The Commissioner of Income Tax, West Bengal v. The Calcutta Stock Exchange Association Ltd.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeal No. 204 of 1958

Decision Date: 26 March, 1959

Coram: Bhuvneshwar P. Sinha, J.L. Kapur, M. Hidayatullah

In this case, the Court recorded that the petition was brought by the Commissioner of Income-Tax for the State of West Bengal against the Calcutta Stock Exchange Association Limited. The judgment was delivered on 26 March 1959. The Bench consisted of Justice Bhuvneshwar P. Sinha, Justice J. L. Kapur and Justice M. Hidayatullah. The citation of the decision appears as 1959 AIR 763 and 1959 SCR Supl. (2) 459. The matter concerned the applicability of the Indian Income-Tax Act of 1922, specifically section 10(6), to certain fees received by the Stock Exchange association.

The Court noted that section 10(6) of the Indian Income-Tax Act, 1922 (XI of 1922), provides that a trade, professional or similar association which performs specific services for its members for remuneration that is definitely related to those services shall be deemed to be carrying on a business in respect of those services, and the profits and gains arising therefrom shall be taxable. The headnote explained that “performing specific services” means conferring on members a tangible benefit that would not otherwise be available to them except for the payment received by the association for those services.

The factual background set out that the principal object of the respondent company was to facilitate members in conducting business on the Stock Exchange. Its by-laws authorized each member to have a certain number of “Authorized Assistants” who could use the exchange premises and transact business in the name of the member. To obtain such assistance, members were required to pay an admission fee and a monthly subscription for each Authorized Assistant. The by-laws also stipulated that a member could not deal in the shares of a particular company on the Exchange unless the member applied, together with a fee of Rs 1000, for the inclusion of that company’s name on the Quotations List, and such application obtained the approval of the prescribed authority of the respondent company. During the accounting year that was under consideration, the association received from its members the admission fees, the monthly subscriptions for the Authorized Assistants, and the fees for placing company names on the Quotations List.

The issue before the Court was whether the amounts received by the respondent in respect of the admission fees, the subscriptions for the Authorized Assistants, and the fees for inclusion on the Quotations List were liable to tax under section 10(6) of the Indian Income-Tax Act, 1922. The Court held that, with reference to a trade, professional or similar association, the performance of specific services under section 10(6) means that the association confers a tangible benefit on its members that they could not obtain otherwise, except by paying the association. Accordingly, the income received by the respondent company towards the admission fees and the subscriptions in respect of the Authorized Assistants, being the price paid for the services of the respondent company in making suitable arrangements for an absentee member to

It was held that the amount received for enabling a person to conduct business on his own behalf and in his own name through a representative or agent inside the Stock Exchange, together with the fees paid by members for inserting the names of companies that were not already listed on the Quotations List so that transactions could be carried out in respect of the shares of those companies, constituted remuneration that was clearly connected with specific services rendered by the respondent to its members. Accordingly, such remuneration fell within the meaning of section 10(6) of the Indian Income-tax Act, 1922, and was therefore subject to income-tax. The principle was endorsed by the decision in Native Share and Stock Brokers’ Association v. The Commissioner of Income-tax, Bombay, reported in 1946 at page 628 of the Indian Tax Reports. The present appeal was listed as Civil Appeal No. 204 of 1958 and arose from the judgment and decree dated 6 January 1956 delivered by the Calcutta High Court in Income-tax Reference No. 74 of 1953. Counsel for the appellant comprised a team of senior advocates, while the respondents were represented by another team of advocates. The judgment was pronounced on 26 March 1959 by Justice Sinha, who delivered the opinion of the Court.

The matter before the Court concerned the determination of whether the income admitted by the respondent under certain heads was chargeable to income-tax pursuant to the provisions of section 10(6) of the Indian Income-tax Act, 1922 (referred to as “the Act”). The Calcutta High Court, in its judgment dated 6 January 1956, had answered the question in the negative, thereby dissenting from the earlier decision of the Income-tax Appellate Tribunal dated 23 April 1949. For the purpose of deciding the appeal, the Court summarized the essential facts. The respondent was a limited liability company incorporated on 7 June 1933 with the purpose of acquiring the assets and liabilities of an unincorporated body known as the Calcutta Stock Exchange Association and of continuing the business of the Stock Exchange originally established by that Association. The primary objective of the company was to facilitate the conduct of business on the Calcutta Stock Exchange. To achieve this objective, the company was required to formulate rules and by-laws that defined the manner and conditions under which the Exchange’s business could be carried out. Membership of the company comprised individuals or firms who, unless they were already members of the former unincorporated Association, had to be elected, acquire a share in the company and pay an entrance fee. In addition, members were obliged to pay a monthly subscription as prescribed by the by-laws. The by-laws further provided that members possessing a certain standing were permitted to appoint “Authorized Assistants”—a maximum of six per member. These Authorized Assistants were allowed to use the premises of the Association and to conduct business thereon in the names of, and on behalf of, the members who employed them.

The by-laws required each member who wished to employ an Authorized Assistant to pay an admission fee for that Assistant according to a fixed scale. The first two Assistants each attracted a fee of one thousand rupees; the third Assistant required a fee of two thousand rupees; the fourth Assistant a fee of three thousand rupees; the fifth Assistant a fee of four thousand rupees; and the sixth Assistant a fee of five thousand rupees. In addition, a separate fee of one thousand rupees was prescribed for the replacement of an Assistant, meaning that when one Assistant was substituted by another the replacement fee of one thousand rupees had to be paid.

Prior to the amendment that took effect on 10 July 1944, a member could have more than six Authorized Assistants. The amendment limited the number of Assistants that a member could retain to a maximum of six. It also provided that any member who, at the time of the amendment, had more than six Assistants would not be permitted to obtain any replacement for an existing Assistant until the total number of Assistants in that member’s firm had been reduced to six. Rule 5, as amended, subsequently read as follows: “Every candidate applying for admission as Assistant to a member must serve at least for one year as a probationer in the firm of that member. A probationer must apply to the Committee (through the member in whose office he will serve as probationer) in such form as may be prescribed by the Committee by paying one hundred rupees as probationer fee, which will not be refunded in any circumstances.”

Consequently, the admission rules conferred the benefit of employing Authorized Assistants only upon those members—whether individuals or firms—who satisfied the qualifications laid down in the by-laws, who paid the requisite admission fees for each Assistant, and who also paid a monthly subscription for each Assistant in addition to the member’s own subscription to the Company. By imposing a progressively higher admission fee for each additional Assistant, the by-laws evidently sought to discourage the employment of a large number of such Assistants and to cap the total at six.

The by-laws further stipulated that an Authorized Assistant could not enter into any contracts on his own behalf; every contract entered into by an Assistant had to be executed in the name of the member employing him, and the member bore absolute responsibility for the performance of all such contracts and for all transactions effected by the Assistant on his behalf. In addition, the by-laws required that tickets be issued not only to members but also to their Authorized Assistants. A member was obligated to give immediate written notice to the prescribed authority of the Company whenever he terminated the employment of any Authorized Assistant. Upon such termination, the Assistant’s right to use the Association’s premises ceased, and the Assistant was no longer permitted to transact business in the name or on behalf of the former employer.

Finally, the by-laws provided for the supervision of Authorized Assistants to ensure that they operated within the limits of their authority and did not exceed the powers granted to them.

The by-laws required that an authorized assistant could not transact business on behalf of any person or firm other than the member who employed him. During the accounting year 1944-45, which corresponded to assessment year 1945-46, the respondent company received from its members an entrance fee of Rs 60,750. In the same period the company also collected a subscription amount of Rs 15,687 in respect of the authorized assistants. Additionally the company earned Rs 16,000 as fees for placing the names of companies on its Quotations List. The Quotations List is necessary because a company’s shares may be traded on the exchange only after its name has been included on that list. A member, and not the company itself, must apply to have a new company added to the list, and the application requires approval by the association’s prescribed authority. The member must accompany the application with a fee of Rs 1,000, after which the association conducts a prescribed scrutiny and investigation of the applicant’s affairs. If the investigation is satisfactory, the company's name is entered in the Quotations List, thereby generating another source of income for the respondent company. The assessment proceedings later acknowledged that the sums of Rs 60,750, Rs 15,687 and Rs 16,000 were taxable, and the present controversy concerns exactly those amounts. The Income-Tax Officer, by order dated 27 March 1946, held that the three sums were liable to income tax. The officer rejected the assessee’s contention that the authorized assistants were themselves members of the association, and therefore the receipts from them should be exempt. He further observed that, although the respondent was a mutual association, each of the three receipts represented remuneration for distinct services and therefore fell within the definition of taxable income under section 10(6) of the Act. The assessee appealed, and the Appellate Assistant Commissioner, by order dated 30 June 1947, examined the arguments in detail. The commissioner concluded that the authorized assistants were neither members nor substitute members of the association. He held that the assistants acted merely as representatives of the members who employed them, conducting business on the members’ behalf. He noted that the association had enacted rules and by-laws governing the admission, supervision, and termination of such authorized assistants. To support this view, the commissioner relied on the Bombay High Court decision in Native Share and Stock Brokers’ Association v. Commissioner of Income-Tax. The matter was subsequently taken to the Income-Tax Appellate Tribunal, which examined the same issues and ultimately dismissed the appeal, upholding the tax liability.

The Tribunal dismissed the appeal and concurred with the tax authorities that the Authorized Assistants did not qualify as members of the Company within the meaning of the Company’s Articles of Association, and that their status was comparable to the “authorised clerks” in the Native Share and Stock Brokers’ Association at Bombay. In its order the Tribunal observed that the regulation allowing a member to send his authorised assistants to the Company to transact business in the member’s name merely provided an additional facility to members; by regulating the use of authorised assistants the Company rendered specific services to those members whose assistants operated for them, and the receipts the Company derived from these sources fell squarely within the ambit of section 10(6). At the assessee’s request, the Tribunal framed a case and referred several questions of law to the High Court for decision under section 66(1) of the Act. The questions presented were: (1) whether, on the facts of this case, the Income-Tax Appellate Tribunal was correct in holding that the Authorized Assistants were not members of the Company and therefore the sums of Rs 15,687 and Rs 60,750 received from them as subscriptions and entrance fees respectively should be included in assessable income; (2) whether those amounts were 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; and (3) whether the amounts 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 the same subsection. The reference was heard by a Division Bench of the Calcutta High Court consisting of Sir Trevor Harries, Chief Justice, and Justice Banerjee. Before that Bench certain concessions were made. Dr Pal, who also appeared before the Bench, conceded that the Authorized Assistants were not members of the Company. Moreover, both sides agreed that the two sums of Rs 60,750 and Rs 15,687 were not received from the Authorized Assistants, as the Tribunal’s question suggested, but were instead received from members of the Association in respect of their Authorized Assistants. Consequently, the High Court concluded that the questions framed by the Tribunal did not arise because the Tribunal had proceeded on an erroneous factual basis. The Court therefore re-cast the questions, asking whether, in the particular facts and circumstances of the case, the Income-Tax Appellate Tribunal was correct in holding that (a) the amounts of Rs 15,687 and Rs 60,750 received from the Association’s members as subscriptions and entrance fees in respect of Authorized Assistants, and (b) the amounts of Rs 16,000 and Rs 600 received as fees for listing newly floated companies and for recognizing changes in firm names, should be included in the assessee’s assessable income.

In this case the Tribunal was instructed to reconsider the matter in accordance with the newly framed questions, which required it to decide whether the sums of Rs 16,000 and Rs 600 that were received as fees for the enlistment of names of newly floated companies and for the acknowledgment of changes in the styles of firms, respectively, should be treated as part of the assessable income of the assessee. The Tribunal accordingly prepared a fresh statement of facts and submitted that revised statement to the High Court for further consideration. Upon receipt of the revised statement, a Bench comprising Chief Justice Chakravarti and Justice Sarkar heard the matter. The High Court examined the provisions of section 10(6) of the Income-Tax Act and concluded that the present case did not fall within the scope of that provision. In its reasoning the Court observed that, although the assessee was unquestionably a trade association, it did not render any specific services to its members in return for remuneration. The Court then undertook a detailed analysis of the decision of the Bombay High Court in Native Share and Stock Brokers' Association v. The Commissioner of Income-Tax (1), which had been relied upon by the Department. While noting that the differences between the present case and the Bombay High Court decision were “not vital, though they are not immaterial,” the Court declined to adopt the factual findings of that earlier decision, nor did it follow the view expressed by the Travancore-Cochin High Court in Commissioner of Income-Tax v. Chamber of Commerce, Alleppey (2). The Court accepted the submission made by Dr Pal, which was also addressed to this Court, that the phrase “performing specific services for” conveyed a stronger and more precise meaning than the broader expression “render service to.” The Court explained that the former phrase required the actual performance of definite acts that constitute services. It further clarified that such a phrase implies the execution of particular tasks in the interests and for the benefit of the members, under a directly-characterised arrangement. Moreover, the Court held that the terms “for remuneration” and “definitely related to those services” demand that certain specific tasks or functions of a definite character be performed, and that payment for such tasks be made to the association as wages for its labour. The Court cited the authorities (1) [1946] 14 I.T.R. 628 and (2) [1955] 27 I.T.R. 535 in support of this interpretation. Finally, the Court made additional observations on the construction of the critical words of section 10(6), stating that when the provision speaks of a trade, professional or similar association “performing specific services for its members for remuneration,” it envisages, in the Court’s view, services relating to matters that lie outside the mutual dealings for which the association was originally formed and for the transactions that it normally undertakes.

The Court observed that the association existed as a mutual body and that, even if the performance of functions related to the objects of the association were regarded as the performance of a specific service within the meaning of sub-section (6), every function performed would still be a specific service. The Court stated that it does not think that sub-section (6) was intended to cover such a situation. The Court then noted that, unless the assessee were brought within the ambit of sub-section (6) of section 10, the three streams of income received by the association would not be liable to income tax. The Court reproduced the language of sub-section (6) which provides that a trade, professional or similar association performing specific services for its members for remuneration that is definitely related to those services shall be deemed, for the purposes of the provision, to be carrying on a business in respect of those services, and that the profits and gains therefrom shall be taxable. The Court emphasized at the outset that the performance of the services described in the sub-section might not, without the language of the provision, amount to carrying on a business in respect of those services. It pointed out that the use of the term “deemed” indicates a deliberate legislative fiction to treat something as a business which otherwise might not be characterised as such. The Court also remarked that the sub-section is expressed in emphatic terms, and therefore its wording must be examined to determine whether any of the three sums of money in question falls within its scope.

Turning to the meaning of the expression “performing specific services”, the Court held that, in the present context, it signifies “conferring particular benefits” on the members of the association. While the word “services” can have a very wide import, the Court explained that, within section 10 of the Act, its use excludes theological or artistic meanings. In relation to a trade, professional or similar association, the performance of specific services must therefore mean the granting of a tangible benefit to members that would not otherwise be available to them except for payment made to the association for those services. Regarding “remuneration”, the Court observed that although the term includes “wages”, it can also denote any form of payment, reward, recompense or other consideration, and it is therefore broader than merely wages. Consequently, the Court concluded that the learned Chief Justice was not entirely correct in equating remuneration with wages. Finally, the Court reiterated that the sub-section requires the remuneration to be “definitely related” to the specific services, meaning that the services must be unavailable to members unless they make the specific fee charged by the association for those services.

Having set out the interpretation of the crucial terms, the Court proceeded to consider each of the three items of income separately in order to determine whether any of them satisfied the description of “services” contemplated by the subsection. The first item was a sum of Rs 60,750 that had been realized from members who applied for and obtained permission from the Association to use Authorized Assistants within the precincts of the Stock Exchange. It was clear that, unless those members paid the prescribed entrance fees for one or more Authorized Assistants—up to a maximum of six—they could not have obtained the benefit that the rules of the Association conferred upon them. Ordinarily a member transacts business in the precincts of the Association either personally or, in the case of a firm, through his business partner. When a member is very busy and wishes to avail himself of the services of Authorized Assistants, he must pay the prescribed fee. A member who trades in the precincts of the Association by himself or through his partner is not required to pay any such entrance fee; he pays only the standard fee that is payable by every member. Consequently, the entrance fee is chargeable only to those members who actually make use of the benefit created by the Association’s rules. The entrance fee therefore represents the price paid for the specific service rendered by the Association in arranging for an absent member to conduct business through a representative or agent on his behalf and in his name. In this sense the fee is directly attributable to the particular service of providing Authorized Assistants who are competent to transact business for their principal.

The second item of income was a sum of Rs 15,687 that had been realized from the members by way of a subscription in respect of their Authorized Assistants. This amount consisted of periodic contributions made individually by the members so that they could continue to enjoy the benefit of having an authorized representative or agent to act on their behalf during periods of absence. There was no doubt that this constituted a substantial benefit for those members who deemed it worthwhile to engage the services of Authorized Assistants. While a member was not obligated, as noted above, to employ an Assistant, the very fact that he chose to do so by paying the prescribed fee or subscription served as positive proof that a businessman, who ordinarily evaluates matters in monetary terms, found the assistance valuable enough to provide additional payment to the Association as recompense for the benefit conferred. Thus, this subscription was likewise an amount received in consideration of a specific service rendered by the Association, namely, the provision of an Authorized Assistant capable of transacting business on behalf of the member.

The Court explained that the amount of Rs 16,000 was received by the Association as fees from its members for permitting those members to submit applications that sought the inclusion of company names which were not already featured on the Quotations List. By allowing such applications, the Association enabled the shares and stocks of the newly listed companies to become tradable on the Stock Market. The Court noted that the fee was not payable by the companies whose shares were to be listed; instead, the fee had to be paid by the member who originated the proposal and who, in his judgment, found it advantageous to pay the prescribed amount to the Association. The Court observed that a member would only make such a payment if he believed that the expense was worthwhile, indicating that the member was interested in having the stocks of that particular company admitted to market trading. Consequently, the Court held that the sum of Rs 16,000 was directly linked to the specific services provided by the Association, namely the facilitation of transactions involving the shares of the company in question—services that would not have been available to members collectively, nor to any individual member, absent the Association’s intervention. The Court further concluded that each of the three identified sources of income to the Association derived from the performance of distinct services in accordance with its rules and by-laws. It emphasized that every source of revenue could be traced to a particular service rendered for members or for those members who chose to avail themselves of the benefit, and that each service was charged separately according to the rate or schedule established by the Association’s governing documents. In the Court’s view, this satisfied the conditions laid down in subsection (6) of section 10 of the relevant statute. Turning to the remaining argument accepted by the High Court, the Court addressed the interpretation of subsection (6) of section 10, which referred to services concerning “matters outside the mutual dealings for which the Association was formed.” The Court rejected any limitation on the statutory language as suggested by the appellants. It observed that the mutuality of the Association pertained only to benefits that accrued to every member upon payment of the standard dues, but it was incorrect to assert that additional payments for extra services could not be considered part of the Association’s mutual benefits. Moreover, the Court found it erroneous to argue that the services in question must lie outside the objects of the Association. The Court stated that even if the Association provided services to those members who chose to avail themselves of benefits that were not strictly within its primary business activities, such benefits would still be conferred by the Association and therefore fell within its permissible scope of operation.

Because the Association must operate only within the limits set by its objects of incorporation, the Court examined the language of the relevant sub-section and concluded that, given the facts and circumstances of the present matter, the three sources of income identified for the Association fall within the ambit of the income-tax statute. In reaching this conclusion, the Court agreed with the earlier decision of the Bombay High Court rendered by a Bench consisting of Chief Justice Stone and Justice Kania (as he then was) in the matter of Native Share and Stock Brokers’ Association v. Commissioner of Income-tax. The Court observed that the facts of that precedent case are closely analogous to the facts before us, even though there may exist minor variations in the rules and by-laws of the respective Associations. In the Bombay case, the rules of the Stock Brokers’ Association, which operated as the Bombay Stock Exchange, established a clear scheme permitting members to employ authorised clerks and set out the procedures for admission, conduct, control and supervision of those clerks, primarily for the benefit of the members who employed them. The High Court held that the fees collected by the Association in respect of the authorised clerks constituted income that was taxable under the statute. After a detailed analysis of the rules and by-laws of the present Association, Chief Justice Stone made observations that are equally applicable here. He stated that the rules create a definite, organised arrangement that is controlled and supervised by the Association for the benefit of its members. He further explained that the implementation of this scheme amounts to the performance of services for the members, and that although the benefit of the scheme ultimately extends to all members because all enjoy disciplined supervision over the authorised clerks and remisiers of others, the fact that payment for the scheme is made only by those members who actually use the authorised clerks does not alter the character of the income.

Justice Kania, in a separate but concurring opinion, added that a review of the rules cited by the Chief Justice shows that the institution of authorised clerks is intended solely for the advantage of those members who prefer to pay a remuneration of Rs 100 rather than conduct the market business themselves. He noted that individual members are allowed to work through an agent, for which a charge is levied. The rules provide for the application and grant of permission, the registration of authorised clerks, and the recognition of those clerks as agents of particular members. They also prescribe supervision over the work of such clerks, particularly to prevent them from registering contracts in their own name or in the name of another member, and to ensure general supervision over their conduct. Justice Kania highlighted that the question before the Court was whether these provisions constitute specific services for particular members or represent duties performed towards members generally. While acknowledging that several of the services may be useful to other members, he concluded that, taken as a whole, the scheme represents a performance of services by the Association for the benefit of the members who pay the remuneration. The Court reproduced these extensive quotations from the Bombay High Court because, in its view, they accurately apply the provisions of subsection (6) of section 10 to associations such as the one before it. The Court also referred to another decision, Commissioner of Income-Tax v. Chamber of Commerce, Alleppey, noting that although the factual matrix of that case differs from the present one, its ratio decidendi remains relevant to the issues under consideration.

The judgment observed that the rules prohibited clerks from registering contracts in their own name or in the name of another member and required general supervision of their conduct. A question arose whether such provisions created services directed to particular members or whether they imposed duties toward the membership as a whole. The Court acknowledged that many of the services could also benefit other members in the conduct of their business. Considering the totality of the arrangement, the Court concluded that the Association performed services for the benefit of those members who paid the stipulated remuneration. The present judgment reproduced these extensive passages from the Bombay High Court because, in the Court’s view, they aptly illustrate the application of sub-section (6) of section 10 to associations of this nature. The Court then turned its attention to another relevant authority, Commissioner of Income-tax v. Chamber of Commerce, Alleppey (1). Although the factual matrix of that case differed from the present dispute, the Court found its ratio decidendi to be instructive. The Chamber of Commerce had established a produce section whose purpose was to promote the interests of merchants generally and, more specifically, to serve those engaged in the produce trade. Among its activities the Section acted as an arbitrator and compiled and published information relevant to the produce market. Membership to the produce section was granted upon payment of an admission fee, a monthly fee and other contributions fixed at prescribed rates. The issue presented to the High Court was whether the fees and contributions collected could be taxed under section 10(6) of the Income-tax Act. The court answered affirmatively, holding that such receipts fell within the ambit of taxable income under the provision.

Subsequently the judgment turned to English authority, noting that although English cases were not directly cited because of divergent statutory schemes, they nevertheless offered useful insight. One such case was The Carlisle and Silloth Golf Club v. Smith (Surveyor of Taxes) (2). The club was an unincorporated, bona fide members’ club that, under its lease, was obliged to admit non-members to play on the course for prescribed green-fees. Payments made by non-members were entered into the club’s general accounts, resulting in an overall surplus of receipts over expenditures. Hamilton, held that the club carried on a business for which it received remuneration, and that such remuneration was assessable to income-tax. He pointed out that the (1) [1955] 27 I.T.R. 535. (2) (1912) 6 Tax Cas. 48. receipts from non-members went to augment the club’s funds and its revenue. The Court therefore considered that these authorities supported the view that receipts derived from services rendered to members and from non-member fees constituted taxable income under the relevant provision.

In the earlier judgment of the King’s Bench Division in The Liverpool Corn Trade Association, Limited v. Monks (H. M. Inspector of Taxes) (1), the facts closely resembled those of the present matter. The Liverpool Corn Trade Association was an incorporated body formed under the Companies Act with the purpose of protecting the interests of the corn trade and of providing a clearing house, a market, an exchange, arbitration and other facilities to the trade. Membership was restricted to persons engaged in the corn trade. Each member was required to hold one share in the company and to pay an entrance fee together with an annual subscription. The Association also permitted non-members to become subscribers. Payments were received from members and other persons for services rendered through the clearing house and related facilities. The assessable income of the Association was computed as the excess of its receipts over its expenditure. When the assessment was challenged before the Special Commissioners, they upheld the tax liability. One of the issues raised before the Special Commissioners was that transactions with members were mutual and that any surplus from such transactions should not be treated as taxable profit. On appeal, the High Court affirmed the Special Commissioners’ view, holding that any profit arising from the Association’s dealings with its members was taxable as part of the profits of its business and that the entrance fees and subscriptions received from members had to be included in the profit computation.

It was later suggested that the service provided in the present case was extremely trivial and that the large remuneration did not have a definite connection with the service. However, Upjohn, J., in Bradbury (H. M. Inspector of Taxes) v. Arnold (1) observed that the extent of the services was immaterial. He stated that “There is no doubt that a contract for services may, and clearly does, form a matter for assessment under Case VI of Schedule D, and not the less so that the services to be rendered are trivial or that they are to be rendered once and for all so that the remuneration may be regarded as a casual profit arising, out of a single and isolated transaction.” The same principle was reiterated by Harman, J., in Housden (Inspector of Taxes) v. Marshall (2). In that case a well-known jockey contracted with a newspaper to provide reminiscences of his life and experiences on the turf for a series of four articles, together with photographs and press cuttings, for a payment of £750. The court held that the payment was for services rendered and not a sale of property, and that the triviality of the service did not affect its character as taxable remuneration.

Applying the foregoing reasoning to the present facts, the fee paid to the Association was clearly linked to the service it performed in respect of the assistants. Consequently, the matter fell within section 10(6) of the Act. The High Court’s earlier conclusion to the contrary was therefore erroneous. The appeal was consequently allowed, with costs awarded both in this Court and in the lower courts.

The contractor was engaged to write a series of four articles on turf, and, in addition, to supply photographs, press cuttings and related material. For completing these tasks the contractor received a sum of seven hundred and fifty pounds. The legal issue that arose was whether the receipt of this sum represented a sale of property or, alternatively, constituted payment for services rendered. The authority examined held that the appropriate characterization was the latter – that is, payment for services – and further observed that the triviality of the service did not affect this classification. Applying the same reasoning, the Court noted that, as previously discussed, the service performed by the Association in connection with the Assistants was clearly a service, and that the fee paid to the Association was directly linked to that service. Consequently, it was evident that the present matter fell within the scope of section ten sub-section six of the Act. Accordingly, the question that had been referred to the High Court should have been answered in the affirmative, and the High Court’s contrary opinion was therefore erroneous. For this reason the appeal was allowed and costs were awarded both in this Court and in the subordinate proceedings. The decision was supported by the authorities reported in (1) [1957] 37 Tax Cases 665, 669 and (2) [1958] 3 All England Reports 639, and the appeal was consequently permitted.