DELHI STOCK EXCHANGE ASSOCIATION LTD. vs. COMMISSIONER OF INCOME TAX, DELHI

CIVIL APPEAL No. 187/1960Supreme Court[1961] 2 S.C.R. 79830 November 1960Bench: 3 JudgesAuthor: J.L. KAPUR, M. HIDAYATULLAH, J.C. SHAH8 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that the High Court was right in its decision and the appeals must be dismissed. The Court reasoned that it is the nature of the receipt, not how the assessee treats it, that determines taxability. The fee received from Authorised Assistants was held to be taxable income, falling within the decision in Commissioner of Income-tax v. Calcutta Stock Exchange Association Ltd. Regarding Members' admission fees, the Court found that the company's income was distributable amongst its shareholders, and the body of trading members who paid entrance fees and the shareholders were not identical. Therefore, the element of mutuality was lacking. The Court applied the principle from Liverpool Corn Trade Association v. Monks, where entrance fees paid by members were included in the association's receipts for computing profits. The Court dismissed the appeals, upholding the High Court's judgment.

What were the facts?

The assessee, Delhi Stock Exchange Association Ltd., is challenging the taxability of admission fees received from Members and Authorised Assistants for the assessment years 1947-48, 1948-49, 1949-50, and 1950-51. The company was incorporated in 1947 to promote and regulate the business of stock exchange. Its capital was divided into shares on which dividends could be earned. The company provided a building and made rules for business conduct. The Income-tax Officer disallowed the deduction of admission fees, adding them back to the income. The Appellate Assistant Commissioner set aside some additional assessments, but the Income-tax Appellate Tribunal deleted the disputed amounts from assessment. The High Court, however, answered the reference question in favour of the Revenue, holding the fees taxable. The assessee appealed to the Supreme Court.

What were the issues?

1. Whether the admission fees of Members and Authorised Assistants received by the assessee are taxable income in its hands, as per Section 10(1) of the Indian Income-tax Act, 1922 (implied). Assessee's contentions: The amount received as membership fee was shown as capital in the company's books, and there was no periodicity, therefore, it should be treated as a capital receipt exempt from assessment. Revenue's contentions: The High Court was correct in holding that the appellant was not a mutual society, that it had share capital on which dividends could be earned, and that the real object of the company was to carry on business as a Stock Exchange and earn profits. Therefore, the admission fees fell within the ambit of "profits and gains of business, profession or vocation". The High Court also noted that the alternative argument under Section 10(6) of the Act was not decided.

Which sections of the Income-tax Act were involved?

Section 10(1),Section 10(6)

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798 SUPREME COURT REPORTS (1961] In our opinion the High Court was in error and the question referred should have been decided in favour Ch . Mahar~jsa of the appellant.

We therefore allow the appeal, set inta111a•U aran . . .

Nath Sah Deo aside the judgment and order of the High Court and v. answer the question in favour of the appellant who The Commissio"'' will have his costs in this Courc and the High Court. of lncome-taK.

Bihar 6- Orissa T<apur ]. .. Vovetnber 30. Appeal allowed. DELHI STOCK EXCHANGE ASSOCIATJON LTD. v . COMMISSIONER OF INCOME TAX, DELHI (J. L. KAPUR, M. HIDAYATULLAH and J.C. SHAH, JJ.)

Income-tax-Assessment-Company running a Stock Exchange and dealing in shares-Admissionfees of Members and Authorised Assistants-If taxable income.

The object with which the appellant company was formed was to promote ~nd regulate the business in shares, stocks and securities etc., and to establish and conduct a Stock Exchange in order to facilitate the transaction of such business. Its capi- tal was divided into shares on which dividend could be earned.

It provided a building wherein business was to be transacted under its supervision and contr

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