The Judgment of the Court was as follows:—
Rankin, C.J:— The assessee in this case is the Dibrugarh District Club, Limited which is a Company limited by shares incorporated under the Indian Companies Act of 1882. I shall refer to it as “the Company” and I shall not refer to it as “the Club” for the reason that by the terms of its regulations the word “Club” is reserved for a different body. The main objects of the Company are to maintain and conduct a club for the benefit of such persons as may become members of that club. The club's membership is unlimited in number and there are two classes of members—permanent and temporary. Save for certain persons who are by the rules of the club entitled to become permanent members without ballot or entrance fee, all permanent members are elected by ballot. The voters at such ballot are the existing body of permanent members of the club. The arrangement as to temporary members need not be set forth here. The general management of the club is vested in a committee of seven members of whom at least five must be shareholders of the company and the directors of the company have an ultimate control in matters affecting the financial position of the company.
It will be seen therefore that membership of the club is quite a different thing from membership of the company which involves the ownership of a share or shares. Art. 12 of the Company's Articles of Association provides that “No share-holder as such shall be entitled to use the company's club premises, or enjoy the accommodation provided by the company for the use of members of the club, unless and until he has been duly elected as a member of the club, or is exempt from ballot in accordance with the rules and regulations contained in the second Schedule hereto which shall be read as part of these articles.” Conversely the rules of the club make it equally clear that persons may become members of the club without being shareholders in the company (Compare Rule 6).
Now, it appears that in 1925-1926 the company made a profit of some ten thousand rupees. It did this clearly enough out of the various charges made to members of the club but it could be wished that the Commissioner of Income Tax had stated the facts as to this matter more explicitly (whether the Articles of Association and the club's rules are logical and consistent on this point may be a question: apparently a member's subscription and the amount of his club bills are payable by him to the club: how and on what account the company becomes entitled to get money from the club or from a member is not clear).
The following facts are stated by the Commissioner of Income Tax as showing the position in 1926. The number of share-holders in the company is not given but the number of shares issued was 445 shares. Of these shares 74 are held by persons who are not members of the club, by how many of such persons is not stated.
The number of members of the club was apparently 289 of whom 220 were not share-sholders of the company and 69 held shares.
It appears that in recent years the company has paid dividends out of its profits—8 and 12 per cent, has been declared and paid. By Art. 104 it is provided that the dividend shall not exceed 12 per cent, on the issued capital—the balance of profit if any being intended for the Reserve Depreciation and Sinking Funds.
In these circumstances the company claims to escape payment of income-tax upon its profits and puts forward statements such as these—that the club does no business with and makes no profit on dealings with non-members; that the members of the club and share-holders are the same in 13 instances and in these instances the share-holders were at one time members or relations of members.
These statements are confused and erroneous. The company dealt in 1926 with 220 members of the club who were not share-holders, i.e, with 220 persons not members of the company. The company is not a mere mutual trading society making “quasi profit” by trading with its own members and returning such “profits” to the members. The case is wholly different on the material facts from New York Life Insurance Company v. Styles (1). I agree with the Commissioner in his view that in this case it is not a matter of importance that some of the share-holders and some of the club members are the same people. I am further of opinion that in this case the fact of incorporation cannot be neglected and the company (which is the assessee) is not to be confounded with the individual share-holders. In this case it is found that the assessee has made a profit and it must pay income-tax on the full amount thereof independently of what it proposes to do with that profit.
The assessee must pay the costs of this reference.
C.C Ghose, J.:— I agree.
Buckland, J.:— I agree.
Messrs Morgan & Co., Solicitors for the Club.
The Government Solicitor (Mr. Hodson), Solicitor for the Commissioner of Income Tax.
P.C