The Judgment of the Court was delivered by

Sankar Prasad Mitra, J.:— This is a reference under section 66(1) of the Indian Income-tax Act, 1922. It relates to the assessment years 1948–49 to 1950–51 and 1954–55, 1955–56, 1957–58 to 1959–60. The relevant accounting years are the calendar years 1947 to 1949, 1953 to 1954 and 1956 to 1958, respectively.

2. The assessee is a society registered under the Societies Registration Act, 1860. Its membership is restricted under its rules to “all tea companies under Indian management and Indian proprietors owning tea estates”. The annual subscription, according to the statement of the case, is payable by members on the basis of the acreage under tea (rule 21) and any member can secede from the association after giving three calendar months' notice to the secretary (rule 22). The statement of the case says further that this annual subscription has not been taxed. The objects of the association described in rule 3 are as follows:

(a) To cultivate and keep up a spirit of fellow-feeling and united action amongst all Indian tea planters wherever working in India;

(b) To take up all matters of common interest connected with the tea industry in which the Indian planters are interested;

(c) To frame model rules and regulations for guidance of its members;

(d) To do all acts and take all measures and steps in connection with the tea industry and in that connection to approach, contact or negotiate with the authorities including the Central Government, the States or any foreign Government;

(e) To raise funds to meet the expenses of the association or for purposes connected with the tea industry;

(f) To borrow money for the purposes of the association and also for purposes connected with the tea industry with or without securities;

(g) To start provident fund for its employees and frame rules therefor;

(h) To acquire, purchase, take on hire or lease instruments and machinery or obtain settlement of lands, buildings to construct and erect buildings or any structure or structures for the association or in connection with its activities;

(i) To grant affiliation or to be affiliated to any association, committee or body having the same or similar objects on such terms and conditions as may be decided upon by the executive committee of the association;

(j) To promote, organise, manage or help any educational institution or association or body or person for the advancement of and study or research in connection with the tea industry;

(k) ………….

(1) To frame service conduct rules for the employees of the association.”

3. The association, it is stated, used to render services to its constituent members by way of supply of paddy, rice and food-grains for the consumption of labour and it also used to provide medical facilities for the benefit of its members.

4. Under the Defence of India Rules there was a statutory obligation on the industries to supply paddy, rice, etc., to the labour employed by them at reasonable rates. Rice, paddy, etc., could not be procured from the market without the Government's permission. In 1943, the duty of procurement of rice and paddy from the Government on behalf of the association's members as also the supply of such food-grains to the members was thrown upon the association itself. In the statement of the case we are told that with a view to meeting the cost of this additional burden the association levied a fee of one anna per maund of food-grains supplied to its members in lieu of the annual subscription. The cost of food-grains was deposited by the members directly with the Government. And the association did not receive any amount except the fee at the rate of one anna per maund referred to above.

5. Before the tax authorities it was stated on behalf of the association that it had realised this fee of one anna per maund because it had to employ a few hands to supervise the work which necessitated contact with the Government as well as other parties in connection with the procurement and supply of food-grains. It was stated further that the association undertook this work to enable the various tea gardens which were its members to supply food-grains to their labourers at reasonable prices and also to supply other materials for the running of the tea industries.

6. So far as medical facilities are concerned, the association took over the group medical board in 1948 to render medical assistance to the member gardens. The association had recognised doctors under its employ and the services of these doctors were made available to the members as and when they needed them. The association charged the different members for provision of such medical facilities.

7. In the course of the assessment for the year 1950–51, the Income-tax Officer found that there was a surplus of Rs. 19,140 resulting from the association's activities in connection with the supply of rice and paddy to its constituent members for distribution to their labourers at reasonable rates. The Income-tax Officer also found that there was a surplus of Rs. 3,931 as a result of the association's activities connected with providing medical facilities to its members. The Income-tax Officer held that the assessee was a trade association rendering specific services to its members for remuneration definitely related to such services and, therefore, the aforesaid surpluses came within the purview of section 10(6) of the Indian Income-tax Act, 1922. He was of opinion that these surpluses were assessable as business profits of the association. The association urged that section 10(6) was not applicable to these surpluses as it was not a profit-making concern and did not carry on any business. The Income-tax Officer rejected this contention. The assessee also urged that it was a charitable institution and the surpluses derived by it, as aforesaid, were exempt under section 4(3)(i) of the Act of 1922. The Income-tax Officer did not accept this contention as well. He assessed both the amounts aggregating Rs. 23,071 under section 10 as the assessee's business income in its status as an association of persons. He made similar orders with respect to the other assessment years hereinbefore referred to.

8. The Appellate Assistant Commissioner took a different view. He held that the association was a mutual concern receiving contributions from its members for the common benefit of them all. According to him, there was a complete identity between the contributors and the participators in the surplus. He relied on the principles laid down in Styles v. New York Life Insurance Co. [1889] 2 T.C 460 H.L. to hold that the assessee-association was not carrying on any trade with its members. The Appellate Assistant Commissioner was also of opinion that the surpluses aforementioned were not related to any specific services rendered to the members and, therefore, the provisions of section 10(6) were not attracted to this case. The Appellate Assistant Commissioner held further that the association was a charitable institution and the income derived by it from the activities we have mentioned were exempt under section 4(3)(i) of the Act.

9. The Appellate Assistant Commissioner's orders have been set aside by the Tribunal which, it appears, had more or less agreed with the views of the Income-tax Officer.

10. The following questions have been referred to this court:

“(1) Whether the assessee is a trade association or similar other association within the meaning of section 10(6) of the Indian Income-tax Act, 1922?

(2) Whether the contributions realised by the assessee from its members amounted to remuneration charged for specific services within the meaning of section 10(6) of the Indian Income-tax Act, 1922?

(3) Whether, on the facts and in the circumstances of the case, the surplus of the contributions from the members for arranging the supply of rice and paddy and for providing medical facilities over the expenses was rightly assessed to tax under section 10(6) of the Indian Income-tax Act, 1922, for each of the assessment years under appeal?

(4) Whether, on the facts and in the circumstances of the case, the surplus of the contributions referred to in question No. (3) above is exempt under section 4(3)(i) of the Indian Income-tax Act, 1922?”

11. At the outset we have to observe that the Tribunal's findings with reference to question No. (4) have not been challenged before us. It was not urged that the association was a charitable institution and the provisions of section 4(3)(i) of the Act would be attracted to any contributions received by the association. The answer to question No. (4), therefore, is obviously in the negative.

12. Mr. Choudhury, learned counsel for the assessee, has argued that the association, it is apparent from its objects, is like a members' club or a kind of mutual concern and the taxing laws applicable to such clubs or concerns should be applied to the assessee. Mr. Choudhury contended further that all the activities of the association including supply of paddy and rice and providing for medical benefits were directed towards conferring of benefits on its members or were for the mutual benefit of the members only.

13. The general principle applicable to mutual concerns is that the surplus accruing to it cannot be regarded as income, profits or gains for the purposes of the Income-tax Act. In Styles v. New York Life Insurance Co. on which the Appellate Assistant Commissioner has relied, Lord Watson said:

“When a number of individuals agree to contribute funds for a common purpose, such as the payment of annuities, or of capital sums, to some or all of them, on the occurrence of events certain or uncertain, and stipulate that their contributions, so far as not required for that purpose, shall be repaid to them, I cannot conceive why they should be regarded as traders, or why contributions returned to them should be regarded as profits.”

14. In other words, where the contributors are to receive back a part of their own contributions, the identity between the contributors and recipients negatives the idea of any profit, for no man can make a profit out of himself: vide National Mutual Life Association of Australasia Ltd. v. Commissioner of Income-tax. In the later case of Inland Revenue Commissioners v. Cornish Mutual Assurance Co. Ltd. [1926] 12 T.C 841 H.L. the House of Lords, explaining the above dicta of Lord Watson, laid down that a mutual concern may be held to carry on a business or trade with its members, though the surplus arising from such trade is not taxable income or profit.

15. Our Supreme Court has elaborately discussed these principles in Commissioner of Income-tax v. Royal Western India Turf Club Ltd. [1953] 24 I.T.R 551. The general principles have been summarised by the Judicial Committee in England & Scottish Joint Co-operative Wholesale Society Ltd. v. Commissioner of Agricultural Income-tax [1948] 16 I.T.R 270, 279 P.C.. The Privy Council has referred to various passages from the speeches of the law Lords in Styles' case [1889] 2 T.C 460 H.L. and has stated:

“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 convenience of the members and policyholders, in other words, as an instrument obedient to their mandate and (3) the impossibility that contributors should derive profits from contributions made by themselves to a fund which could only be expended or returned to themselves.”

16. In every case, therefore, in which it is claimed that any income or surplus is exempt from taxation on the ground that it is an income or a surplus earned by a mutual concern, the court has to scrutinise the facts and circumstances with a view to ascertain whether the three conditions specified by the Judicial Committee have been satisfied. In other words, the assessee claiming an exemption of this nature must establish (a) the identity of contributors and recipients, (b) the instrumentality of the assessee in the matter of carrying out the mandates of its members and (c) the impossibility of the assessee deriving any profits from contributions made to it.

17. It seems to us, however, that in this reference, it is unnecessary for us to discuss the general principles applicable to a mutual concern.

18. The Supreme Court in Commissioner of Income-tax v. George Henderson & Co. Ltd. [1967] 66 I.T.R 622 S.C., at page 629, has said:

“It is true that the court is bound to proceed normally on the findings of fact which are mentioned in the statement of the case. But if the statement of the case does not correctly summarise or interpret the finding recorded in the order of the Appellate Tribunal which has been made part of the case, the court is entitled to look at the order itself in order to satisfy itself as to what was actually the finding of the Appellate Tribunal.”

19. In the instant reference, it seems to us, we cannot confine ourselves to the statement of the case only. We have to look into the facts found by the tax authorities below to decide whether the legal principles applicable to mutual concerns would entitle the assessee herein to claim the exemptions aforesaid. In the statement of the case in paragraph 4 the Tribunal has said that the assessee levied a fee of one anna per maund of food-grains supplied to the members, with a view to meeting the cost of the additional burden, in lieu of the annual subscription. It is necessary in this case to discover precisely the context in which the expression “in lieu of the annual subscription” has been used. At pages 24 and 25 of the paper book we find that the Income-tax Officer in his assessment order made on the 28th February, 1955, has stated as follows:

“The association charged the members for supplying rice and paddy to them. The charge was not uniform. The quantum of charge varied according to the quantities of rice and paddy supplied to the members. The charge was realised in the name of office administration cost. During the accounting year relevant to the present assessment the total collection made by the association amounted to Rs. 29,913. When asked about the expenses incurred by the assessee in arranging the supply it was submitted…. that no separate account for payments to the staff necessary for arrangement of the supply has been kept and the staff expenses have been lumped together with the general establishment. The total expenses under the ‘office establishment and allowances’ comes to Rs. 37,843 and in view of the impossibility of apportionment, I estimate the staff expenses necessary for the supply of rice and paddy to the members at Rs. 12,000 to which should be added godown rent of Rs. 3,360 for stocking rice and paddy. The total thus comes to Rs. 15,360 which, when deducted from total receipts of Rs. 29,913, leaves a profit of Rs. 14,553.”

20. It is further found that the assessee received Rs. 4,587 during the accounting year from M/s. A.N Laha and Co., who conceded a rebate against the quantities of goods supplied to the member bodies through the Indian Tea Planters' Association. This sum of Rs. 4,587 clearly arises out of the business activities of the assessee and as such is treated as profit.

21. Group Medical Board's Subscription:

The assessee has got recognised doctors under its employ. The services of the recognised doctors are made available to the members who need them. The assessee charges the members for providing this medical facility. During the accounting year relevant to the present assessment the total receipts amounted to Rs. 21,425 against which Rs. 17,494 has been claimed as expenses. The balance of Rs. 3,931 is therefore the resultant profit.”

22. It would be convenient at this stage to set out the provisions of subsection (6) of section 10 of the Indian Income-tax Act, 1922. These provisions are as follows:

“A trade, professional or similar association performing specific services for its members for remuneration definitely related to those services shall be deemed for the purpose of this section to carry on business in respect of those services, and the profits and gains therefrom shall be liable to tax accordingly.”

23. It appears that every trade, professional or similar association which renders specific services to its own members for remuneration related to those services would come within the purport of this sub-section. It may be that such an association is a kind of members' club or a mutual concern. But if it performs specific services for remuneration relatable to those services tax may be levied on those remunerations under the provisions of the Income-tax Act. At one stage of the hearing before us Mr. Choudhury learned counsel for the assessee wanted to argue that the services referred to in section 10(6) are those rendered to non-members only, but later on he conceded that services to members may also come, in appropriate cases, within the scope of this sub-section.

24. In the context of these principles let us try to appreciate what the Income-tax Officer precisely found in the instant reference. With regard to supply of rice and paddy his findings were, (a) that the association charged its members for such supplies, (b) the quantum of charge varied according to the quantities of rice and paddy supplied, (c) the charge was realised not in lieu of any subscription annually or otherwise but “in the name of office administration cost”, (d) the total amount collected for supply of rice and paddy was Rs. 29,913, (e) the estimate of staff expenses incurred for rendering these services was Rs. 12,000 to which the sum of Rs. 3,360 was to be added as godown rent, and (f) after deducting the expenses incurred by the association of Rs. 15,360 from the total receipts of Rs. 29,913 the association made a profit of Rs. 14,553. He also added a further sum of Rs. 4,587 to the assessee's profits which the assessee received as a rebate from M/s. A.N Laha & Co.

25. The Income-tax Officer made similar findings with respect to provisions for medical benefits as well. His findings are, (1) that the association had recognised doctors under its employ, (2) the services of the recognised doctors were made available to the members of the association, (3) the association charged the members for providing medical facility, (4) the total receipts on this account came to Rs. 21,425, (5) the association incurred an expenditure of Rs. 17,494, and (6) the resultant profit was Rs. 3,931.

26. We may now examine the relevant findings of the Appellate Assistant Commissioner. He has disagreed with the Income-tax Officer's views specially relying on this court's decision in Calcutta Stock Exchange Association Ltd. v. Commissioner of Income-tax. In this judgment Chakravartti C.J, while explaining the provisions of section 10(6), had observed that performing “specific services” was a far stronger expression than “rendering services”; and, in order that the sub-section might apply, specific task must be performed or function of a specific character must be discharged for payment and such payment should be made to the association concerned as wages for its labour in respect of those tasks and functions. According to the Appellate Assistant Commissioner the materials before him did not, in view of this judgment, bring this case within the purview of section 10(6). But Chakravartti C.J's decision has subsequently been reversed by the Supreme Court.

27. In Commissioner of Income-tax v. Calcutta Stock Exchange Association Ltd., the Supreme Court has taken a somewhat different view of the expression “specific services”. The Supreme Court says:

“The words ‘performing specific services’, in our opinion, mean, in the context, ‘conferring particular benefits’ on the members. The word ‘services’ is a term of a very wide import, but in the context of section 10 of the Act, its use excludes its theological or artistic usage. With reference to a trade, professional or similar association, the performing of specific services must mean conferring on its members some tangible benefit which otherwise would not be available to them as such, except for payment received by the association in respect of those services.”

28. Having regard to the Supreme Court judgment on this point, it is unnecessary for us to discuss the order of the Appellate Assistant Commissioner in detail. We may now turn to the relevant findings made by the Tribunal. At pages 70-71 of the paper book the Tribunal says:

“The association's own version before the Appellate Assistant Commissioner was that under the Defence of India Rules there was a statutory obligation on the industrialists to supply rice and paddy, etc., to the labour employed by them at reasonable rates. Rice, paddy, etc., could not be procured from the market without the permission of the Government. Some time in the year 1943, the duty of procurement of rice and paddy from the Government on behalf of the members of the association as also the supply of such food-grains to the members was thrown upon the association itself. Having undertaken this work on behalf of the members, the association, with a view to meeting the cost of this additional burden, levied a fee of one anna per maund of food-grains supplied to the members in lieu of their annual subscription. The resolution sanctioning the levy was in the following terms:

‘Levy of one anna per md. of paddy and rice received by members through the association for covering the cost of the association's rice and paddy department is continued for the year 1948.’”

29. Let us pause and consider the consequences of these findings of facts which the Tribunal has made. According to the Tribunal, the association undertook the work of procuring rice and paddy for its members. It was an additional burden of work. And the association to discharge this additional burden levied a fee of one anna per maund of food-grains supplied to each of the members. The Tribunal has stated that this additional levy was “in lieu of…… annual subscription”. But the association's resolution which was the primary evidence on this aspect of the matter quoted and considered by the Tribunal does not speak of any subscription at all. On the contrary, it specifically states that this additional levy was for “covering the cost of the association's rice and paddy department”. The Tribunal, it appears, on these facts, has rightly come to the conclusion that this was a case covered by the provisions of section 10(6) of the Indian Income-tax Act, 1922. The Tribunal also reached similar conclusions regarding the medical benefits.

30. It would be interesting at this stage to refer to the association's own “statement of the case” submitted to the Tribunal for having a reference to this court under section 66(1) of the Act. In this document (at pages 100-101 of the paper book, paragraphs 11, 15 and 17) it states:

“11. The association called for and received contributions, from its members, at the rate of one anna per maund of paddy and rice received by the respective members of the association, in order to cover the cost of handling and/or supervision and of maintaining necessary contacts with the Government officials as well as other parties for the purpose of procurement and delivery of such food-grains.

15. During the same assessment year the association received subscriptions from its members for rendering medical services, by running or maintaining a “group medical board”. In the assessment year 1949–50 the total subscription collected from its members by the association for the aforesaid purpose amounted to Rs. 21,069. The association incurred expenses for rendering the said medical services amounting to Rs. 9,512 thereby leaving a balance sum of Rs. 11,557 to be applied for the benefit of the members of the association in subsequent year or years.

17. The Income-tax Officer held that the said three several unspent sums of Rs. 3,091, Rs. 11,557 and Rs. 1,750 came within the purview of the Indian Income-tax Act, 1922, and were taxable as profits or gains made by the association.”

31. On these facts admitted by the association itself, we are unable to accept the contention that the provisions of section 10(6) of the Indian Income-tax Act, 1922, would not be attracted to them. This sub-section applies to a trade, professional or similar association. According to Webster's New International Dictionary, second edition, at page 264, “a trade association is an association of tradesmen, businessmen or manufacturers for the protection and advancement of their common interest”. This meaning has been adopted by the Supreme Court in Commissioner of Income-tax v. Royal Western India Turf Club Ltd. The objects of the assessee placed before us leave us in no doubt that it is a trade association. The facts found by or admitted before the tax authorities show that this association was performing specific services to its members. The facts show further that these services were performed for remuneration. The remuneration charged has, however, been described by different authorities in different manner. For instance, so far as arrangements for supply of rice and paddy are concerned, the Appellate Assistant Commissioner says that these were charges “in lieu of general general”: vide page 46.

32. The Tribunal has described them as levies “in lieu of…annual subscription” but in fact these were charges made for covering the cost of the association's rice and paddy department. This is a fact found unanimously by all the authorities below and also admitted by the association itself. The association's rules also permit the levy of such additional charges by special subscriptions under special circumstances which are quite different from the association's membership subscriptions: vide rule 21. These charges were, therefore, levied for the specific services that the association had rendered and were remunerations within the meaning of sub-section (6) of section 10 definitely related to those services. In these premises for the purpose of sub-section (6) of section 10, the association must be deemed to carry on business in respect of these services and the surplus that remained in the hands of the association after meeting its expenses in connection with these services must be considered to be profits and gains within the meaning of section 10(6) and are, as such, taxable. The charges for medical benefits are also, as we have explained, similarly taxable. In view of the conclusions we have already reached we do not feel inclined to discuss in this judgment the elaborate arguments advanced by counsel for the parties on mutual concerns and the law applicable to them. Our answers to the questions in this reference are as follows:

(1) Yes.

(2) Yes.

(3) Yes.

(4) Not pressed.

33. The applicant will pay to the respondents the costs of this reference.

A.N Sen, J.:— I agree.