legislatures and Local Boards, who need not themselves be members of the Fund, though they could possibly be members of trading concerns or associations which were members of the Fund. More significant than that feature of the Fund was the absence of any rules to provide for the utilisation of its funds or surplus. There was no evidence either to show how this surplus could or should be dealt with. The annual surplus was just accumulated. The Fund was formed to protect the commercial and other interests of its members and possibly the interests of persons other than its members. The funds services were available to them all. Only members made their contributions and not the others, for example, the members of the Legislatures. Even had the services of the Fund been confined to its members, that by itself would not conclude the question, was the Fund a mutual benefit association. The crucial test of mutuality was laid down by Lord Macmillan in Municipal Mutual Insurance Ltd. v. Hills (H. M. Inspector of Taxes :
'The cardinal requirement is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund; in other words, there must be complete identity between the contributors and the participators. If this requirement is satisfied, the particular form which the association takes is immaterial.'
That test the Fund failed to satisfy. There was no evidence to show that the contributors to the Fund had the right, and the contributors to the Fund had an exclusive right, to participate in the surplus.
On the material or record the authorities and the Tribunal which agreed with them were right in holding that the assessee had failed to prove that it was a mutual benefit association.
It should be taken as settled law, that the surplus accruing to a mutual concern cannot be regarded as income, profits or gains for purposes of the Income-tax Act. Where the contributors are to receive back a part of their own contributions, a complete identity between the contributors and the recipients should be sufficient to negative the idea of any profit, for no person can make a profit out of himself. Section 10(6) of the Act is one of the statutory exceptions to that general rule. It is really in the nature of charging provision, though it is accorded a place in section 10 of the Act. Section 10(6) would apply even if the trade, professional or similar association is what is known as a mutual benefit association. Section 10(6) cannot apply where the association performs services to others besides its members. Even where services are rendered to its members by the association, what section 10(6) requires is (1) they should be specific services to its members, (2) such specific services should be for remuneration, and (3) such remuneration should be definitely related to those services. In the present case the contention of the assessee was that, whatever services the Fund rendered, no separate or specific charge was made for those services. The contributions were paid by the members, whether or not the services were rendered to the contributing member. There could, therefore, be no question of correlating the contributions paid by the members to any concept of remuneration for services, or correlating that remuneration to the services actually rendered by the Fund. It may not, however, be necessary to examine what the position of the assessee would have been had it been a mutual benefit association. We have pointed out that the evidence on record failed to show that the assessee was a mutual benefit association. There was, therefore, no occasion to apply the provisions of section 10(6) of the Act. When the assessee was not a mutual benefit association, there is no need for us to pronounce any final opinion on the question, whether the other requirements of section 10(6) were satisfied, in the case.
The finding of the Tribunal in effect was that the activities carried on by the Fund did not constitute business. It maintained a secretariat which rendered services. For these services as such no charges were made. The learned counsel for the respondent contended that the maintenance of the secretariat itself constituted business. We are unable to agree.
Thus the position was the surplus in the hands of the Fund was not income from any business that it carried on. It could not be deemed to be income from business under the fiction enacted by section 10(6) of the Act. So the basis on which the Department authorities assessed the Fund, that the income was income from business, fails.
The alternative basis on which the learned counsel for the respondent sought to sustain the tax was section 12. That contention, in our opinion, is well founded. As the learned counsel pointed out, 'income,' which is subjected to tax by the Indian Income-tax Act, is of much larger import than 'gains' and 'profits.' What the Fund received from its members was certainly income in the broad sense. The question is whether the surplus, after the expenditure of the Fund had been met, was assessable income. In our opinion it was assessable income from other sources within the scope of section 12. It was income, and as the Tribunal pointed out, if the assessee could not show any statutory basis for exemption from taxation, the income became assessable. As we said, it was income from other sources within the scope of section 12. It is on that basis that the question referred to us will have to be answered in the affirmative and against the assessee, though it was not quite put on that basis by the Tribunal.
In our opinion this is a fit case where there should be no order as the costs of this reference.
Reference answered in the affirmative.