PRESIDENCY CLUB LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN this reference under S. 256(1) of the IT Act, 1961, the following question has been referred to this Court :

(2.) THE assessee was incorporated as a public limited company by guarantee and runs a club for its members. Its objects are to promote social intercourse among the members of the club, their families and friends and to provide a club house and grounds for the accommodation of members and their families and the friends of members temporarily staying with them. No portion of the income or property is to be paid or transferred directly or indirectly by way of dividend, bonus or otherwise by way of profit to persons who at any time were or have been members of the club or to any one or more of them or to any person claiming through any one or more of them. Except with the previous approval of the Central Govt. no remuneration or other benefit in money or money's worth is to be given by the club to any of its members, whether officers or servants of the club or not. The only exception made is in respect of payment of out -of -pocket expenses, reasonable and proper interest on money lent to the company and proper rent on premises let to the club.

(3.) THE Supreme Court has examined the question of taxability of profits of a members' club in CIT vs. Royal Western India Turf Club (1953) 24 ITR 551 (SC). The assessee in that case was also a company limited by guarantee. It carried on the business of maintaining a race course and of licensed victuallers and refreshment purveyors. There were two categories of members who, on their election as members, paid an entrance fee and periodical subscriptions, which were not charged to tax. Members were provided with a separate enclosure to watch the races for which an admission fee was charged and non -members were not admitted to this enclosure. The non - members were given, in a separate enclosure, the facility of watching the races and betting on the horses. All of them could use the totalizator and the facility for refreshment. The assessee claimed that in computing its total income, certain receipts from members should not be taxed. The High Court held that some of those items were not taxable either under S. 10(1) or under S. 10(6) of the Indian IT Act, 1922, while the amounts of income received from the members whose horses did not run in the race during the season were liable to be taxed. The Supreme Court held that there was no mutual dealing between the members inter se, and that all the items of receipts were received from the members in the course of a business with its members within the meaning of s. 10(1) and, therefore, assessable to tax. In the course of the judgment, the earlier cases decided in U. K. have been considered at p. 565. After referring to the earlier decisions on the point, it was observed (p. 565) :