Commissioner of Income-tax, Bombay City v. Royal Western India Turf Club Ltd.
DAS J •
~9
1953
Oommiasioner of
Income-tax,
Bombay Oity
v.
Royal Western
India Turf
Olub Ltd.
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 sec
India 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 Com-
pany in all its branches ............... ;
(c) to establish any Clubs, Hotels and other con
veniences 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, mort
gage, 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 Tem
porary 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 pay
ment according to the number of chairs in the box. In
addition to the admission fees to the Members' Enclos
ure, 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 appli
Oommissioner of ances, so that the moneys received from members
Inc~me-t~x: and non-members are included in one pool and distri
Bom ; ity buted amongst the holders of the winning tickets in
Royai w,.tern equal proportions. In each enclosure there is arrange-
India 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 non
members, besides other moneys on other accounts.
The company claimed that in computing its total
income, the following four items of receipts should be
excluded:-
( 1) Season admission tickets from
members
(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 com
pany 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 mention
ed above were receipts from business falling under sec
tion 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 sec
tion 10(6) of the Act and assessed accordingly. On
appeal by the company the Appellate Assistant Com
missioner 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 10a- Olub Ltd.
bility of section 10(6) with regard to the fourth item.
On the application of the Commissioner of Income
tax, Bombay, the Appellate Tribunal, under sec-
tion 66(1) of the Act referred the following two ques-
tions 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 sec
tion 10(6)] as a trade, professional or similar associa
tion performing services for its members for remunera
tion 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 in
sufficient 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 supple
mentary 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 respectofthevariousamen-
01nniissione.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 un
reserved 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 ques
tion 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 appli
cation of the Commissioner of Income-tax under
section 66-A (2) to appeal to this court, the Commis
sioner 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 ques
tions 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, licens- Bombay 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 En-
closure 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 men-
tioned 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 non
participating. There were no shares or shareholders in
(1) (1889) 2 Ta" Cas. t6o; L.R, r4 App. Cas. 38r,
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 represent
atives 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 indivi
duals 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 them
selves.
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
1
ner 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 provi- India 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 applica-
tion 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 authori
ties by co-operation to insure against fire on favour
able 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 out
siders were liable to tax. The question was whether
the employers' liability and miscellaneous insurance
business done with fire policy holders who were mem
bers 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' lia
bility 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.
1953 surplus arising from that operation came back into a
Commissioner of body of.which he himself was a member. This circum
Income·tax stance, it was claimed, made it mutual and as such
Bombay Cit~ exempt from taxation under Styles' case. This argu-
v. 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 admit
ted 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 com
plete 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.
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s.c.R. SUPREME COUi~T REPORTS 30i
" From these quotations it appears that the exemp- 191i3
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
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that contributors should derive profits from contribu-
tions 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 contri
butor 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 contri
butors 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 con
fusion. 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 share
holders 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 contribut-
0 -. -. if ed them. Where a company collects money from its ommissioner o . . .
Income-tax, members and applies it for their benefit not as share-
Bombay City holders but as persons who put up the fund the com-
v. 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 mem
bers 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 sec
tion 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 non
members for the same consideration, namely, by the
giving of the same or similar facilities to all alike in
course of one and the same business carried on
by it.
Learned counsel for the company then contends that
the carrying on of the business of horse racing is not
the only function or activity of the company. It also
runs a club, that is to say, an association of persons
who co-operate to provide for themselves social, sport
ing 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 imma
terial whether the club is an incorporated company or
an Ul}r~ftiste1·ed association. Finally it is urged that
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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 sup-
port 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 deci
sion in Styles' case. It should not, however, be over
looked 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 percent-
Royal 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 deriv
ed 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 Car
lisle & 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.
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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
00
7missioner 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 (direct- Das J.
ly or indirectly) with literature, art, music, the drama,
the scientific and liberal professions, sports and com-
merce, 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 wind-
ing 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 show-
ed 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 trans
actions 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.
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 .. Com-
missioner 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 asso
ciation 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 distri
butable only amongst the shareholders every y~ar. It
was peld that the company was assessable on the full
amount of its profits derived from shareholder members
as well as from non-shareholder members as the com
pany was not a mutual trading society making quasi
profits by trading with its own members and returning
such profits to its members. The absence of identity
between the contributors and participators was quite
obvious. The case of The Maharaj Bag Club Ltd.
v. Commissioner of Income-tax, C.P. & Berar (')follows
the Dibrugarh Club case and carries the matter no
further.
In Commissioners of Inland Revenue v. Stone
haven Recreation Ground Trustees(') a recreation ground
with facilities for tennis, bowls etc. was held on lease
and managed by 9 trustees. Admission to the ground
was by daily, fortnightly, monthly or season tickets
issued to any applicant. Of the 9 trustees 6 were
elected by the season ticket holders and the remaining
by the Local Town Council. The trustees were held
assessable as carrying on a trade. The position of the
trustees was akin to that of the owner of a proprietary
club who carried on the club with a view to earning
profits.
{I) ~1927) I.L.R. 55 Cal. 971; A.I.R. 1928 Cal. 577; 2 I.T.C. 521,
(2) (1931) 5 l.T.C. 201.
\3) (1929) I?Ta~ Cas.119; 8 Anf!.. ra:.;: Cas. 52~.
..
. •
S.C.R. SUPREME COURT REPORTS 307
National Association of Local Government Officers 1953
v. Watkins(') was concerned with an unregistered 0 -. -. ·' . . . . . ommiseioner OJ
trade umon havmg for its ObJect the protect10n of Income·t=,
the interests of employees in Local Governments and Bombay City
the promotion of the physical and social welfare of its v.
members. The Association purchased an existing Royal Western
holiday camp to provide cheap holiday facilities for its
1
;'f!,; 'i,;:l
members. Bookings were, however, for a short time
accepted from non-members who had previously used Das J.
the camp. By its rules the property of the Association
belonged to the members and its profits enured for
all members as a whole and not only for those members
who used the camp. The Association contended
that its liability should be confined to the profits made
from non-members. The Crown claimed, on the other
hand, that as the users of the camp were not identifi-
able with the whole membership there was no mutual
trading and the whole of the profits had been properly
assessed. Finlay J. gave effect to the contentions
of the Association. The learned Judge laid
emphasis on the fact that the Association was not
a registered body and that, therefore, the property
was the property, not of the Association but
of the members themselves and that as the mem-
bers owned the whole they had a right to partici-
pate in the whole and, therefore, there could not be
any trade between the Association and a rp.ember or
any sale to a member. The two decisions of the
Judicial Commissioners' Court, namely, Commissioner
of Income-tax, Bombay v. Karachi Chamber of Com-
merce(2) and Commissioner of Income-tax, Bombay
v. Karachi Indian Merchants Association(3) were con-
cerned with mutual dealings between members who
had put up money for their mutual benefit. The
surplus went to them not as shareholders but as per-
sons who had contributed in excess and was in no
sense a profit and could not, therefore, be brought to
charge.
(r) (1934) rS Tax Cas. 499.
(2) I.L.R. (1940) Kar. 140; [1939] 7 I.T.R. 575.
(3) A.LR. 1939 Sind 56; [1939] 7 I.T,R. 595 .
'fl.
1953 As already stated, in the instant ·case there is no
C -:--:- ,, mutual dealing between the members inter se and no ommissioner o1 • • •
lneome-taz puttmg up of a common fund for d1schargmg the com-
Bombay ci;y mon obligations to each other undertaken by the con-
v. tributors for their mutual benefit. On the contrary,
Royal w .. tern we have here an incorporated company authorised to
1
~~; 't;;:;f carry on an ordinary business of a race course company
and that of licensed victuallers and refreshment pur-
Das J. veyors and in fact carrying on such a'business. There is
no dispute that the dealings of the company with non
members take place in the ordinary course of business
carried on with a view to earning profits as in any
other commercial concern. It is further admitted that
some of the dealings of the company with its members
. take place in the ordinary course of business and the
profits arising out of those dealings, e.g., the fourth item
of receipt of Rs. 82,490, are taxable. The company
gives to its members the same or similar amenities as
it gives to non-members, namely, the use of an un
reserved seat in a stand, the facility to watch the races
and to bet on the horses in the races, use of the total
isator in that stand and the facility for refreshment.
In fact the daily ticket fee for admission into the
Members' Enclosure is exactly the same as that for
admission into the First Enclosure to which the public
have access. The only difference is that a separate
enclosure with a separate totalisator is provided for
the members where they can meet their fellow members
and not be disturbed by the intrusion of non-members.
This privilege is referable to their membership of the
company for which they pay an entrance fee on their
election as members and for which they pay the
periodical subscriptions both of which are not sought
to be brought to charge. The rest of the facilities
mentioned above which the members get are in sub
stance the same as those enjoyed by the public. Those
facilities are given to members and non-members alike
for a price. The character of the charges made on
members is precisely the same as or is similar to that
of the charges made on non-members, for the company·
receives moneys from both members and non-members
in return for the same or similar facilities given to '· •
. .J
S.C.R. SUPREME COURT REPORTS 309
both in the course of one and the same business. The 1953
dealings in both cases disclose the same profit earning -. -. ' d Jik · t d · h · l't I th Oommisswner of motive an are a e tam e wit commercia i Y· n e Income-tax
circumstances, all the four items of receipts from mem- Bombay O-ity.
bers ·must be taken into account in computing the total v.
income of the company. The fact that the company Royal Western
has so long enjoyed exemption from taxation is neither India Turf
f Club Ltd. here nor there, for there can be no question o acquir-
ing any prescriptive right to exemption from taxa- Das J.
tion. ·
The second question need not detain us long.
The answer to that question depends on a true
construction of section 10(6) of the Act. What is the
meaning of " a trade or professional or similar associa
tion ? Does this company come within any of those
descriptions ? It is certainly not a professional associa
tion. Learned counsel for the company contends that
a "trade association" is not the same thing as a "trad
ing association". According to Webster's New Inter
national Dictionary, 2nd Edn., page 264 the meaning
ofa "trade association" is an association of tradesmen,
businessmen or manufacturers for the protection and
advancement of their common interest. In our view
the company before us is not a "trade association" in
this sense although it carries on a business. In this
view of the matter it is unnecessary to discuss the
further question whether the facilities or amenities
given by the company to its members may be regarded
as "services" within the meaning of section 10(6). We
are of opinion that section 10(6) has no application,
for the company is not a trade or professional or simi
lar association within the meaning of that sub-section.
The result, therefore, is that we hold that all the
items of receipts from members referred to in the ques
tions were received by the company from business with
its members within the meaning of section 10(1) and
that none of them was received by the company as a
trade, professional or similar assqciatio:ri within the
meaning of section 10(6). In our judgment the High
Court should have answered question No. 1 in the
affirmat~ve and question No. 2 in the negative. The
310 SUPRkME COURT REPORTS [1954]
1953 appeal is allowed and we award to the Commissioner
-:--:- of Income-tax the costs of this appeal and those of
Comm?SBioner of th d' · th H' h C t Income-tax, e procee mgs m e 1g our _
Bo1nbay CUy
v.
]loyal Western
India Turf
Club Ltd.
195J
November 16.
Appeal allowed.
Agent for the appellant: G. H. Bajadhyaksha.
Agent for the respondent: Bajinder Narain.
SATYABRATA GROSE
v.
MUGNEERAM BANGUR & CO., AND ANOTHER.
MuKHERJEA, V1vrAN BosE and BHAGWATI JJ.]
Indian Contract Act (IX of 1872), s. 56-Aareement to sell lct·nd
-Doctrine of frnstratio,.-Applicetbility-Doctrine whether a.ppvic
able ir1i India-'-Scope of s. 56-"Inipossible," nwaning of-Agree.
inent for sale of land-B11yer's rights-English and Indian law.
The doctrine of frustration is really an aspect or part of the
law of discharge of contract by reason of supervening impossibility
or illegality of the act agreed to be done and hence comes within
the purview of s. 56 of the Indian Contract Act. 'rhe view that
s. 56 applies only to cases of physical impossibility and that where
this section is not applicable recourse can be had to the principles
of English law on the subject of frustration is not correct. English
cases can have only a persuasive value, and are only helpful in
showing how English courts decided cases under similar circum·
stances. ·
Section 56 of the Indian Contract Act lays down a rule
of positive law and does not leave the matter to be determined
according to the intention of the parties.
According to the Indian Contract Act, a promise n1ay be ex
press or implied. In_ cases, therefore, where the court gathers as
a matter of construction that the contract itself contained im
pliedly or expressly a term, according to which it would stand
discharged on the happening of certain circumstances, the dissolu
tion of the contract would take place under the terms of the
contract itself and such cases would be outside the purview of
s. 56 altogether. Although in English law these cases are treated
as cases of frustration, in India they would be dealt with under
s. 32 of the Indian Contract Act which deals with contingent
contracts or similar other provisions contained in the Act. In the
large majority of cases however the doctrine of frustration is
applied nol on the sround that the parties themselves'ogreed to ap
.;
j