# BOMBAY CITY v. ROYAL WESTERN INDIA TURF CLUB LTD

- **Citation:** [1954] 1 S.C.R. 289
- **Court:** Supreme Court of India
- **Decided:** 1954
- **Case number:** Civil Appeal No. 165 of 1951
- **Bench:** Patanjali Sastri C.J, s. R. DAS, Vivian Bose, Ghulam Hasan, Bhagwati
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bombay-city-v-royal-western-india-turf-club-ltd-265
- **Pages:** 22

## Headnote

Income-tax Act (XI of 1922), s. 10(1), s: 10(6)-Race coitrse
company-Receipts fron• members-Whether receipts from bnsiness
-Assessability-Applicability of rule in Styles' case-Difference
between mutital insitrance societies and clitbs, and race coitrse companies-"Trade association", mean.inf} of.
196J
Oct. 26.
290
SUPREME COURT REPORTS
[1954]
19.13
The assessee, the Royal Western India Turf Club Ltd., was
--
formed inter a,lia for the purpose of carrying on the business of a
Commissioner 01 race course company in all its branches and to establish clubs,
Irwo1ne-tax,
hotels and other conveniences in connection with the p1·operty of
Bombay City
the company. It had two classes of members, clU:b members,
v.
whose number "ras limited to 350 and stand members who were
Royal TVestern elected by ballot. Every n1ember paid an entrance fee and an
India Turf
annual subscription. The liability of the members was liinited by
Club Ltd.
guarantee and if there was any surplus on winding up, it was to
be paid to the members in equal shares.
An admission fee v..'aB
levied from the members for admission to the fifembers' Enclosure,
and from non-members for admission to the other Enclosures, and
in each Enclosure there was a totalisator. The moneys received
from members as well as non-members were included in one pool
and distributed ·a1nongst the holders of the winning tickets. In
each Enclosure refresh1nents 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 1nemhers were not assessable
to income.tax, viz., (1) season ad1nission 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 men1bers 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 s. 10(6) of the Income-tax Act and were therefore not ta.xable,
but item 4 fell withins. 10(1) and s. 10(6) and was taxable.
The
Commissioner of Income-tax appealed:
Held, (i) that the principles of St-yle.•' case as explained by
subsequent cases had no application to the Company as there was
no mutual dealing be.tween the m~mbers inter se in the nature of
mutua.l insurance and no contrib't.tion to a common fund put up
for payn1ent 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 realisod moneys both from the
members and non-1nembers 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 gave the sa1ne or similar amenities to members
and nori-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 ma.de by members of a club for providing themselves
with amenities was ·also not applicable to the case;
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{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
j •
sim.il~r assqciatiqn" vyithin ~- 10($) of the Incom.e-tax Act;
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S.C.H.
SUPREME COURT REPORTS
291
(iv) that all the abovementioned 4 items of receipts fro_mmembers 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, professional or similar
association within the meaning of s. 10(6), and all the items
were accordingly assessable to income-tax.
The New York Life Insnrance Co. v. Styles (Snrveyor of Taxe.~)
(1889) 14 App.

## Text

_Characters 0–39,783 of 50,181. This is a partial read: ask again with offset=39783 for what follows._

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S.C.R.
SUPREME COURT REPORTS
289
has been raised that in the community to which the
parties belong there was any such well recognised
practice or belief.
The defendants in the written
statement make no assertion about it. But on the
other hand, the plaintiff in paragraph 12 of his plaint
asserts that the--
" Institution of samadhi and ceremonies connected
1953
Saraswathi
Ammal
and Another
v,
Rajagapal
Ammal.
with it are not usual in the community to which the Jagannadhada•
parties belong ".
J.
Indeed it may be assumed that such a practice is
not likely to grow up amongst Hindus where cremation and not burial of the dead is the normal practice,
except probably as regards sannyasis and in certain
dissident communities. We see no reason to think
that the Madras decisions are erroneous in holding that
perpetual dedication of property for worship at a tomh
it; not valid amongst Hindus.
We accordingly affirm the judgment of the High
Court and dismiss the appeal but in the circumstances
without costs.
Appeal dismissed.
Agent for the appellant: S. Subramanian.
Agent for the respondent: M. S. I~. Aiyangar .
.,
COMMISSIONER OF INCOME-TAX,
BOMBAY CITY
v.
ROYAL WESTERN INDIA TURF CLUB LTD.
[PATANJALI SASTRI C.J., s. R. DAS, VIVIAN BOSE,
GHULAM HASAN and BHAGWATI JJ.]
Income-tax Act (XI of 1922), s. 10(1), s: 10(6)-Race coitrse
company-Receipts fron• members-Whether receipts from bnsiness
-Assessability-Applicability of rule in Styles' case-Difference
between mutital insitrance societies and clitbs, and race coitrse companies-"Trade association", mean.inf} of.
196J
Oct. 26.
290
SUPREME COURT REPORTS
[1954]
19.13
The assessee, the Royal Western India Turf Club Ltd., was
--
formed inter a,lia for the purpose of carrying on the business of a
Commissioner 01 race course company in all its branches and to establish clubs,
Irwo1ne-tax,
hotels and other conveniences in connection with the p1·operty of
Bombay City
the company. It had two classes of members, clU:b members,
v.
whose number "ras limited to 350 and stand members who were
Royal TVestern elected by ballot. Every n1ember paid an entrance fee and an
India Turf
annual subscription. The liability of the members was liinited by
Club Ltd.
guarantee and if there was any surplus on winding up, it was to
be paid to the members in equal shares.
An admission fee v..'aB
levied from the members for admission to the fifembers' Enclosure,
and from non-members for admission to the other Enclosures, and
in each Enclosure there was a totalisator. The moneys received
from members as well as non-members were included in one pool
and distributed ·a1nongst the holders of the winning tickets. In
each Enclosure refresh1nents 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 1nemhers were not assessable
to income.tax, viz., (1) season ad1nission 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 men1bers 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 s. 10(6) of the Income-tax Act and were therefore not ta.xable,
but item 4 fell withins. 10(1) and s. 10(6) and was taxable.
The
Commissioner of Income-tax appealed:
Held, (i) that the principles of St-yle.•' case as explained by
subsequent cases had no application to the Company as there was
no mutual dealing be.tween the m~mbers inter se in the nature of
mutua.l insurance and no contrib't.tion to a common fund put up
for payn1ent 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 realisod moneys both from the
members and non-1nembers 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 gave the sa1ne or similar amenities to members
and nori-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 ma.de 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
j •
sim.il~r assqciatiqn" vyithin ~- 10($) of the Incom.e-tax Act;
. ,
'
S.C.H.
SUPREME COURT REPORTS
291
(iv) that all the abovementioned 4 items of receipts fro_mmembers 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, professional or similar
association within the meaning of s. 10(6), and all the items
were accordingly assessable to income-tax.
The New York Life Insnrance Co. v. Styles (Snrveyor of Taxe.~)
(1889) 14 App. Oas. 381, The Cornish Mntnal 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 ct 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 Silloth
Golf Cliib v. Smith [1913] L. R. 3 K. B. 75, Royal Calcittta Tiirf
Club v. Secretary of State (1921) I.L.R. 48 Cal. 844, United Services
Clnb, Simla v. The Crown (1921) I.L.R. 2 Lah. 109, Eccentric Club
Case [1924] L.R. 1 K. B. 390, Dibrugarh District Clitb Ltd. v. Commissioner of Income-tax, Assam (1927) I.L.R. 55 Cal. 971, The
Maharaj Bag Clnb Ltd. v. Commissioner of Income-tax, C. P. di
Berar, (1931) 5 I.T.C. 201, Commissioners of Inland Revenue v.
StonehavenRecreation Ground Trustees(l929) 15 Tax Oas. 419, The
National Association of Local Government Officers v. Watkins (1934)
18 Tax Oas. 499, Commissioner of foJome-tax, Bombay v. Karachi
Chamber of Commerce (1940] I.L.R. Kar. 140; (1939] 7 I.T.R. 575
and
Gommissio1zer of Incomda:c, Bom?ay v. Karachi
Indian
Merchants Association A.LR. 1939 Sind 56;
7 I.T.R.
595,
referred to.
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 Judgment 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. 0. 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 respondent.
1953.
October 26. The Judgment of the Court was
delivered by DAS J •
~9
1953
Oommiasioner of
Income-tax,
Bombay Oity
v.
Royal Western
India Turf
Olub Ltd.
292
SUPREME COURT REPORTS
[1954]
1953
DAS J.-This is an appeal, by special leave granted
C
-. -.
·' by this court, from the judgment and order pronounced
ommissioner oJ
.
,
Income-tax,
by the High Court of Jud10ature at Bombay on the
Bombay City 22nd March, 1950, on a reference (I. T. Reference
v.
No. 30 of 1947) made by the Income-tax Appellate
Royal Western Tribunal at the instance of the appellant under secIndia Turf
tion 66(1) of the Income-tax Act (XI of 1922).
Club Ltd.
The facts necessary to be stated for the purpose of
Da' J.
disposing of the present appeal are these: The Royal
Western India Turf Club Ltd. (hereinafter referred to
as the "company") was incorporated in 1925 under the
Indian Companies Act, 1913. The objects for which
the company was incorporated were, inter a.lia as
follows:-
(a) To take over the assets, effects and liabilities of
the then unincorporated 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 i~ 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 assets
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
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S.C.R.
SUPREME COURT H,EPORTS
293
property whatsoever, the same would be paid to oi'
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 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 available 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 pari-mutual system at which
1953
Oorwmissioner of
lnco·1ne-taa;.
Bombay City
v.
Royal Western
India Turf
Club Ltd.
DasJ.
294
SUPREME COURT REPORTS
[-1954]
1953
persons in that enclosure place their bets on each race.
These several totalisators are linked by electric appliOommissioner of ances, so that the moneys received from members
Inc~me-t~x:
and non-members are included in one pool and distriBom ;
ity buted amongst the holders of the winning tickets in
Royai w,.tern equal proportions. In each enclosure there is arrangeIndia Turf
ment for the supply of refreshments on payment.
oiub Ltd.
The present disputes arose in connection with the
DasJ.
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 nonmembers, 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
(2) Daily admission gate tickets from
members
(3) Use of private boxes by members
( 4) Income from entries and 'forfeits
received from the members whose
horses did not run in the races
Rs. 23,635
Rs. 51,777
Rs. 21,490
during 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 Officer 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 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).
On a further
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s.c.:R.
SUPREME UOURT :REPO:R'fS
295
appeal by the company to the Income-tax Appellate
1953
Tribunal the latter came to the conclusion that none Oommisaioner of
of the sums in question could be said to be profits or
Income-tax,
gains of a business coming under section 10(1). The
Bombay Oity
Tribunal also held that items 1, 2 and 3 did not also
v.
come within the ambit of section 10(6) of the Act.
Royal Western
'd
h
l"
India Turf
Apparently the Tribunal did not cons1 er t e app 10aOlub Ltd.
bility of section 10(6) with regard to the fourth item.
On the application of the Commissioner of Incometax, Bombay, the Appellate Tribunal, under section 66(1) 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., Born bay,
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•ofsection 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 submitted a supplementary state.-
ment 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 ch.ib and tbatc the first three
DasJ.
296
SUPREME COURT REPOR'l'S
[1954)
I9SJ
items of Rs. 23,635, Rs. 51,777 and Rs. 21,490 were
C
-:--:-
,, charged to the members in respectofthevariousamen01nniissione.r -oJ
. .
. fi d .
h
l
Income·tax
ities spem e m t e supp ementary statement of the
Bombay c;;y case which were given by the club only to its members
v.
namely, the use of the Members' Enclosure on payment
Royal We.tern of admission fee, the use of the members' totalisator,
1-;,: '{,,~~!
the right to watch the races from the lawn or from an unreserved seat in the Members' stand, the use of a private
DasJ.
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. 1 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 <:if Rs. 82,490
and it answered question No. 2in 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 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) \Vhether 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
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S.O.R.
SUPREME COURT REPORTS
297
of association.
It appears that the objects of the
1953
company are, inter alia, to carry on the business of a
-. -.
.
.
b
h
d
(Jommiss1oner of
Race Course company mall its ranc es an to carry
Income-tax
on the business of Hotel Keepers, tavern keepers, licensBombay Oit~
ed victuallers and refreshment purveyors. Although this
v.
circumstance may not be decisive, it cannot at the Royal Western
same time be overlooked altogether. It has to be noted
India Turf
as one of the material facts.
Then we have the fact
Olub Ltd.
that so far as non-members are concerned the company
Das J.
does carry on a horse racing business and the moneys
it realises from non-members 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 admission 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 discussed 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 nonparticipating. There were no shares or shareholders in
(1) (1889) 2 Ta" Cas. t6o; L.R, r4 App. Cas. 38r,
298
SUPREME COURT REPORTS
[1954]
1953
the . ordinary sense of the term but each and every
Commissioner of holder of a participating policy became ipso facto a
Income-tox,
member of the company and as such became entitled
Bomboy Oity to a share in the assets and liable for a share in the
v.
losses.
A calculation was made by the company of
Royal Western the probable death rate among the members and the
India Turf
probable expenses and liabilities and calls in the
Olub Ltd.
DasJ,
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 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.
T-he cases of The Cornish 111 utual Assu.rance Co. Ltd·
v. The Commissioners of Inland Revenue(') and Jones v,
~T) [r926~ A.C. 281; 12 Ta~ Cas. 8t1~
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S.C.R.
SUPREME COUR.T REPORTS
299
'
South Wales Lancashire Goal Owners' Association Ltd.('),
19o3
both of which were cases of mutual assurance com-
-
. panies with the liability of the members limited by 00
1mmissio
1ner of
I
d h
nconie· ax,
guarantee carry the matter no further.
ndee , t e
Bombay City
decision in the Cornish case as to the surplus of the
v.
contributions over the expenses would have been the Royal Western
same as in Styles' case (supra) but for the special proviIndia Turi
sions of section 52(2)(b) according to which profit was
Olub Ltd.
made to include in the case of mutual trading concer~s
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 employers' liability or mis~llaneous insurance business was done
happened to be also a fire policy holder, the profit or
(1) (1927] A.e. 827; II Tax Cas. 790.
(2) (1932) r6 Tax Cas. 430; 48 T.L.R. 301; r47 L.T. 62.
40
DasJ.
300
SUPREME COURT REPORTS
[1954]
1953
surplus arising from that operation came back into a
Commissioner of body of.which he himself was a member. This circumIncome·tax
stance, it was claimed, made it mutual and as such
Bombay Cit~
exempt from taxation under Styles' case.
This arguv.
ment was repelled by Rowlatt J. on the ground, inter
Royal Western alia, that there was not the slightest distinction between
I~~~~ 'f,~'.J
what was made out of a member in resnect of non-fire
business and what was made out of a non-member out
Daa J.
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 contributed 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 contributed 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(').
After referring to various passages frortl the speeches
of the different Law Lords in Styles' case, Lord Normand,
who delivered the judgment of the Board, summarised
the grounds·of the decision in Styles' case as follows:
(I) [1948] A.C. 405; 75 I.A. 196; 16 l,T.R. 270.
•
{
'
•
'
,
... •
i .,.
s.c.R.
SUPREME COUi~T REPORTS
30i
" From these quotations it appears that the exemp191i3
ti on was based on (1) th.e ~dentity of the contributors to Commissioner of
the fund and the recipients from the fund, (2) the
Income.tax,
treatment of the company, though incorporated as a
Bomhay Oity
mere entity for the convenience of the members and
v.
policy holders, in other words, as an instrument RoyalWestcrn
obedient to their mandate and (3) the impossibility
1~t: [~~!
that contributors should derive profits from contributions made by themselves to a fund which could only
JJasJ.
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 explained 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 insurance, no contribution to a common fund put
up for payment ofliabilities 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 complete 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
302
SUPREME ceuHT REPOR'rS
[1954]
195a
not come back to them as persons who had contribut0
-. -.
if ed them.
Where a company collects money from its
ommissioner o
.
.
.
Income-tax,
members and applies it for their benefit not as shareBombay City holders but as persons who put up the fund the comv.
pany makes no profit. In such cases where there is
Royal Western identity in the character of those who contribute and
1;~; ft~~!
of those who participate in the surplus, the fact of
incorporation may be immaterial and the incorporated
.Daa J.
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 company
which carries on the business of horse racing and realises
money both from the
members
and from nonmembers 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 distinction, it is said, can
be made between the entrance fees or the periodical
subscriptions or any other sum (e.g., admission 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 Ul}r~ftiste1·ed association. Finally it is urged that
..
s.c.R.
SUPREME COURT REPORTS
303
the fact that a club has business dealings with the
1983
Public in respect of which tax is payable does not 0
-. -.
.
.
. .cc
t
01nmtastoner of
render the club hable to tax m respect of the dwerence
Income-tax
between the cost of providing amenities for its members
Bombay Oi;y
and the contribution towards this cost which the club
v.
takes from its members either by way of subscription Royal Western
or of charges for the use of club amenities, The
India Turf
Olub Ltd.
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 can also have the various
other amenities provided exclusively 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('). In that
case the club was an unincorporated association of
members who paid subscriptions 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 Titrf Club v. Secretary of State (2)
the assessee was an unincorporated club. It was held
(r) [r9r3] 3 K.B. 75; 6 Tax Cas. 198.
(2) (r92r) I.L.R. 48 Cal. 844; A.l.R. (1921) Cal. 633; (1921) 1 1.T.C
108.
DaaJ.
304
SUPHEME COUHT RE:POltTS
[1954]
1953
that the club carried on business within the i:iieaning
0
-. -.
1 of the Excess Profits Duty Act (X of 1919) and was
ommi .. ioner
0 liable to pay tax in respect of money received from the
, I nconie-tax,
Bombay City public by way of entrance fees to the stand, entry fees
v.
for race horses, book makers' license fees and percentRoyal Western ages of the totalisator. There, as in the Gctrlisle and
1
~:,;: '{,~~!
Silloth.Golf Club case (supra), no question was raised as
to the taxability of moneys paid by the members of
Das J.
the clubs.
The case of the United Services Club, Simla v. 'l'he
Grown(') 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 income
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 vhe 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
Tuif Club case, as akeady 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 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
(I) (1921)
113.
I.L.R.
2 Lah, 109 ; A.I.R. 19z1 Lah, 208;
I
I. T.C.
..
'
•
S.C.R.
SUPREME COURT REPORTS
305
club did not really carry on any business with its
1963
members with a view to earning profits and, therefore,
-
the surplus of receipts from the members over the 007missioner 01
expenditure could not be said to be profit of any
B::.i,m;:;-t~;Y
business which could be assessed to tax.
v.
The next case is what is known as the Eccentric Club
Royal Western
case(1).
In that case a company limited by guarantee
1;::,; 'J'a~'.'f
carried on a social club, its objects being to promote
social intercourse amongst gentlemen connected (directDas J.
ly 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
provisl.on 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.
Warrington 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."
(l) (1924) r K.!3. ~90; q Tax Cas. 658.
306
SUPREME COURT REPORTS
[1954]
1963
There was in that case no carrying on of any business
0
-:--:
,, with any outsider.
The dealings with members were
ommissioner oJ
!!
.
h
f
d
,
. ,
Income-tax
rea y not m t e way o any tra e or busmess and it IS
Bombay o/ey only on that basis that the profits were held not to fall
v.
within the Finance Act.
The position of the company
Royal W"tern in the United Services Club case (supra) was similar and;
1
~~:~ '£~~!
as already stated, that decision can be supported only
on this principle.
Das J.
The case of Dibrugarh District Club Ltd. v .. Commissioner of Income-tax, Assam('), 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 a
member. All shareholders were not members and all
members were not shareholders. Profits were distributable only amongst the shareholders every y~ar.