Nazir Ahmad, J.:— A statement of the case has been submitted by the Income-tax Appellate Tribunal, “B” Bench, Patna (hereinafter referred to as “the Tribunal”), under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), referring the following question of law for the opinion of this court:

“Whether, on the facts and in the circumstances of the case, the entrance fee received by the club at the time of entrance of the new members is a receipt of revenue nature and is chargeable to tax in the hands of the club?”

2. The relevant facts of the case may be culled out from the statement of the case. The assessee is a club in Jamshedpur offering various recreational facilites to its members. Its receipts are in the shape of membership fees from its members and it also derives income from bar and restaurant and other connected activities. While computing the income of the club for the assessment year 1966–67, the Income-tax Officer included Rs. 25,050 which represented the entrance fees received from the new members. The Income-tax Officer found that the entrance fees had been directly capitalised in the balance-sheet. A copy of the order of the Income-tax Officer has been annexed and marked as annexure A forming part of the statement of the case. On appeal before the Appellate Assistant Commissioner, he took the view that the entrance fees received from the new members of the club were not a recurring or revenue receipt which could be brought to tax. This, according to him, had to be paid once and for all by a new member in order to win the right to participate in the activities of the club and a regular monthly susbcription had to be paid as cost of participation. The Appellate Assistant Commissioner noted that the initial admission fee conferred the right of membership but did not entitle the members to participate without paying monthly subscription. The Appellate Assistant Commissioner, therefore, held that this fee was in the nature of a share capital of the company and was a capital receipt in the hands of the club. The Appellate Assistant Commissioner, therefore, deleted the addition of Rs. 25,050. A copy of the order of the Appellate Assistant Commissioner has been annexed and marked as annexure B forming part of the statement of the case.

3. When the matter went up before the Tribunal, it was submitted by the Department that there was no difference between the entrance fee and the monthly fee received by the club. On behalf of the assessee, it was submitted that the entrance fee was paid only Once at the time of becoming a member and the same was credited in the capital fund shown in the liabilities side of the balance-sheet. The assessee also relied on another order of the Tribunal in I.T.A Nos. 1653 to 1655 (Pat) of 1972–73 dated December 10, 1973, where in similar circumstances in the case of Beldih Club of Jamshedpur, the claim of the Department was negatived.

4. The Tribunal agreed with the view of the assessee's counsel and held that the entrance fee was not a receipt of revenue nature in the hands of the club. The Tribunal also noted the treatment given to the amount received as entrance fee in the account of the club where it was capitalised. The Tribunal followed its decision in the other case of Beldih Club and held that the entrance fee was a receipt of a capital nature. A copy of the order of the Tribunal has been annexed and marked as annexure C forming part of the statement of the case and hence this reference.

5. In this case, the facts are not disputed. The assessee is M/s. United Club (hereinafter referred to as “the club”) at Jamshedpur. The assessee-club is offering various recreational facilities to its members most of whom are Tata employees. The club has provisions for games like tennis, badminton, table tennis, basketball, billiards, etc., besides having its own swimming pool, library and exhibition of films shown in the club. The assessee claimed before the Income-tax Officer that the income of the club is totally exempt from income-tax on the principle of mutuality. The Income-tax Officer examined the matter and ultimately came to a finding that only ordinary members will be participating in the surplus of the club whereas the club has also other classes of members like associate members, outsta-tion members, temporary members, honorary members and visiting members and that all classes of members except the associate members and honorary members contribute to the common fund. The Income-tax Officer, therefore, came to the conclusion that the income of the club including members' subscription and entrance fees is liable to income-tax and he determined the total income at Rs. 31,960 which included the net income as shown by the assessee besides other income and included the entrance fee of Rs. 25,050 as the income of the assessee although it had been directly capitalised in the balance-sheet. The Appellate Assistant Commissioner also came to a finding that the income of the club was not exempt on the basis of mutuality. This point was not raised before the Tribunal and thus now it is the admitted case that the income of the club is not exempt from taxation on the ground of mutuality. In such circumstances, it has only to be seen whether the amount of Rs. 25,050 received as entrance fees from the members by the club is revenue receipt or capital receipt.

6. Mr. B.P Rajgarhia for the Revenue has relied on the case of the Liverpool Corn Trade Association Limited v. Monks, [1926] 10 TC 442 (KB), which is a decision of the High Court of Justice (King's Bench Division). In this case, the appellant-association was incorporated under the Companies Act as a limited company with the objects, inter alia, of protecting the interests of the corn trade and of providing a clearing house, a market, an exchange and arbitration and other facilities for the persons engaged in that trade. Membership of the association is confined to the persons engaged in the corn trade as principals. Each member must acquire one share of £ 150 nominal value in the company and must pay an entrance fee and an annual subscription. Non-members may also become subscribers. Payments are also made to the association by members and others for services rendered through the clearing house, etc. The association has power to declare a dividend out of its profits but has not done so since the year 1906. The association having been assessed to income-tax under Schedule D on the excess of its receipts over its expenditure, appealed to the Special Commissioners, contending, inter alia, (i) that it did not carry on a trade, etc., the profits of which were assessable under Case I of Schedule D and (ii) that so far as concerns transactions with its members, the association was a mutual one and that any surplus arising from such transactions was not a profit assessable to income-tax. The Special Commissioners, however, confirmed the assessment. Inthose circumstances, it was held that any profit arising from the association's transactions with members was assessable to income-tax as part of the profits of its business under Case I of Schedule D and that the entrance fees and subscriptions received from the members must be included in the computation of such profits. Thus, it is evident that in view of this decision, the entrance fees and subscriptions received from the members must be included in the computation of the profits of the club.

7. Mr. B.P Rajgarhia has relied on the case of CIT v. Calcutta Stock Exchange Association Ltd., [1959] 36 ITR 222 (SC), which is a decision of their Lordships of the Supreme Court. In this case, the assessee, Calcutta Stock Exchange Co. Ltd., was a company formed to facilitate transaction of business on the Calcutta Stock Exchange under its bye-laws. Members with a certain standing were allowed to have six “authorised assistants” to transact business on the stock exchange in their names and on their behalf. Members appointing such assistants had to pay an entrance fee for each assistant and also a periodical subscription for continuing the services of such assistant in addition to the subscription payable by each member for his membership. Every member who wished to have the name of any company included in the quotations list so that its shares or stock may be placed on the stock market, had to make an application in that behalf with a fee of Rs. 1,000. The assessee received during the accounting year Rs. 60,750 as entrance fees and Rs. 15,687 as subscriptions in respect of the authorised assistants and a sum of Rs. 16,000 as application fees from the members for including new companies in the quotations list. In those circumstances, it was held that each of the aforesaid sums of money accrued to the assessee on account of its performing specific services for its members, that these sums were remuneration definitely related to distinct services performed by the assessee for its members or such of them as availed themselves of such services and the said sums were, accordingly, assessable to income-tax under section 10(6) of the Indian Income-tax Act, 1922 (hereinafter referred to as “the 1922 Act”), as profits and gains derived from carrying on business. It was also held in this decision that the words “performing specific services” in section 10(6) of the 1922 Act mean “conferring particular benefits”, that is, conferring on the members some tangible benefit which would not be available to them unless they paid the specific fees charged for such special benefits and that the word “remuneration” is a term of much wider import than “wages” and includes “recompense”, “reward” or “payment”.

8. In the aforesaid decision at page 226, it has been clearly mentioned that the High Court has recast the questions in these terms. “Whether in the facts and circumstances of this case, the Income-tax Appellate Tribunal was right in holding that—

(a) the amounts of Rs. 15,687 and Rs. 60,750 received from the members of the association as subscriptions and entrance fees in respect of authorised assistants, and

(b) the amounts of Rs. 16,000 and Rs. 600 received as fees for enlisting names of newly floated companies and for recognition of changes in the styles of firms respectively should be included in the assessable income of the assessees”. Thus, it is evident that the amount of Rs. 60,750 received from the members as entrance fees was held to be taxable. The decision in CIT v. Calcutta Stock Exchange Association Ltd., [1959] 36 ITR at page 222 is also reported in AIR 1959 Supreme Court at page 763.

9. Mr. B.P Rajgarhia has also relied on the case of Delhi Stock Exchange Association Ltd. v. CIT, [1961] 41 ITR 495 (SC). This is also a decision of their Lordships of the Supreme Court. In this case, the applicant company was formed with the object of promoting and regulating business in shares, stocks and securities and of establishing and conducting the business of a stock exchange. Its capital was Rs. 5 lakhs divided into 250 shares of Rs. 2,000 each on which dividends could be earned. The company charged fees for the admission of members and their authorised assistants. Trading members had to be elected and pay entrance fees, and they alone, with their authorised assistants, could transact business in stocks and shares in the company. The question was whether the admission fees received by the company from the members and the authorised assistants were taxable in the hands of the company. In those circumstances, it was held by their Lordships of the Supreme Court that it was not how the assessee treated any monies received, but what was the nature of the receipts in question that was decisive of their taxability; and, therefore, the fact that the appellant company showed the admission fees as capital in its books was not decisive on the question of their taxability; that the amounts received as admission fees from the authorised assistants fell within the principle of the decision of the Supreme Court in CIT v. Calcutta Stock Exchange Association Ltd., [1959] 36 ITR 222 and were taxable; and that as the body of trading members who paid the entrance fees and the shareholders among whom the profits of the company were distributed were not identical and the element of mutuality was lacking, the company carried on a business whose profits were taxable and, therefore, the admission fees received from the members were taxable in its hands-It appears from this decision at pages 496 and 497 that the total income of the assessee for the year 1947–48 was Rs. 29,363 out of which a sum of Rs. 15,975 shown as admission fees was deducted and the income returned was Rs. 13,388. In the profit and loss account of that year, members' admission fees were shown as Rs. 9,000 and on account of the authorised assistants' admission fees Rs. 6,975. The Income-tax Officer who made the assessment for the year 1947–48 disallowed this deduction. The return for the following year also was made on a similar basis but the return for the years 1949–50 and 1950–51 did not take into account the admission fees received but in the director's report the amounts so received were shown as having been taken directly into the balance-sheet. The Income-tax Officer, however, disallowed and added back the amount so received to the income returned by the appellant. The Tribunal ultimately decided all the appeals in favour of the appellant and it was held that the amounts received as entrance fees were intended to be and were in fact treated as capital receipts and were, therefore, excluded from assessment and it was also held that as there was no requisite periodicity, those amounts were not taxable. The question referred to the High Court was as follows:

“Whether the admission fees of the members or authorised assistants received by the assessee is taxable income in its hands?”

10. In those circumstances, their Lordships of the Supreme Court gave findings as mentioned above. Their Lordships have clearly laid down that the amounts were received by the appellant as membership admission fees and as admission fees paid by the members on account of authorised assistants and the matter relating to the members' admission fees had to be decided in accordance with the nature of the business of the appellant company, its memorandum and articles of association and the rules made for the conduct of business. It is not disputed before us that the income of the assessee before us is taxable and is not exempt on the ground of mutuality. This clearly means that the assessee club is carrying on business and in view of this decision, the members' entrance fee is taxable as income of the assessee.

11. Mr. K.N Jain, on behalf of the assessee-club, has relied on the case of Pangal Nayak Bank Ltd. v. CIT, [1964] 52 ITR 915 (Mys) which is a decision of the Mysore High Court. In this case, the articles of association of a banking company contained a provision that no person shall be considered a shareholder until he has paid the prescribed entrance fee and premium, if any, fixed per share. The company resolved to issue new shares and collected a sum of Rs. 10,000 as entrance fee at the rate of 8 annas per share in respect of new shares that were issued and it was held that the sum of Rs. 10,000 thus collected was a capital receipt and not a revenue receipt, at any rate it was a casual and non-recurring receipt not arising from business contemplated by section 4(3)(vii) of the 1922 Act and was not assessable to income-tax. In this case, reference was made to the decision of the Supreme Court reported in CIT v. Calcutta Stock Exchange Association Ltd., [1959] 36 ITR 222, but reference was made only to the amount of Rs. 16,000 which was realised in consideration of putting the names of certain companies on the quotations list, but no reference was made to Rs. 60,750 as entrance fees from the members which was received as entrance fees for the authorised assistants. In this case, no reference was made to the decision in Delhi Stock Exchange Association Lid v. CIT, [1961] 41 ITR 495, where admission fees were received from the members as entrance fees although certain amounts were also received from the members' authorised assistants. In view of this Supreme Court decision in [1961] 41 ITR 495, the decision of the Mysore High Court Pangal Nayak Bank Ltd. v. CIT, [1964] 52 ITR 915 cannot be followed.

12. Mr. K.N Jain has also relied on the case of Commissioner Of Income-Tax, Bombay City-Ii v. W.I.A.A Club Ltd., [1982] 136 ITR 569 (Bom). In this decision, it has been held by the Bombay High Court that the entrance fee is paid by the members only once and it is this payment which has to be considered whether it is in the nature of income or a capital receipt. It has also been held in this decision that from the articles of association of the assessee-club, it is clear that in order to avail of the rights of a member and the facilities and the services provided by the assessee-club, it is not enough for a person merely to pay the annual subscription, and that as a matter of fact, a person cannot exercise the rights and privileges of a member merely by volunteering to pay the annual subscription. What a member has to acquire first is the right of membership of the club. It has also been held in this decision that a person has first to get elected as a life or ordinary member, as the case may be, in the manner provided in the articles of association, and it is only after a person is elected that he is required to pay the subscription and entrance fee within fourteen days of notice of the election. It has also been held in this decision that the acquisition of right as an ordinary member is done by the payment of the entrance fee of Rs. 500 in the relevant assessment years, and in lieu of this payment of the entrance fee, a member does not get any return in the form of any services or amenities, and all that he gets is a right to avail of the amenities or facilities provided by the club on a payment of the annual subscription. This right can be exercised by him as long as the membership is not determined. The Bombay High Court held that this receipt of Rs. 500 received by the club is a return for vesting a right of membership in the member and, therefore, the entrance fee would clearly be in the nature of a capital receipt in the hands of the assessee. The Bombay High Court referred to Liverpool Corn Trade Association Ltd. v. Monks, [1926] 10 TC 442 (KB) but no reference was made to the Supreme Court cases reported in CIT v. Calcutta Stock Exchange Association Ltd., [1959] 36 ITR 222 and Delhi Stock Exchange Association Ltd. v. CIT, [1961] 41 ITR 495 and so it is difficult to follow the decision of the Bombay High Court. In view of the aforesaid Supreme Court decisions in CIT v. Calcutta Stock Exchange Association Lid., [1959] 36 ITR 222 and Delhi Stock Exchange Association Ltd. v. CIT, [1961] 41 ITR 495, the entrance fees received from the members are not capital receipts but revenue receipts and are taxable as income of the assessee-club.

13. In view of my discussions above, I hold that the entrance fee received by the assessee-club at the time of the entrance of the new members is a receipt of revenue nature and is chargeable to tax in the hands of the club. The question is, accordingly, answered in the affirmative and in favour of the Revenue and against the assessee. However, in view of the circumstances of the case, there will be no order as to costs.

Uday Sinha, J.:— I agree.