Person under Income

Tax Law
Dr. P. Sree Sudha, LL.D (NLSIU)
Associate Professor,
DSNLU
Person : Section 2(31)
The term “person” includes:
1. an individual;
2. a Hindu undivided family (HUF);
3. a company;
4. a firm;
5. an association of persons (AOP) or a body of
individuals (BOI), whether incorporated or not;
6. a local authority; and
7. every artificial juridical person not falling with
in any of the preceding categories.
Person
 An individual -a natural human being, i.e.
male, female, minor or a person of sound or
unsound mind.
 A Hindu undivided family (HUF)
 it consists of all persons lineally descended

from a common ancestor and includes their

wives and unmarried daughters.
A company - Section 2(17) defines
(i) any Indian company, or
(ii) any body corporate incorporated by or under the laws of a
country outside India i.e. a foreign company, or
(iii) any institution, association or body which is or was assessable
or was assessed as a company for any assessment year under the
Indian Income Tax Act, 1922 or which is or was assessable or
was assessed under this Act as a company for any assessment
year commencing on or before the 1st day of April, 1970, or
(iv) any institution, association or body, whether incorporated or
not and whether Indian or non-Indian, which is declared by
general or special order of the Board to be a company only for
such assessment year or assessment years (whether commencing
before the first day of April, 1971 or, on or after that date), as
may be specified in the declaration.
Person under Income Tax Act 1961
 A firm -a partnership firm whether registered or not.
 An association of persons or a body of individuals whether
incorporated or not
 The difference between Association of Persons (AOP)and Body of
Individuals (BOI) is that whereas an association implies a voluntary
getting together for a definite purpose, a body of individuals would
be just a body without an intention to get-together. Moreover, the
members of body of individuals can be individuals only whereas the
members of an association of persons can be individual or non-
individuals (i.e. artificial persons).
 A local authority - means a municipal committee, district board,
body of port commissioners, or other authority legally entitled to or
 entrusted by the Government with the control and management of
a Municipal or local fund.
  This
Every is
artificial, a residuary
juridical clause.
person, not If
falling withinthe assessee
any of the above
categories:
does not fall in any of the first six categories,
he is assessed under this clause.
 Generally, a statutory corporation, deity or

charitable institution or an endowment for

charitable or religious purposes falls under
artificial juridical person.
Definition of AOP
 AOP or Association of Person is defined as  a
person under section 2(31)(v ) of the Income
Tax Act . However, what is an Association of
Person itself is not defined
What is AOP
 Hon’ble  Supreme Court which observed in
the case of CIT v Indira Balkrishna (39 ITR
546) that an ‘association of persons’, must be
one in which two or more persons join in a
common purpose or common action, and as
the words occur in a section, which imposes a
tax on income, the association must be one
the object of which is to produce income,
profits or gains.
Case Law
 CIT Vs. Calcutta Stock Exchange Association Ltd., 36
ITR p.222 (SC). -1958
 CIT Vs. Bombay Oilseeds & Oil Exchange Ltd., 202 ITR
pp.198, 206, 210 (Bom.)-1993
 CIT Vs. Adarsh Co-operative Housing Society Ltd., 213
ITR pp.677, 694 (Guj.)-1995
 CIT Vs. Delhi Gymkhana Club Ltd., 155 ITR p.373
(Delhi)-2010
 The Citizens Cooperative Society Ltd vs. ACIT Section
80p 2017
 CIT Vs. Royal Western India Turf Club Ltd., 24 ITR
p.551 (SC) 2019
CIT Vs. Calcutta Stock Exchange Association
Ltd., 36 ITR (SC). -1958

 The respondent-company (i.e. assessee) was incorporated

with a view to taking over the assets and liabilities of an
unincorporated association of Calcutta Stock Exchange an
d to carrying on the affairs of the stock exchange which
had been founded by that association.
 The principal object of the respondent-company was to
facilitate the transaction of business on
the stock exchange. The company was composed of
"members" who might be either individuals or firms, who,
except in the case of parties who had been members of
the unincorporated association had to be elected as such,
and upon such elections had to acquire a share of the
company and pay an entrance fee.
Facts
 The members had to pay a monthly subscription
according to the by laws of the company.
 Under the by-laws of the respondent company,
members with a certain standing, were allowed to
have authorized assistants up to a maximum of six
in number, such authorized assistants were
permitted the use of the premises of
the association and to transact business therein in
the names and on behalf of the members employing
them. The members had to pay an admission fee for
 such authorized assistants.
Facts
 During the accounting year relevant to the assessment year 1945-
46, the respondent/assessee-company received certain amounts
from members by way of entrance fee and subscription in respect of
authorized assistants.
 The ITO held the aforesaid receipts as income of respondent holding
that though the respondent company was a mutual association,
items of income, referred to above, was remuneration definitely
related to specific services performed, and was thus chargeable to
tax within the meaning of section 10(6) of 1922 Act. On second
appeal, Tribunal upheld the order passed by the ITO.
 On reference, the High Court, held that though the assessee was
undoubtedly a trade association, it did not perform any specific
services for its members for remuneration. It accordingly, concluded
that the amount in question was not liable to tax under the
provisions of section 10(6) of 1922 Act.
Facts
 During the accounting year 1944-45
(assessment year 1945-46), the respondent
company received from its members the sum
of Rs. 60,750 as entrance fees, and the sum
of Rs. 15,687 as subscription in respect of
the authorised assistants.
 The company also received during the
aforesaid year, a sum of Rs. 16,000 as fees
for putting the names of companies on the
quotations list.
fee for such Authorized Assistants according to the
following scale :

(a) for the first two Assistants Rs.1,000

(b) for the third Assistant Rs.2,000
(c) for the fourth Assistant Rs.3,000
(d) for the fifth Assistant Rs.4,000
(e) for the sixth Assistant Rs.5,000
(f) for replacement Rs.1,000 The last item of
replacement fee of Rs. 1,000/- is meant to
cover the fee for substituting one Assistant
by another. Before these by-laws were
amended with effect from July 10, 1944
On appeal to the Supreme Court :

(1) Whether on the facts of this case the Income tax Appellate
Tribunal was right in holding that, Authorised Assistants were
not members of the company and as such the amounts of Rs.
15,687/- and 60,750/- received from them as subscriptions
and entrance fees respectively should be included in the
assessable income.
(2) Were these amounts received for specific services performed
by the Association or its members within the meaning of sub-
section (6) of section 10 of the Indian Income-tax Act ?
(3)Whether the sums of Rs. 16,000/- and Rs. 600/-were
remuneration definitely related to specific services performed
by the Association for its members within the meaning of
subsection (6) of section 10 ".
Construction of Section 10 (6)
 The word " services " is a term of a very wide import, but in the
context of s. 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.
 The word " remuneration ", though it includes " wages ", may mean
payment, which, strictly speaking, may not be called wages ".
 It is a term of much wider import including recompense ", " reward
", " payment ", etc. It, therefore, appears to us that the learned
Chief Justice was not entirely correct in equating " remuneration "
with " wages ".
Construction of Section 10 (6)
 The sub-section further requires that the remuneration
should be " definitely related " to the specific services. In
other words, it should be shown that those services
would not be available to the members or such of them
as wish to avail themselves of those services, but for
specific payments charged by the association as a fee for
performing those services.
 After these observations bearing on the interpretation of
the crucial words, we shall now examine each of the
three items of income, separately, to determine the
question whether they answer, or any of them answers,
the description of " services " contemplated by the sub-
section.
Question Number 1
 Firstly, the sum of Rs. 60,750 has been realised from such members as
applied for and obtained permission of the Association to have the use
of Authorized Assistants within the precincts of the Stock Exchange.
 A member of the Association, with the advantage of mutuality, so long
as he transacts business within the precincts of the Association, by
himself or by his partner in the case of a firm, is not required to pay
any such entrance fee but only the fee payable by every member as
such. The entrance fee, thus, is clearly chargeable only from such of the
members as avail themselves of the benefit conferred by the rules of
the Association in that behalf. The entrance fee is, thus, a price paid for
the services of the Association in making suitable arrangements for an
absentee member to transact business on his behalf and in his name by
his representative or agent. The entrance fee in question, therefore,
cannot but be ascribed to the specific services rendered by the
Association in respect of Authorized Assistants who thus become
competent to transact business on behalf of their principal.
Question Number 2
 the sum of Rs. 15,687 which was realised from the
members by way of subscription in respect of their
Authorized Assistants, it is clear that this sum
consists of the contributions severally made by the
members periodically, so as to continue to have the
benefit conferred by the Association of having the
use of their representative or agent even during
their absence.
 There cannot be the least doubt that this is a very
substantial benefit to those members who found it
worth their while to engage the services of
Authorized Assistants. 
Opinion of HC
 In our opinion, therefore, each one of the three sources
of income to the Association, accrues to it on account of
its performing those specific services in accordance with
its rules and by laws. Each one of the three distinct
sources of revenue to the Association, is specifically
attributable to the distinct services performed by the
Association for its members or such of them as avail
themselves of those benefits. And each one of those
services is separately charged for, according to the rate
or schedule laid down by the rules and by-laws of the
Association. In our opinion, therefore, the requirements
of sub-s. (6) of s. 10, have been fulfilled in the present
case.
Stone, C. J., and Kania, J., (as he then was), in the case
of 
Native Share and Stock Brokers' Association v. Commi
ssioner of Income-tax
  " A perusal of the rules referred to in the judgment of the
learned Chief Justice shows that the institution of authorised
clerks exists for the benefits only of those who pay
remuneration of Rs. 100 instead of going to the market and
carrying on their business themselves. Individual members
are permitted to work through an agent. For that the charge
is made. The rules provide for the application and grant for
such permission, registration of the authorised clerks on the
individuals being recognised as clerks of particular
members, supervision over the work of such clerks and
particularly to prevent them from registering contracts either
in their own name or in the name of another member; and a
general supervision over their good behaviour is
contemplated............".
in Commissioner of Income-tax v. Chamber of Commerce,
Alleppey 

 (1). The facts of that case are not similar to those of the case before us,
but the ratio decidendi of that case are relevant. That case referred to
the Alleppey Chamber of Commerce. The Chamber inaugurated a
produce section with the object of promoting the interests of merchants
in general, and of those engaged in the produce trade, in particular, of
acting as arbitrators and collecting and publishing information relating
to the produce trade. Members were admitted to the produce section on
payment of admission fees, monthly fees and contributions at certain
prescribed rates. The question which was referred to the High Court, was
whether the receipts by way of fees and contributions, could be
chargeable under s. 10(6) of the Act, and it was answered in the
affirmative. Though cases in England, by way of precedent for the
decision of the case in hand, have not been cited at the Bar, apparently
because the scheme of the Income-tax law in England is different and
the words of the statute are not in parti material yet there are some
cases which throw some light on the controversy before us.
The Carlisle and Silloth Golf Club v.
Smith (Surveyor of Taxes)
 a golf club which was not incorporated. It was
admittedly a bonafide members' club, but under one of
the terms of its lease, it had to admit non-members to
play on its course on payment of " green fees " at
certain prescribed rates. Those fees were paid by non-
members. Receipts from those fees were entered in the
general accounts of the Club, thus, showing an annual
excess of receipts over expenditure of the Club as a
whole. It was held by Hamilton, J., (as he then was),
that the Club carried on a concern or business in
respect of which it received remuneration which was
assessable to 'income-tax. 
King's Bench Division in The Liverpool Corn Trade
Association, Limited v. Monks (H. M. Inspector of
Taxes)
 In that case, the Liverpool Corn Trade Association,
Limited, was an incorporated body under the 
Companies Act, with the object, inter alia, of protecting
the interests of the corn trade, and of providing a
clearing house, a market, an exchange, and arbitration
and other facilities to the trade. Membership of the
Association was confined to persons engaged in the corn
trade. Each member was required to have one share in
the company, and had to pay an entrance fee and an
annual subscription. Non-members could also become
subscribers. Payments were made to the Association by
members and others for services rendered through the
clearing house, etc.
The Liverpool Corn Trade Association, Limited
v. Monks (H. M. Inspector of Taxes)
 The assessee was taxed on the excess of its receipts over
expenditure. On appeal to the Special Commissioners,
they upheld the assessment. One of the points raised
before the Special Commissioners, was that transactions
with its members were mutual ones, and that any surplus
arising from such transactions, was not a profit assessable
to -income-tax. On appeal, the High Court agreed with
the determination of the Special Commissioners, and held
that any profit arising from the Association's transactions
with members, was assessable to income tax as part of
the profits of its business, and that the entrance fees and
subscriptions received from members must be included in
the computation of such profits. 
Harman, J., in Housden
(Inspector of Taxes) v. Marshall
 a well- known jockey 'contracted with a
newspaper company to make available to its
nominee " reminiscences of his life and
experiences on the turf for the purpose of
writing a series of four articles ", and to
provide photographs, press cuttings, etc. He
was paid pound 750. The question was
whether this amounted to sale of property, or
was a payment for services rendered. It was
held that it was the latter, and that it did not
matter if the service rendered was trivial.
Judgment
 In view of what we have said above as to the
nature of the service which the Association
performed in respect of the Assistants, the
payment of the fee was definitely related to that
service.
 It is, therefore, plain that the case fell within s.
10(6) of the Act. It must, therefore, be held that
the question referred to the High Court should
have been answered in the affirmative, and that
the High Court was in error in giving its opinion
to the contrary.
CIT Vs. Bombay Oilseeds & Oil Exchange Ltd., 202 ITR pp.198,
206, 210 (Bom.)-1993 . B.P. SARAF AND U.T. SHAH, JJ.

 The assessee ran an Exchange for transacting business

in oil, oilseeds etc. Under its bye-law No. 331(1), it was
entitled to charge on each transaction of sale
'lagas', i.e., at the stipulated rates.
 Article 105 of the Articles of Association of the
assessee-company provided that the property, capital
and income of the Exchange when so ever derived shall
be applied solely towards the promotion of the objects
of the company, while article 111 provided that on the
winding up of the Exchange, if there were any surplus
assets left after the payment and discharge of the debts
and liabilities of the Exchange, such surplus asset shall
be equally divided amongst the members.
Facts
 In the assessment years 1963-64 to 1964-65 and 1965-66,
the assessee claimed that the laga receipts did not constitute
its income on the principle of mutuality. The ITO, however,
subjected the same to tax.
 On second appeal, the Tribunal held that the ‘laga' receipts
did not constitute the assessee's income, and as such, were
not liable to assessment under section 28(i) it referred to the
assessee's articles and observed that in the instant case the
right of all the members to contribute to the laga fund was a
subsisting right which could be exercised without the removal
of any impediment and all the members could, therefore,
exercise their right to contribute to the laga funds.
 In these circumstances, according to the Tribunal, they
satisfied the principle of mutuality.
On reference
 the assessee contended by way of alternative
argument that the entire amount received by the
assessee by way of laga having been spent for
various purposes already decided by the
members by resolution passed as far back as in
the year 1959,
 there was a diversion of income by overriding
title and that being so, nothing was left with the
assessee for the purpose of assessment even if it
was held that the receipts in question amounted
to income in the hands of the assessee.
CASES REFERRED TO

 Surat District Cotton Dealers'

Association v. CIT [1959] 35 ITR 121 (Bom.),
  East India Chamber of Commerce
Ltd. v. CIT [1957] 31 ITR 791 (Bom.), 
 CIT v. Kumbakonam Mutual Benefit Fund
Ltd. [1964] 53 ITR 241 (SC), 
 Municipal Mutual Insurance
Ltd. v. Hills [1932] 16 Tax. Cas. 430 and 
 CIT v. Merchant Navy Club [1974] 96 ITR 261

 (AP).
Judgment
 Dr. V. Balasubramaniam, P.S. Jetly and Mrs.
Sengupta for the Applicant. S.E. Dastur, N.A.
Dalvi and B.D. Damodar for the Respondent.
 Saraf, J.—By this reference made in pursuance

of the direction of the High Court

at Bombay under section 256(2) of the
Income-tax Act, 1961 ('the Act'), at the
instance of the revenue the Tribunal has
referred the following three questions of law
to this Court for opinion:
Questions?
 "1. Whether, the Tribunal erred in holding that the
decision of the Bombay High Court in the assessee's
own reference for the assessment year 1949-50
concluded the question of assessability
of laga receipts against the revenue?
 2. Whether, on the facts and in the circumstances of
the case, the Tribunal erred in holding that the test
of mutuality was fully satisfied with regard
to laga receipts?
 3. Whether, on the facts and in the circumstances of
the case, laga receipts were income assessable to
tax?"
The facts giving rise to this reference are as
follows:
 The assessee
— Bombay Oilseeds & Oil Exchange Ltd., Bombay—is a
company incorporated under section 26 of the Indian
Companies Act, 1913. It runs an Exchange for
transacting business in oil, oil seeds, etc. Under its Bye-
law No. 331(1), it is entitled to charge on each
transaction of sale 'lagas', i.e., cess at the stipulated
rates. Bye-law 331(f) authorises the Board, subject to the
approval of the general meeting, to decide the manner
and method of distribution and/or utilisation and/or
apportionment and/or proportion of distribution of the
money recovered as laga or cess under these bye laws
and other bye-laws and/or contract, terms or forms.
Facts
 In pursuance of this power the general meeting of the
members of the assessee held on 6-6-1959 resolved that
one-third of the amount of laga received be credited to the
reserve fund of the Exchange, that 50 per cent of the
remaining two-thirds be credited to Shubhkam Fund, that
25 per cent of the two-thirds be paid to Patan Pinjra Pole.
Article 105 of the Articles of Association of the Company
provides that the property, capital and income of
the Exchange whensoever derived shall be applied solely
towards the promotion of the objects of the company and
no portion thereof shall be paid by way of bonus or
otherwise to the members, except as provided in articles 7
and 111 and except in the case of the winding up of
the Exchange.
Facts
 The assessee received by way of laga a total amount
of Rs. 1,01,740, Rs. 71,645 and Rs. 90,461 in the
three years under consideration. In its assessment
under the Act, the assessee claimed that
the laga receipts did not constitute its income on
the principle of mutuality.
 ITO did not accept this contention of the assessee
and held that the principle of mutuality was not
satisfied in the case of the assessee.
 He, therefore, assessed the laga receipts in the
assessable income of the assessee in all the three
assessment years and subjected the same to tax
'laga' receipt was not liable to tax on
the ground of mutuality.
 this Court in Surat District Cotton Dealers
Association v. CIT [19591 35 ITR 121. The AAC did not
accept the contention of the assessee. According to him,
the decision of this Court relied upon by the assessee
was not applicable to the facts of the assessee's case.
 He relied on an earlier decision of this Court in East
India Chember of Commerce Ltd. v. CIT [1957] 
31 ITR 791, which, according to him, was more apposite
and following the same held that the principle of
mutuality was absent in the case of the assessee. The
AAC, therefore, rejected the appeals of the assessee.
After hearing counsels for the parties
 It was noticed by this Court that in order to bring the
receipt by way of laga to tax under section 10(6) it
was necessary for the department to establish that the
association performs specific services for its members
for remuneration and that the receipts in question
related to such specific services rendered by the
association to its members.
 As in the aforesaid case the taxing authorities had
failed to find any specific service, it was held that
resort cannot be had to section 10(6) of the 1922 Act.
 This judgment, thus, does not lay down any
proposition of law of general application.
Second Issue
 submission of the assessee regarding diversion of income by
overriding title.
 In the instant case there is no dispute that if the laga receipt
constituted income, it was received by the assessee. What
the resolution of the members passed in the General Meeting
in 1959 purported to do was to decide how the amount
received by the assessee from laga had to be applied. It is
well settled legal proposition that an obligation to apply
income which has accrued or arisen or has been received
amounts merely to the apportionment of the income and not
to its diversion.
 The principle of diversion of income by overriding title,
therefore, has no application to the facts of the present case.
Doctrine of Mutuality
 whether the amounts received by the assessee by way
of laga constitute income of the assessee under section
28(i ) of the Act. According to the assessee, it is not so
because the principle of mutuality applies. According to
the revenue, the principle of mutuality has no
application. We have considered the principle of
mutuality. The cardinal requirement to apply the test of
mutuality is that all the 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 a complete identity between the contributors
and the participators.
Surat District Cotton Dealers'
Association (supra)
 "Now, with regard to the lagas, there can be no doubt on the facts that
this is a mutual association and mutuality has been established with
regard to the lagas. The test of mutuality ...in that identity must be
established between the persons contributing to a fund and the
persons entitled to the fund. Now.... it is true...........that the liability to
pay lagas is only upon the sellers, although......as far as the fund of
the Association is concerned, it belongs to all the members and all the
members have the right to participate in it.... Now...........it is not
necessary for the purpose of this identity that there must be an actual
contribution by all the members. His sufficient if all the members have
a right to make a contribution. From that point of view, it is clear that
every member of the Association may be a seller and can be a seller,
and if he is a seller he is bound to contribute to the fund. Therefore, it
would not be true to say that the right to participate in the fund by
paying lagas is restricted to any section of the Association..." (p. 129)
[Emphasis supplied]
East India Chamber of Commerce
Ltd.'s case
 "...There is no subsisting right or subsisting obligation upon every member
of this Chamber to pay the laga. The obligation is only upon a certain class
of members. With regard to the others, the obligation to contribute to this
fund would only arise provided they entered into a transaction on behalf of
a non-member. Therefore, they had to do something and some condition
had to be satisfied before they could become eligible to be contributors to
this fund. Therefore, at no time could it be said that all the members of the
Chamber had a subsisting right to be members of this fund or to be
contributors to this fund. With regard to some there was a subsisting right,
with regard to others the right would only arise provided a particular
condition was satisfied. Let us look at it from another point of view. It is
true that the facilities afforded by this Chamber with regard to maintaining
a ring, making arrangements for delivery orders, etc., were open to all the
members, but as far as the payment for these facilities was concerned, it
was only restricted to a section of the members. The other members,
although they availed themselves of the facilities, had no obligation to
contribute to this fund...." (p. 802)
Doctrine of Mutuality
 CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241
. In this case, the Court quoted with approval the cardinal
requirement of principle of mutuality, as stated by Lord
Macmillan in 
 Municipal Mutual Insurance Ltd. v. Hills [1932] 16 Tax. Cas.
430, that all the 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 being satisfied.
As in the above case, on facts it was found that a shareholder
in the assessee-company was entitled to participate in the
profits without contributing to the funds of the company, the
Supreme Court held that the test of mutuality was not satisfied.
CIT v. Merchant Navy Club [1974] 
96 ITR 261
 "...The contributors to the common fund and the
participators in the surplus must be an identical body.
That does not mean that each member should
contribute to the common fund or that each member
should participate in the surplus or get back from the
surplus precisely what he has paid. What is required is
that the members as a class should contribute to the
common fund and participators as a class must be able
to participate in the surplus. It is immaterial whether
the surplus is paid back to the members in cash or is
put to reserve with the club for its development and for
providing better amenities to its members...." (p. 273)
"331(a) Every member shall pay to the Exchange LAGA
or CESS—

(i)On every hedge transaction of purchase and sale of all oilseeds of his

constituent (whether a member of the Exchange or not) at the rate of 5 paise per
every transaction of purchase and per every transaction of sale of 10 Metric
Tonnes and every hedge transaction of purchase or sale of Groundnut oil at the
rate of 20 paise per 20 Metric Tonnes and every hedge transaction of purchase
or sale of Groundnut cake at the rate of 5 paise per 10 Metric Tonnes.
(ii)On every transaction (other than hedge) of purchase or sale of all oilseeds at
the following rates per every transaction of purchase and per every transaction
of sale:
(a)50 paise per 25 Metric Tonnes.
(b)If less than 25 Metric Tonnes at 9 paise per every 50 bags or part thereof.
******
(f) The Board will, subject to the approval of the General Meeting, decide the
manner and method of distribution and/or utilization and/or apportionment
and/or proportion of distribution of the moneys recovered as Laga or cess under
these bye-laws and under other Bye-laws and/or contract terms or forms...."
Judgment
 It appears that in the instant case, the Tribunal, on
consideration of the various submissions of the
assessee, recorded a definite finding of fact that all
the members of the assessee in fact contributed to
the laga fund. That being so, it cannot be said that
all the members were not contributors. So far as
participators are concerned, undisputed position is
that all the members of the exchange are the
participators. Under the circumstances, evidently
there is a clear identity between the two - the
contributors and the participators
Judgment
 In view of the foregoing discussion, we are of the opinion
that the Tribunal was right in holding that the test of
mutuality was satisfied with regard to laga receipts in the
case of the assessee for the years under consideration
and that in that view of the matter the said receipts did
not constitute income of the assessee, assessable to tax.
  In the result we answer that first question referred to us
in the negative, that is, in favour of the revenue and
against the assessee. We also answer second and third
questions in the negative but in favour of the assessee
and against the revenue.
 Under the facts and circumstances of the case, we make
no order as to costs.
Commissioner of Income-tax*
v.
Delhi Gymkhana Club Ltd 2011 10 taxmann.com 114 (Delhi)

 The assessee-company was running a

recreational club for its members. It was allowed
exemption of income earned from its members on the
basis of 'doctrine of mutuality'. The case of the assessee
was that the income from FDRs in bank, dividend
income, income from the Government securities and
profit on sale of investments, etc., would also attract the
'doctrine of mutuality' and, therefore, no tax was
payable thereupon.
 The Assessing Officer as well as the Commissioner
(Appeals) rejected the submission of the assessee. On
second appeal, the Tribunal held that the 'doctrine of
mutuality' would apply even on the aforesaid income.
the opinion :
 the Apex Court in Chemsford Club v. CIT [2000] 243 ITR 89. Their
Lordships have held that where a number of persons combine
together contribute to a common fund for the financing of some
venture or object and in this respect have no dealings or relations
with any outside body, then any surplus generated cannot in any
sense be regarded as profits chargeable to tax. It has been observed
that what is required to be seen is whether there is complete identity
between the contributors and participators. Once the identity of the
contributor to the fund of the recipients of the funds; the treatment
of the company, though incorporated as a mere entity for the
convenience of the members, in other words as an instruments
obtained to their mandate; and the impossibility that the
contributors should derive profits from contributions made by
themselves to a fund which could only be expended or returned to
themselves is established, the doctrine of mutuality is established."
There are three conditions for applicability of the
principle of mutuality:

 Where a number of persons combine together

contribute to a common fund for the
financing of some venture or object;
 They have no dealings or relation with any

outside body; and

 Surplus generated are not spent for any other

purpose accepting for the welfare of the

principles.
CIT v. Talangang Cooperative Group Housing Society
Ltd. [2010] 195 Taxman 110 (Delhi).
 [2010] 195 Taxman 110 (Delhi). In this case, the assessee was a
cooperative housing society and its preliminary activity was to collect
money from their members for construction of flats/houses and
subsequently allot the same to them. There was no issue that on these
contributions from the members, no tax was payable and principles of
mutuality would be applicable. However, it was found by the Assessing
Officer that certain income was derived from other than construction
activities, viz., equalization charges from new members, maintenance
fund and entry fee from power of attorney holders, interest on delayed
payments and more significantly (which would be relevant for our
purposes) interests from bank from FDRs. All these were not treated as
taxable income by the Assessing Officer. This order of the Assessing
Officer was upheld by the CIT(A), but the Tribunal reversed the aforesaid
orders after applying the principle of mutuality and deleted the additions
made by the Assessing Officer. The Department filed an appeal against
the order of the Tribunal in the Court, which was dismissed.
CIT v. Standing Conference of Public Enterprises
(SCOPE) [2010] 186 Taxman 142 (Delhi).
 In this case again, apart from income generated by the
SCOPE from its members, it was also found that the
assessee had income in the form of deposits with banks and
also in the form of rent from house of convention centre
and from letting out of the part of the premises of the
building occupied by it. Question arose as to whether the
tax is payable on the aforesaid income or that would be
exempted on the application of principle of mutuality.
 The Court held that the principle of mutuality would be
attracted and no tax was payable even on the income
accrued to the assessee in the form of interest from deposit
with bank or rent charged from house of convention centre
or from letting out on part of the premises
In Chelmsford Club [2000] 243 ITR 89 , the
Supreme Court clarified that
 "... where there is identity in the character of
those who contribute and of those who
participate in the surplus, the fact of
incorporation may be immaterial and the
incorporated company may well be regarded
as a mere instrument, a convenient agent for
carrying out what the members might more
laboriously do for themselves. Their Lordships
have laid down the three test before the
principle of mutuality can be applied.
In a nutshell, these tests are:

1.The identity of the contributors to the fund

and the recipients from the fund.
2. The organization exists only for mutual
benefit.
3. The funds can be expended for mutual
benefit or returned to the contributors."
The principle in this behalf was discerned as
under :

 "We understand these decisions to lay down the broad

proposition - that, if the object of the assessee-company
claiming to be a "mutual concern" or "club", is to carry on a
particular business and money is realised both from the
members and from non-members, for the same consideration by
giving the same or similar facilities to all alike in respect of the
one and the same business carried on by it, the dealings as a
whole disclose the same profit earning motive and are alike
tainted with commerciality. In other words, the activity carried on
by the assessee in such cases, claiming to be a "mutual concern"
or "Members' club" is a trade or an adventure in the nature of
trade and the transactions entered into with the members or
non-members alike is a trade/business/transaction and the
resultant surplus is certainly profit - income liable to tax."
Dalhousie Institute v. Asstt. Commissioner,
Service Tax Cell, 2006 (3) STR 311.
 "The principle of mutuality in this case is also
squarely applicable, as going by the definitions of
mandap, mandap keeper and the taxable service, in
this case the facility of use of the premises to the
members by its club cannot be termed to be a
letting out nor the members of the club using the
facility of any portion of the premises for any
function can be termed to be a client. The services
rendered by any person to his client presupposes
the element of commerciality and obviously this
transaction must be involved with the third parties,
as opposed to the members of the club."
Saturday Club Ltd. v. Asstt. Commissioner, Service
Tax Cell (2006) 3 STR 305 in the following manner :

 So far as the merit is concerned, law is well-settled by now that

in between the principal and agent when there is no transfer of
property available question of imposition of service tax cannot be
made available. It is true to say that there is a clear distinction
between the 'members club' and 'proprietary club'. No argument
has been put forward by the respondents to indicate that
the club is a proprietary club. Therefore, if the club space is
allowed to be occupied by any member or his family members or
by his guest for a function by constructing a mandap,
the club cannot be called as mandap keeper, because the club is
allowing his own member to do so who is, by virtue of his
position, principal of the club. If any outside agency is called
upon to do the needful it may raise a bill along with the service
tax upon the club and the club as an agent of the members, is
supposed to pay the same.
Judgment
 Hence, in view of the aforesaid judgment of
this High Court which binds us, we are of the
opinion that no question of law arises for
consideration.
 This appeal is accordingly dismissed.
Citizens Cooperative Society Ltd vs. ACIT Section 80p
2017 - A.K. SIKRI AND ASHOK BHUSHAN, JJ.

 The assessee was a co-operative society. For

relevant assessment year 2009-10, it was
denied the benefit of section 80P on the
ground that it was carrying on the banking
business for public at large and for all
practical purposes it was acting like a co-
operative bank governed by the Banking
Regulation Act, 1949, and its operations were
not confined to its members but to outsiders
as well
Facts
 Hence, the Assessing Officer applied section 80P(4) to deny
deduction and was of the view that benefit of deduction, as
contemplated under the said provision is, inter alia,
admissible to those co-operative societies which carry on
business of banking or providing credit facilities to its
members.
 On appeal, the Commissioner (Appeals) following assessee's
own case in assessment years 2007-08 and 2008-09
rejected the claim for deduction thereby upholding the order
of the Assessing Officer.
 On second appeal, the Tribunal upheld the order of the
Assessing Officer.
 On further appeal, High Court ruled in favour of the revenue.
The distinction between a co-operative bank and a
co-operative society in the following manner:
For this purpose, he referred to the
decision of this Court in 
 CIT v. Bangalore Distt. Coop. Central Bank Ltd. 
[1998] 233 ITR 282/99 Taxman 404 wherein it was held that interest on
Government securities and dividends earned by a Co-operative Society engaged in
banking business is eligible for deduction under Section 80P of the Act, though
said income was not earned from the credit facility provided to its members.
 Also, in CIT v. Nawanshahar Central Cooperative Bank Ltd. 
[2012] 349 ITR 689/210 Taxman 263/25 taxmann.com 237 this Court held that a
Co-operative Society carrying a business of banking would be entitled for
deduction under Section 80P of the Act. Plea of the appellant was that if the
intention of legislature was not to grant deduction under Section 80P(2)( a)(i) to
the cooperative societies carrying on the business of providing credit facilities to
its members, said provision would have been deleted from the Statute. According
to the learned senior counsel, the new proviso to Section 80P(4) which was
brought onto Statute Book is applicable only to cooperative banks and not to
credit cooperative societies. The intention of the legislature in bringing the
cooperative banks into the taxation structure was mainly to bring them on par
with commercial banks.
The main activities of the assessee are in violation of the above
provisions, as seen under:

 As per the information furnished, it was found that the assessee

caters to two distinct categories of people.
 The first category is that of resident members or ordinary members.
 The second category is that of nominal members, who make
deposits with the assessee for the purpose of obtaining loans etc.
 This category of persons is neither members nor nominal/associate
members.
 As noticed, the assessee accepts deposits mostly from the second
category these deposits are mostly kept in FDs.
 With banks to earn maximum returns, a portion of these deposits
are utilized to advance gold loans etc. to members of the first
category.
 It is noticed that the assessee has fixed deposits of
Rs.541699504.39 of Rs. As on 31.3.2007.
Violations
 As understood, the assessee has not obtained any
approval from the Registrar of Societies either to accept
deposits from nominal members (who are actually non-
members as the provisions of law referred above) as well
as for conducting the business of sale of stamps etc.
 Therefore, both in form and substance, the activity is in
violation of the Cooperative Societies Act and Cooperative
Society Rules.
 Apart from the above, a cooperative credit society is not
entitled for deduction u/s 80P(2)(a)(i) on the income from
investment of surplus funds as per decision of IT at
Hyderabad Bench in ITA No. 1141/Hyd/2007 in the case
of SBI Staff Mutually Aided Cooperative Society Ltd."
CIT v. Mahindra & Mahindra Ltd. 
[1983] 144 ITR 225/15 Taxman 1 (SC).
 Therefore, it hardly needs to be emphasised
that all those co-operative societies which fall
within the purview of Section 80P of the Act
are entitled to deduction in respect of any
income referred to in sub-section (2) thereof.
Clause (a) of sub-section (2) gives exemption
of whole of the amount of profits and gains
of business attributable to anyone or more of
such activities which are mentioned in sub-
section (2).
Kerala State Cooperative Marketing Federation Ltd. v. CIT 
[1998] 231 ITR 814/98 Taxman 313, this Court, while dealing
with classes of societies covered by Section 80P of the Act, held
as follows:
 We may notice that the provision is introduced with a view to

encouraging and promoting growth of cooperative sector in

the economic life of the country and in pursuance of the
declared policy of the Government. The correct way of
reading the different heads of exemption enumerated in the
section would be to treat each as a separate and distinct
head of exemption. Whenever a question arises as to
whether any particular category of an income of a
cooperative society is exempt from tax what has to be seen
is whether income fell within any of the several heads of
exemption. If it fell within any one head of exemption, it
would be free from tax notwithstanding that the conditions
of another head of exemption are not satisfied and such
income is not free from tax under that head of exemption..."
Purpose of Section 80P
 The provisions of section 80P were introduced with a
view to encouraging and promoting the growth of the
co-operative sector in the economic life of the country
and in pursuance of the declared policy of the
Government. The different heads of exemption
enumerated in the section are separate and distinct
heads of exemption and are to be treated as such.
Whenever a question arises as to whether any particular
category of an income of a co-operative society is
exempt from tax, then it has to be seen whether such
income fell within any of the several heads of
exemption. If it fell within any one head of exemption,..
Lack of qualificaiton
 Undoubtedly, if one has to go by the
aforesaid definition of 'co-operative bank',
the appellant does not get covered thereby. It
is also a matter of common knowledge that in
order to do the business of a co-operative
bank, it is imperative to have a licence from
the Reserve Bank of India, which the appellant
does not possess.
Mutuality – Cannot be Applicable
 In the present case both the parties to the
transaction are the contributors towards
surplus, however, there are no participators in
the surpluses. There is no common consent of
whatsoever for participators as their identity is
not established. Hence, the assessee fails to
satisfy the test of mutuality at the time of
making the payments the number in referred
as members may not be the member of the
society as such the AOP body by the society is
not covered by concept of mutuality at all."
CIT Vs. Royal Western India Turf Club Ltd., 1954 AIR 85, 1954
SCR 289 - Sastri, M. Patanjali (Cj), Das, Sudhi Ranjan, Bose,
Vivian, Hasan, Ghulam, Bhagwati, Natwarlal H.

 The assessee, the Royal Western India Turf Club Ltd. Was formed
inter alia for the purpose of carrying on the business of a race
course company in all its branches and toestablish clubs, hotels
and other convenience in connection with the property of the
company.
 It had two classes of members, club members, whose number
was limited to 350 and stand members who were elected by
ballot. Every member Paid an entries fee and an annual
subscription.
 The liability of the members was limited by guarantee and if
there was any surplus on winding up, it was to be paid to the
members in equal shares.
 An admission fee was levied from the members for admission
to the Members' Enclosure, and from non- members for
admission to the other Enclosures
Facts
 The company admitted that moneys realised from non-
members were receipts from business and taxable, but
contended that the following items of receipts received from
members were not assessable to income-tax, viz., (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 members whose horses did not run.
 The High Court of Bombay heldthat items 1, 2 and 3 did not
fall either under s. 10(1) ors. 10(6) of the Income-tax Act
and were therefore nottaxable, but item 4 fell within
s. 10(1) and s. 10(6) andwas taxable. The Commissioner
of Income-tax appealed
following two questions 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., Bombay, 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 of 
section 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 
section 10(6)] as a trade, professional or similar association
performing services for its members for remuneration definitely
related to those services within the meaning of section 10(6) of
the Indian Income-tax Act?
In support of its claim for exemption
from tax liability
 The New York Life Insurance Co. v. Styles (Surveyor of
Taxes). 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 the ordinary sense of the
term but each and every holder of a participating policy
became ipso facto a member of the company and as
such became entitled to a share in the assets and liable
for a share in the losses. A calculation was made by the
company of the probable death rate among the
members and the probable expenses and liabilities and
calls in the shape of premia were made on the members
accordingly.
The Cornish Mutual Assurance Co. Ltd. v. The
Commissioners of Inland Revenue
 Indeed, the decision in the Cornish case as to
the surplus of the contributions over the
expenses would have been the same as in
Styles' case (supra) but for the special
provisions of section 52(2)(b) according to
which profit was made to include in the case
of mutual trading concerns the surplus
arising from transactions with members.
Cases cited
 Municipal Mutual Insurance Ltd. v. Hills 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 authorities by co-
operation to insure against fire on favourable 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.
Judgment
 The result, therefore, is that we hold that all the items
of receipts from members referred to in the questions
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 association within the meaning
of section 10(6). In our judgment the High Court
should have answered question No. I in the affirmative
and question No. 2 in the negative.
 The appeal is allowed and we award to the
Commissioner of Income-tax the costs of this appeal
and those of the proceedings in the High Court.