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PETITIONER: COMMISSIONER OF INCOME-TAXBOMBAY CITY

       Vs.

RESPONDENT: ROYAL WESTERN INDIA TURF CLUB LTD.

DATE OF JUDGMENT: 26/10/1953

BENCH: DAS, SUDHI RANJAN BENCH: DAS, SUDHI RANJAN SASTRI, M. PATANJALI (CJ) BOSE, VIVIAN HASAN, GHULAM BHAGWATI, NATWARLAL H.

CITATION:  1954 AIR   85            1954 SCR  289  CITATOR INFO :  D          1961 SC1144  (5)  E          1965 SC  96  (10,11,15)

ACT:     Income-tax  Act  (XI of 1922), s.  10(1),  s.  10(6)-Race  course  company-Receipts from members-Whether receipts  from  business-Assessability-Applicability  of  rule  in   Styles’  case-Difference between mutual insurance societies and clubs  and race course companies-"Trade association" meaning of.  I/B( )2SCI-5  290

HEADNOTE:    The assessee, the Royal Western India Turf Club Ltd. was formed  inter  alia  for  the purpose  of  carrying  on  the business of a race course company in all its branches and to establish clubs, hotels and other convenience in  connection with  the  property of the company.  It had two  classes  of members,  club members, whose number was limited to 350  and stand members who were elected by ballot.  Every member Paid an entries fee and an annual subscription.  The liability of the  members was limited by guarantee and if there  was  any surplus  on winding up, it was to be paid to the members  in equal shares.  An admission fee was levied from the  members for  admission  to  the Members’ Enclosure,  and  from  non- members  for admission to the other Enclosures, and in  each Enclosure  there  was a totalisator.  The  money’s  received from  members  as well as non-members were included  in  one pool  and  distributed amongst the holders  of  the  winning tickets.   In each Enclosure refreshments were  supplied  on payment.   The  company admitted that moneys  realised  from non-members  were  receipts from business and  taxable,  but contended that the following items of receipts received from members were not assessable to income-tax, viz., (1)  season 0admission  tickets from members, (2) daily  admission  gate tickets  from members, (3) use of private boxes  by  members (4)  income from entries and forfeits received from  members whose  horses  did not run.  The High Court of  Bombay  held that items 1, 2 and 3 did not fall either under s. 10(1)  or

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s.  10(6)  of  the Income-tax Act  and  were  therefore  not taxable,  but item 4 fell within s. 10(1) and s.  10(6)  and was taxable.  The Commissioner of Income-tax appealed;   Held,  (i)  that  the  principles  of  Styles’  case   as explained  by  subsequent cases had no  application  to  the company  as there was no mutual dealing between the  members inter   se  in  the  nature  of  mutual  insurance  and   no contribution  to  a  common  fund  put  up  for  payment  of liabilities  undertaken  by each contributor  to  the  other contributors, and no refund of surplus to the  contributors, but on the other hand, the company realised moneys both from the  members  and non-members for  the  same  consideration, namely,  by the giving of the same or similar facilities  to all alike in the course of one and the same business carried on by it;     (ii)that,  as the company was formed for carrying on  a business  it  had  dealings with its  members  also  in  the ordinary  course of business, and give the same  or  similar amenities  to  members and non-members, and  there  were  no mutual dealings between the members or a common fund for the discharge of common obligations to each other, the principle applicable  to the surplus of contributions made by  members of  a club for Providing themselves with amenities was  also not applicable to the case;     (iii)  a  "trade association" means an  association  of tradesmen  businessmen  or manufacturers  for  their  common protection  and  advancement,  and  the  assessee  was   not therefore  "a trade or similar association" within s.  10(6) of the Income-tax Act; 291    (iv) that all the abovementioned 4 item of receipts from members  were received by the company from business  carried on by it with its members within the meaning of s. 10(1) and none of them was received by the company as a trade, profes- sional  or  similar  association within the  meaning  of  s. 10(6),  and  ail the items were  accordingly  assessable  to income-tax.     The New York Life Insurance Co. v. Styles (Surveyor  of Taxes)  (1889)  14  App.   Cas.  381.   The  Cornish  Mutual Assurance  Co.  Ltd. v. The Commissioners of Inland  Revenue L. R. [1926] A. C 281, Jones v. South Wales Lancashire  Coal Owners’ Association Ltd.  L. R. [1927] A.C. 827.   Municipal Mutual Insurance Co.  Ltd. v. Hills (1932) 16 Tax Cas.  430, English & Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural Income-tax, Assam [1948]  A. C. 405; 16 I.T.R. 270, Carlisle and Silhoth of Golf Club  v. Smith  [1913]  L.R. 3 K.B. 75, Royal Calcutta Turf  Club  v. Secretary  of  State  (1921)  I.L.R.  48  Cal.  844,  United Services  Club, Simla v. The Crown (1921) I.L.R. 2 Lah  109. Eccentric  Club  Case  [1924] L.R. 1  K.B.  390.   Dibrugarh District  Club  Ltd. v. Commissioner  of  Income-tax,  Assam (1927)  I.L.R.  55 Cal. 971, The Maharaj Bag Club  Ltd.   V. Commissioner  of income-tex, C.P. & Berar, (1931)  5  I.T.C. 201.    Commissioners  of  Inland  Revenue   v.   Stonehaven Recreation  Ground  Trustees (1929) 15 Tax  Cas.  419.   The National Association of Local Government officers v. Watkins (1934)  18 Tax Cas. 499 Commissioner of Income-tax.   Bombay v.  Karachi  Chamber  of Commerce [1940]  I.L.R.  Kar.  140; [1939] 7 I.T.R. 575 and Commissioner of Income-tax.   Bombay v. Karachi Indian Merchants Association A.I.R. 1939 Sind 56: 7 I.T.R. 595, referred to.

JUDGMENT:

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 165 of 1951.      Appeal by special leave granted by the Supreme Court on the 27th March, 1951, from the Judgement and Order dated the 22nd March, 1950, of the High Court of Judicature at  Bombay (Chagla  C.  J.  and Tendolkar J.)  in  its  Original  Civil Jurisdiction in Income-tax Reference No. 30 of 1947.      M.C.  Setalvad,  Attorney-General  for  India  (G.   N. Joshi, with him) for the Commissioner of Income-tax.      B.J. M.  Mackenna (P.  N. Mehta, with him) for the res- pondent.     1953.  October 26.  The Judgement of the Court was deli- vered by DAS J. L/B(D)2SCI-5(a) 292        DAS J.-This is an appeal, by special leave granted by this  court, from the judgment and order pronounced  by  the High Court of Judicature at Bombay on the 22nd March,  1950, on a reference (I.  T. Reference No. 30 of 1947) made by the Income-tax  Appellate  Tribunal  at  the  instance  of   the appellant  under section 66(1) of the Income-tax Act (XI  of 1922).      The  facts  necessary to be stated for the  purpose  of disposing of the present appeal are these: The Royal Western India  Turf Club Ltd. (hereinafter referred to as the  "com- pany")  was incorporated in 1925 under the Indian  Companies Act,   1913.   The  objects  for  which  the   company   was incorporated were, inter alia as follows:-    (a)  To take over the assets, effects and liabilities  of the then unincorported club known as the Western India  Turf Club;     (b) to carry on the business of a Race Course Company in all its branches............... ;    (c)    to   establish   any  Clubs,  Hotels   and   other conveniences in connection with the property of the company;    (d)    to carry on the business of Hotel Keepers, Tavern Keepers,licensed victuallers and refreshment purveyors-,    (e)    to   sell,   improve,  manage,   develop,   lease, mortgage, dispose of or otherwise deal with all or any  part of   the  property  of  the  company,  whether  movable   or immovable,  with power especially to sell and distribute  or to permit to be sold and distributed wines, spirits, tobacco and other stores.     The  liability of the members is limited  by  guarantee, each member undertaking to contribute to the assests of  the company, in the event of its being wound up, such sum as May be  required,  not exceeding one rupee, for payment  of  the debts and liabilities of the company and the costs,  charges and expenses of the winding up.  Clause 6 of the  memorandum provides  that if upon the winding up or dissolution of  the company  there remains after the satisfaction of  all  debts and liabilities any property whatsoever, the same would be                             293     paid to or distributed among the members of the club  in equal shares.     Under the company’s articles of association that were in force  during  the accounting year, besides  Honorary  Stand Members,  Visiting Members and Temporary Members there  were two main categories of members, namely, the Club Members and Stand  Members.  The number of Club Members was  limited  to 350,  exclusive of four designated high dignitaries and  the number  of  Stand, Members was liable to be limited  by  the committee  at any time.  Club Members and Stand Members  had to be elected by ballot by the committee.  On election every Club  member  had to pay an entrance fee of Rs.  150  and  a stand member had to pay an entrance fee of Rs. 75 Members of

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either  class had also to pay an annual subscription of  Rs. 25.   The entire management of the company and  the  control over  its  funds and property were left in the  hands  of  a committee  of nine Club Members elected as provided  in  the articles of association of the company.     The company was and is the lessee of two plots of land,, one in Bombay and the other in Poona.  Two race courses have been  laid out on these plots of land.  On each race  course there  are  three enclosures known  as  Members’  Enclosure, First Enclosure and Second Enclosure.  Each enclosure has  a stand or stands from which races are watched.  The  Members’ Enclosure  is  for the exclusive use of the  members,  their wives and unmarried daughters above the age of 12 years  and their  guests.  The First and Second Enclosures are open  to the public.  For admission into each of the three enclosures an  admission  fee is charged.  In  the  Members’  Enclosure admission  is  by  season tickets or  daily  admission  gate tickets.   Private  Boxes  in  the  Members’  Enclosure  are avilable  to members on payment according to the  number  of chairs in the box.  In addition to the admission fees to the Members’  Enclosure, a member has to pay, in respect of  his guests, an additional fee.  In each of the enclosures  there is a totalisator run on the parimutuel system at which 294 persons  in  that enclosure place their bets on  each  race. These   several   totalisators  are   linked   by   electric appliances,  so  that the moneys received from  members  and non-members are included in one pool and distributed amongst the holders of the winning tickets in equal proportions.  In each  enclosure  there  is arrangement  for  the  supply  of refreshments on payment.     The  present  disputes  arose  in  connection  with  the assessment of the company’s income, profits or gains in  the accounting  year  1st July, 1938, to 30th June,  1939.   The company  received large sums of money on  admission  tickets from  members  as  well as from  non-members  besides  other moneys  on  other  accounts.  The company  claimed  that  in computing  its  total income, the following  four  items  of receipts should be excluded: -     (1)   Season    admission    tickets    from     members Rs. 23,635     (2)   Daily  admission  gate tickets  from  members  Rs. 51,777     (3) Use of private boxes by members Rs. 21,490     (4)   Income from entries and forfeits received from the members  whose horses did not run in the races  durring  the season                                Rs. 82,490      There was no dispute as to the liability of the company in  respect of moneys received from non-members  and  moneys received  on  all other accounts.  The  Income-tax  0officer held  that all the four items mentioned above were  receipts from business falling under section 10(1) of the  Income-tax Act or, in the alternative, were receipts by an  association performing   specific   services   for   its   members   for remuneration definitely related to those services within the meaning   of   section  10(6)  of  the  Act   and   assessed accordingly.   On  appeal  by  the  company  the   Appellate Assistant  Commissioner dismissed the appeal.  He held  that the  company was carrying ing on business and that  all  the above-mentioned  four  on business and that all  the  above- mentioned four items were receipts from business within  the meaning of section 10(1), although none of those items  fell within section 10(6).                             295 On a further appeal by the company to the Income-tax  Appel-

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late Tribunal the latter came to the conclusion that none of the sums in question could be said to be profits or gains of a  business coming under section 10(1).  The  Tribunal  also held  that  items 1, 2 and 3 did not also  come  within  the ambit of section 10(6) of the Act.  Apparently the  Tribunal did  not  consider the applicability of section  10(6)  with regard to the fourth item.      On  the application of the Commissioner of  Income-tax, Bombay,  the Appellate Tribunal, under section 66(i) of  the Act referred the following two questions for the opinion  of the Bombay High Court, namely-     (1)   whether  on  the facts found or  admitted  in  the case,  The  Royal  Western India  Turf  Club  Ltd.,  Bombay, received the sums of Rs. 23,635, Rs. 51,777, Rs. 21,490  and Rs. 82,490 from a business carried on by it with the members within  the meaning of section 10(1) of the Indian  Income,- tax Act?     (2)   whether  on  the facts found or  admitted  in  the case,  The  Royal  Western India  Turf  Club  Ltd.,  Bombay, received  the sums of Rs. 23,635, Rs. 51,777 and Rs.  21,490 [and  Rs. 82,490 with regard to which sum the  Tribunal  did not consider the applicability of section 10(6)] as a trade, professional or similar association performing services  for its  members  for remuneration definitely related  to  those services  within the meaning of section 10(6) of the  Indian Income-tax Act?       The  reference  having come up for  hearing  the  High Court found that the statement of the case was  insufficient and incomplete and accordingly it sent back the reference to the  Appellate Tribunal with directions to submit  a  proper statement  of facts.  The Appellate Tribunal thereupon  sub- mitted  a supplementary statement of the case setting  forth in  greater detail the facts necessary for the  disposal  of the  reference.  On further hearing of the reference in  the light  of this supplementary statement of the case the  High Court   held  that  the  company  performed   two   distinct functions, namely, the carrying on of the business of racing and  the  carrying on of the club and that the  first  three items of                             296 Rs.  23,635, Rs. 51,777 and Rs. 21,490 were charged  to  the members in respect of the various amenities specified in the supplementary statement of the case which were given by  the club  only  to its members namely, the use of  the  Members’ Enclosure  on  payment  of admission fee,  the  use  of  the members’ totalisator, the right to watch the races from  the lawn  or from an unreserved seat in the Members’ stand,  the use  of a private box subject to payment and the use of  the Guest House at Poona.  Accordingly the High Court held  that the said first three items did not fall either under section 10(1)  or section 10(6) of the Act.  With regard to the  sum of Rs. 82,490 the High Court held that it did not come under section  10(6) but was a part of the income of the  business of  horse racing done by the company.  Accordingly the  High Court answered question No. I in the negative as regards the first  three items of Rs. 23,635, Rs. 51,777 and Rs.  21,490 and  in  the affirmative as regards the fourth item  of  Rs. 82,490  and  it answered question No. 2 in the  negative  in respect of the first three items and in the affirmative with regard  to the fourth item.  In effect the High  Court  held that  the  first three items were not taxable  either  under section 10 (1) or section 10(6) and that the fourth item was taxable under both the said sub-sections of that section.     The  Bombay High Court having dismissed the  application of the Commissioner of Income-tax under section 66-A (2)  to

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appeal  to  this  court, the Commissioner  applied  for  and obtained special leave to appeal to this court.  The company has not appealed from that part of the order which  declared that the fourth item of Rs. 82,490 was taxable.   Therefore, the questions we have to decide in this appeal are:     (1)   whether  the first three items are  receipts  from business carried on by the company, and    (2)    whether those three items are receipts by a  trade or  professional or similar association performing  specific services for its members for remuneration definitely related to those services.     On the first point our attention is drawn to the objects of the company as set forth in its memorandum of associa- 297 tion.  It appears that the objects of the company are, inter alia,  to carry on the business of a Race Course company  in all  its  branches  and to carry on the  business  of  Hotel Keepers,   tavern   keepers,   licensed   victuallers    and refreshment  purveyors.  Although this circumstance may  not be  decisive,  it  cannot ,it the same  time  be  overlooked altogether.   It  has  to be noted as one  of  the  material facts.  Then we have the fact that so far as non-members are concerned the company does carry on a horse racing  business and  the  moneys it realises from nonmembers  for  admission into the First and Second Enclosures to watch the races from an   unreserved  seat  therein  and  for  the  use  of   the totalisator and other amenities are income, profits or gains of that business.  It is also to be noted that the rates  of daily  admission  fee  charged on the  non-members  for  ad- mission into the First Enclosure and for the railway tickets are  exactly the same as those charged from the members  for admission into the Members’ Enclosure.  Finally, it has been declared by the High Court by the order under appeal-and  it is now accepted by the company-that the company derived  the sum of Rs. 82,490 (the fourth item mentioned above) from the horse  racing  business carried on by it  with  its  members within the meaning of section 10(1) of the Act.  If this sum of  Rs. 82,490 received from members represents, as held  by the  High  Court, a part of the income of the  horse  racing business, why are not the first three items of receipts also parts of the income, profits or gains of that very business? On  what principle or authority are those three items to  be excluded from the computation of the total business,  income of the company?    In support of its claim for exemption from tax  liability in  respect of these three items the company relies  on  the principles laid down by the House of Lords in the much  dis- cussed  case  of The New York Life Insurance Co.  v.  Styles (Surveyor  of Taxes)(1).  The appellant in that case was  an incorporated  company.  The company issued life policies  of two  kinds,  namely,  participating  and  non-participating. There  were no shares or shareholders in the ordinary  sense of (1)  (1889) 2 Tax Cas. 460.  L.R. 14 App.  Cas. 381. 298 the term but each and every holder of a participating policy became ipso facto a member of the company and as such became entitled to a share in the assets and liable for a share  in the  losses.  A calculation was made by the company  of  the probable  death  rate  among the members  and  the  probable expenses  and liabilities and calls in the shape  of  premia were made on the members accordingly.  An account used to be taken  annually and the greater part of the surplus of  such premia  over the expenditure referable to such policies  was returned  to  the members i.e.,  (holders  of  participating

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policies)  and  the balance was carried forward as  fund  in hand  to  the credit of the general body  of  members.   The question was whether the surplus returned to the members was liable  to  be assessed to income-tax as profits  or  gains. The  majority of the Law Lords answered the question in  the negative.  It will be noticed that in that case the  members had  associated  themselves  together  for  the  purpose  of insuring  each  other’s  life on  the  principle  of  mutual assurance,  that is to say, they contributed annually  to  a common  fund out of which payments were to be made,  in  the event  of  death,  to the representatives  of  the  deceased members.  Those persons were alone the owners of the  common fund  and  they alone were entitled to  participate  in  the surplus.  It was, therefore, a case of mutual assurance  and the individuals insured and those associated for the purpose of meeting the policies when they fell in and receiving  the surplus,  were identical and it was said that that  identity was not destroyed by the incorporation of the company.  Lord Watson even went to the length of saying that the company in that  case  did  not carry on any  business  at  all,  which perhaps  was  stating the position a little  too  widely  as pointed  out by Viscount Cave in a later case; but, be  that as it may, all the noble Lords who formed the majority  were of the view that what the members received were not  profits but  were  their  respective shares  of  the  excess  amount contributed by themselves.      The  cases of The Cornish Mutual Assurance Co. Ltd.  v. The Commissioners of Inland Revenue(1) and Jones v. South (1)  [1926] A.C. 281; 12 Tax Cas. 841.                             299 Wales Lanacashire Coal Owners’ Association Ltd.(1), both  of which  were  cases of mutual assurance  companies  with  the liability  of  the members limited by  guarantee  carry  the mater  no further. Indeed, the decision in the Cornish  case as  to  the surplus of the contributions over  the  expenses would have been the same as in Styles’ case (supra) but  for the  special  provisions of section  52(2)(b)  according  to which  profit  was  made to include in the  case  of  mutual trading concerns the surplus arising from transactions  with members.   Jones’ case also shows that the fact  that  under the  rules the surplus was not distributable except  on  the winding  up  of  the  company makes  no  difference  in  the application  of  the  principle laid down  in  Styles’  case (supra).     Municipal  Mutual Insurance Ltd. v. Hills(2) was  relied on  by  the  learned Attorney-General as  showing  the  real ground  on  which  Styles’ case (supra)  was  decided.   The appellant there was an incorporated company.  It was  formed by  the representatives of various local authorities by  co- operation  to  insure  against  fire  on  favourable  terms. Effective  control  was  in the hands  of  the  fire  policy holders  who  alone  were entitled, on  winding  up  of  the company, to participate in the surplus assets.  In course of time   the  company  undertook  an  extensive  business   in employers’ liability and miscellaneous insurance.  The Crown admitted  that  fire insurance business which was  a  mutual business  was  not taxable.  The company admitted  that  the employers’  liability and miscellaneous  insurance  business done  with outsiders were liable to tax.  The  question  was whether the employers’ liability and miscellaneous insurance business  done with fire policy holders who were members  of the  company  were liable to be brought to charge.   It  was held  by  Rowlatt J. that they were and  this  decision  was upheld  by the Court of Appeal and the House of Lords.   The argument  in that case was that where the person  with  whom

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employers’ liability or miscellaneous insurance business was done happened to be also a fire policy holder, the profit or surplus arising from that (1)  [1927] A.C. 827; 11 Tax Cas. 790. (2)  [1932] 16 Tax Cas. 430; 48 T.L.R. 301; 147 L.T. 62. 300 operation  came back into a body of which he himself  was  a member.   This circumstance, it was claimed, made it  mutual and  as such exempt from taxation under Styles’ case.   This argument  was  repelled by Rowlatt J. on the  ground,  inter alia,  that there was not the slightest distinction  between what  was made out of a member in respect of non-fire  busi- ness  and what was made out of a non-member out of  non-fire business,  for qua that business the member was a  stranger. In  other words, there was no identity in character  of  the contributor and the participator.  Said Viscount Dunedin  in the House of Lords:-     "In so far as the surplus arises from a fire policy they are really entitled to the money as being those who  contri- buted  it  and  accordingly it has been  admitted  that  any profit made on the fire policies is governed by the New York case.   But  as  regards employers  liability  business  and miscellaneous  business it does not go to  the  contributors for,  as  fire  policy  holders in a  body,  they  have  not 00contributed  and  therefore the business is  in  the  same position as business with complete outsiders, the  surpluses in which are admitted to be profit.  "      Lord,  Macmillan said at page 447 of the report in  Tax Cases: -      "The  cardinal requirement is that all 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."       Styles’  case (supra) has recently been  examined  and explained  by the Judicial Committee in English  &  Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural  Income-tax,  Assam(1).   After  referring   to various  passages  from the speeches of  the  different  Law Lords in Styles’ case, Lord Normand, who delivered the judg- ment of the Board, summarised the grounds of the decision in Styles’ case as follows: (1) [1948] A.C. 405; 75 I.A. 196; 16 I.T.R. 270. 301 "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  con- venience of the members and policy holders, in other  words, as  an instrument obedient to their mandate and (3) the  im- possibility  that  contributors should derive  profits  from contributions made by themselves to a fund which could  only be expended or returned to themselves." The  Judicial Committee held that none of these grounds  was available on the special facts of the case before them  and, therefore, the principles laid down in Styles’ case  (supra) were wholly inapplicable to that case. It is clear to us, taking the facts admitted or found in the case before us, that the principles of Styles’ case, as  ex- plained  by  subsequent decisions noted above, can  have  no application  to this case.  Here there is no mutual  dealing between the members inter se in the nature of mutual  insur- ance, no contribution to a common fund put up for payment of

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liabilities  undertaken  by each contributor  to  the  other contributors  and no refund of surplus to the  contributors. There  being no mutual dealing the question as to  the  com- plete  identity  of the contributors and  the  participators need not be raised or considered.  Suffice it to say that in the absence, as there is in the present case, of any dealing between  the  members  inter  se in  the  nature  of  mutual insurance  the principles laid down in Styles’ case and  the cases  that followed it can have no application  here.   The principle  that no one can make a profit out of  himself  is true  enough  but  may in its  application  easily  lead  to confusion.   There  is nothing per se to prevent  a  company from making a profit out of its own members.  Thus a railway company which earns profits by carrying passengers may  also make  a  profit by carrying its shareholders  or  a  trading company  may  make  a profit out of  its  trading  with  its members besides the profit it makes from the general  public which  deals with it but that profit belongs to the  members as  shareholders and does not come back to them  as  persons who had contribued 302 them.   Where a company collects money from its members  and applies it for their benefit not as shareholders but as per- sons  who put up the fund the company makes no  profit.   In such cases where there is identity in the character of those who contribute and, of those who participate in the surplus, the  fact of incorporation may be immaterial and the  incor- porated company may well be regarded as a mere instrument, a convenient  agent  for carrying out what the  members  might more  laboriously do for themselves.  But it cannot be  said that  incorporation which brings into being a  legal  entity separate  from its constituent members is to be  disregarded always and that the legal entity can never make a profit out of  its  own  members.  What kinds of  business  other  than mutual  insurance  may claim exemption  from  tax  liability under  section  10(1)  of the Act under  the  principles  of Styles’ case need not be here considered; it is clear to  us that  those principles cannot apply to an incorporated  com- pany  which  carries  on the business of  horse  racing  and realises  money both from the members and  from  non-members for  the  same consideration, namely, by the giving  of  the same or similar facilities to all alike in course of one and the same business carried on by it. Learned  counsel  for  the company then  contends  that  the carrying on of the business of horse racing is not the  only function  or activity of the company.  It also runs a  club, that is to say, an association of persons who co-operate  to provide   for  themselves  social,  sporting   and   similar amenities.   If  the contributions from the members  of  the club  exceed the cost of providing the amenities and if  the surplus is held for the benefit of the members such surplus, according to him, is not taxable.  For this purpose no  dis- tinction, it is said, can be made between the entrance  fees or the periodical subscriptions or any other sum (e.g.,  ad- mission fee, daily or seasonal) paid by the members for  the right  to  make use of the amenities provided by  the  club. For  the  purposes  of  this  argument  it  is  said  to  be immaterial whether the club is an incorporated company or an unregistered association.  Finally it is urged that the fact that a 303 club  has  business dealings with the public in  respect  of which tax is payable does not render the club liable to  tax in  respect of the difference between the cost of  providing amenities for its members and the contribution towards  this

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cost which the club takes from its members either by way  of subscription  or of charges for the use of  club  amenities. The advantage of a member, it is pointed out, is that he can meet  his fellow members in the Members’  Enclosure  without having  to rub his shoulders with the members of the  public who have no right of entry in the Members’ Enclosure and  he cart  also  have the various other  amenities  provided  ex- clusively for members which are listed in the  supplementary statement of the case.  Reference is made by learned counsel to  several club cases, English and Indian, and other  cases in support of his contentions.  Styles’ case and other cases of mutual dealing have already been dealt with and need  not be  referred to again.  It will suffice now to  examine  the club cases. The  earliest club case cited before us is that of  Carlisle and  Silloth Golf Club v. Smith(1).  In that case  the  club was an unincorporated association of members who paid  subs- cription  and became entitled to play on the golf  links  of the  club.  There was no question of  division  of  profits. Under  the lease between the club and its lessors  the  club was bound to admit visitors on payment of "green fees".  The only  question  was whether the profits arising out  of  the "green  fees"  collected from outsiders  were  taxable.   In course  of  his judgment Buckley L. J. referred  to  Styles’ case and said that a man could not make a profit or loss out of  himself  and, that that was the ground  of  decision  in Styles’  case.  It should not, however, be  overlooked  that the question whether the profits arising out of the members’ subscription were assessable or not was not in issue in that case  at all.  That decision, therefore, does not  help  the company in this case. In the Royal Calcutta Turf Club v. Secretary of State(1) the assessee was an unincorporated club.  It was held that (1)  [1913]3 K.B. 75; 6 Tax Cas. 198. (2)  (1921)  I.L.R.  48 Cal. 841; A.I.R.  (1921)  Cal   633; (1921) 1 I.T.C. 108. 304 the  club  carried  on business within the  meaning  of  the Excess  Profits Duty Act (X of 1919) and was liable  to  pay tax  in respect of money received from the public by way  of entrance fees to the stand, entry fees for race horses, book makers’  license  fees and percentages of  the  totalisator. There,  as  in  the  Carlisle and  Siiloth  Golf  Club  case (supra),  no  question was raised as to  the  taxability  of moneys paid by the members of the clubs. The case of the United Services Club, Simla v. The  Crown(1) has  been  strongly  relied on by learned  counsel  for  the company.  There the club was an incorporated company. it had no  dealings  with  outsiders and  derived  no  profit  from outsiders.   The question was directly raised as to  whether the income derived from its members was taxable profit.   It was held, on the authority of Styles’ case and the  Carlisle & Silloth Golf Club case. that under the English law the in- come  derived by a society or club from its members was  not liable to tax and that the same principle should be followed in  India.  The proposition so broadly stated overlooks  the real grounds of the decision in Styles’ case as explained in later cases and cannot be accepted as an accurate  statement of the English law.  In Carlisle & Silloth Golf Club case as in the Royal Calcutta Turf Club case, as already stated, the question  of  the moneys received from members  was  not  in issue at all.  In this case, namely, in the United  Services Club case, there was no dealing between the company and  the outside  public  at all and the surplus was derived  by  the club  only out of its dealings with its members.  There  was

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no mutual dealing between the members inter se and there was no  question  of  distribution of any  surplus  amongst  the members  and,  therefore,  there could  be  no  question  of identity  of contributors and participators and as such  the company  could  not  claim  exemption  from  tax  under  the principles of either of the two cases relied on by Martineau J.   His  decision can only be supported on the ground  that the (1)  (1921)  I.L.R.  2 Lah. 109; A.I.R.. 1921  Lab.  208;  1 I.T.C. 113. 305 club  did not really carry on any business with its  members with  a view to earning profits and, therefore, the  surplus of receipts from the members over the expenditure could  not be  said,  to  be  profit of any  business  which  could  be assessed to tax. The  next  case  is  what is known  as  the  Eccentric  Club case(1).   In  that  case a  company  limited  by  guarantee carried  on  a  social club, its objects  being  to  promote social intercourse amongst gentlemen connected (directly  or indirectly)  with  literature, art, music,  the  drama,  the scientific and liberal professions, sports and commerce,  to establish  a  club and generally to afford  to  members  the usual privileges and advantages of a club, to sell and  deal in  or  arrange for supply of all kinds  of  provisions  and refreshments.  By its memorandum of association the  profits made  by it were not distributable among its members  either before or even after its winding up.  Payments were made  by the members for services they received at the club premises, e.g.,  the  provision of meals etc.  The  company’s  account showed  a surplus of income over expenditure.  There was  no receipt  in  the nature of trade from non-members.   It  was held  by  the  Court  of Appeal that  the  company  was  not carrying  on any undertaking of a similar character to  that of  a  trade  or  business within  the  meaning  of  section 53(2)(h) of the Finance Act, 1920.  Warington L.J.  observed at pages 421-422 of the report in the Law Reports series: "The  club proprietor, whether an individual or  a  company, carries  on a business with a view to profit as an  ordinary commercial concern.  This the present company certainly does not do.  I think the proper mode of regarding the company in the present case is as a convenient instrument for  enabling the  members to conduct a social club, the objects of  which are   immune   from  every  taint  of   commerciality,   the transactions of sale and purchase being purely incidental to the  attainment of the main object.  What is in  fact  being carried on, putting technicalities aside, is a members  club and not a proprietary club nor any undertaking of a  similar character.  " (1)  [ 1924] 1 K.  B. 390; 12 Tax Cas, 05 8. 306 There  was in that case no carrying on of any business  with any outsider.  The dealings with members were really not  in the  way  of any trade or business and it is  only  on  that basis  that  the profits were held not to  fall  within  the Finance  Act.   The position of the company  in  the  United Services  Club  case  (supra) was similar  and,  as  already stated,  that  decision  can  be  supported  only  on   this principle. The case of Dibrugarh District Club Ltd., v. Commissioner of Income-tax, Assam(1), is, if anything, against the  company. There  an  incorporated company carried on a  club  for  the benefit of such persons as might become members.  Under  the articles  of association no shareholder was entitled to  the benefits and privileges of the club unless he was elected as

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a member.  All shareholders were not members and all members were  not  shareholders.  Profits  were  distributable  only amongst  the shareholders every year.  It was held that  the company  was  assessable on the full amount of  its  profits derived from shareholder members as well as from  non-share- holder  members  as  the company was not  a  mutual  trading society making quasi profits by trading with its own members and  returning such profits to its members.  The absence  of identity  between  the contributors  and  participators  was quite  obvious.   The case of The Maharaj Bag Club  Ltd.  v. Commissioner  of  Income-tax, C.P. &  Berar(2)  follows  the Dibrugarh Club case and carries the matter no further. In Commissioners of Inland Revenue v. Stonehaven  Recreation Ground  Trustees(1) a recreation ground with facilities  for tennis,  bowls  etc.  was held on lease and  managed.  by  9 trustees.   Admission  to  the ground was  by  daily,  fort- nightly, monthly or season tickets issued to any  applicant. Of  the  9  trustees 6 were elected  by  the  season  ticket holders  and the remaining by the Local Town  Council.   The trustees  were held assessable as carrying on a trade.   The position of the trustees was akin to that of the owner ’of a proprietary  club  who carried on the club with  a  view  to earning profits. (1)  [1927]1.L.  R.  55  Cal. 971 ; A.I.R.192S  Cal.  577  ; 2I.T.C.521. (2)  (1931) 5 I.T. C. 201. (3) (1929) 15 Tax Cas. 419: 8 An n. Tax Cas. 523. 307 National   Association  of  Local  Government  Officers   v. Watkins(1)  was concerned with an unregistered  trade  union having  for  its object the protection of  the  interest  of employees  in  Local Governments and the  promotion  of  the physical and social welfare of its members.  The Association 2purchased an existing holiday camp to provide cheap holiday facilities  for its members.  Bookings were, however, for  a short time accepted from non-members who had previously used the  camp.   By its rules the property  of  the  Association belonged  to  the  members and its profits  enured  for  all members  as a whole and not only for those members who  used the  camp.   The Association contended  that  its  liability should  be  confined to the profits made  from  non-members. The  Crown claimed, on the other hand, that as the users  of the  camp  were not identifiable with the  whole  membership there was no mutual trading and the whole of the profits had been  properly  assessed.   Finley J.  gave  effect  to  the contentions  of  the Association.  The  learned  Judge  laid emphasis  on  the  fact  that  the  Association  was  not  a registered  body and that, therefore, the property  was  the property,  not  of  the  Association  but  of  the   members themselves and that as the members owned the whole they  had a  right to participate in the whole and,  therefore,  there could not be any trade between the Association and a  member or any sale to a member.  The two decisions of the  Judicial Commissioners’  Court, namely, Commissioner  of  Income-tax, Bombay v. Karachi Chamber of Commerce(1) and Commissioner of Income-tax,    Bombay    v.   Karachi    Indian    Merchants Association(1)  were concerned with mutual dealings  between members who had put up money for their mutual benefit.   The surplus went to them not as shareholders but as persons  who had  contributed in excess and was in no sense a profit  and could not, therefore, be brought to charge. (1)  (1934) 18 Tax Cas. 499, (2)  I.L.R. (1940) Ear. 140; [1939] 7 I.T.R. 675. (3)  A.I.R. 1939 Sind 56; [1939] 7 I.T.R. 595.  L/B(D)2SCI-6(a)

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308 As  already stated, in the instant case there is  no  mutual dealing between the members inter se and no putting up of  a common  fund for discharging the common obligations to  each other  undertaken  by  the  contributors  for  their  mutual benefit.   On  the contrary, we have  here  an  incorporated company  authorised  to carry on an ordinary business  of  a race  course  company and that of licensed  victuallers  and refreshment  purveyors  and  in  fact  carrying  on  such  a business.   There  is no dispute that the  dealings  of  the company  with non-members take place in the ordinary  course of business carried on with a view to earning profits as  in any  other commercial concern.  It is further admitted  that some  of the dealings of the company with its  members  take place  in  the ordinary course of business and  the  profits arising  out  of  those dealings, e.g, the  fourth  item  of receipt  of Rs. 82,490, are taxable.  The company  gives  to its  members  the same or similar amenities as it  gives  to non-members,  namely,  the use of an unreserved  seat  in  a stand,  the  facility to watch the races and to bet  on  the horses  in the races, use of the totalisator in  that  stand and the facility for refreshment.  In fact the daily  ticket fee for admission into the Members’ Enclosure is exactly the same as that for admission into the First Enclosure to which the public have access.  The only difference is that a sepa- rate  enclosure with a separate totalisator is provided  for the members where they can meet their fellow members and not be  disturbed by the intrusion of non-members.  This  privi- lege  is  referable to their membership of the  company  for which they pay an entrance fee on their election as  members and for which they pay the periodical subscriptions both  of which  are not sought to be brought to charge.  The rest  of the facilities mentioned above which the members get are  in substance  the same as those enjoyed by the  public.   Those facilities are given to members and non-members alike for  a price.   The  character  of the charge made  on  members  is precisely  the same as or is similar to that of the  charges made  on non-members, for the company receives  moneys  from both  members  and  non-members in return for  the  same  or similar  facilities given to both in the course of  one  and the 309 same business.  The dealings in both cases disclose the same profit  earning  motive  and are  alike  tainted  with  com- merciality.   In  the circumstances, all the four  items  of receipts  from  members must be taken into account  in  com- puting  the total income of the company.  In fact  that  the company  has  so  long enjoyed exemption  from  taxation  is neither  here  nor there, for there can be  no  question  of acquiring any prescriptive right to exemption from taxation. The second question need not detain us long.  The answer  to that  question  depends on a true  construction  of  section 10(6)  of  the  Act.  What is the meaning  of  "a  trade  or professional  or  similar association"?  Does  this  company come within any of those descriptions?  It is certainly  not a professional association.  Learned counsel for the company contends that a "trade association" is not the same thing as a "trading association".  According to Webster’s New  Inter- national  Dictionary,  2nd Edn., page 264 the meaning  of  a "trade   association"  is  an  association   of   tradesmen, businessmen   or  manufacturers  for  the   protection   and advancement  of  their  common interest.  In  our  view  the company before us is not a "trade association" in this sense although  it  carries on a business.  In this  view  of  the matter  it  is unnecessary to discuss the  further  question

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whether the facilities or amenities given by the company  to its members may be regarded as "services" within the meaning of section 10(6).  We are of opinion that section 10(6)  has no   application,  for  the  company  is  not  a  trade   or professional  or similar association within the  meaning  of that sub-section. The result, therefore, is that we hold that all the items of receipts  from  members referred to in  the  questions  were received  by  the  company from business  with  its  members within  the meaning of section 10(1) and that none  of  them was  received  by the company as a  trade,  professional  or similar association within the meaning of section 10(6).  In our  judgment the High Court should have  answered  question No. I in the affirmative and question No. 2 in the negative. 310 The  appeal is allowed and we award to the  Commissioner  of Income-tax  the costs of this appeal and those of  the  pro- ceedings in the High Court. Appeal allowed. Agent for the appellant: G. H. Rajadhyaksha. Agent for the respondent: Rajinder Narain.