The membership fees received by the trade association are not related to any specific services rendered by it to its members and hence it is not taxable.
Bombay HC in the case of CIT vs. Aspee Distributors Association has made following important observation
1. Assessee does not carry on any activity in the nature of trade. Its purpose is basically to encourage fellowship amongst its members who are all distributors of one concern. Undoubtedly each member of the Association carries on trading activities, but the assessee itself does not carry on any trading activity. The aims and objects of the assessee also make it clear that no trading activities are being carried on by the Association. It was also found by the Tribunal that during the relevant assessment years, the assessee did not carry on any trading activity. Hence, the Tribunal was right in coming to the conclusion that the assessee-association was merely a trade association and not a trading association. The membership fees is not taken by the assessee-association for any specific services performed by it to its members. The Tribunal has commented that the assessee does not render any specific services to its members. In view of this fact, as found by the Tribunal, it cannot be said that the membership fees are relatable to any specific services which are rendered by the assessee to its members. The membership fees received by the assessee-association were not related to any specific services rendered by it to its members.
2. The assessee was merely a trade association. Hence, the membership fees were not taxable under s. 28(iii).
3. An association of distributors of a company which does not carry on any activity in nature of trade is merely a trade association and membership fees received by it unrelated to any specific services rendered to its members is not taxable under s. 28(iii).
The copy of the order is as under:
COMMISSIONER OF INCOME TAX vs. ASPEE DISTRIBUTORS ASSOCIATION
Mrs. Sujata V. Manohar, C.J. & Dr. B.P. Saraf, J.
(1994) 121 CTR 0194 (Bom) : (1994) 209 ITR 0294(Bom) : (1994) 76 TAXMAN 0153
Legislation Referred to
Case pertains to
Asst. Year 1973-74, 1974-75, 1975-76, 1976-77
Decision in favour of:
V. Balasubramaniam with J.P. Deodhar, for the Applicant : S.J. Mehta with I.M. Munim, for the Respondent
The assessee is an association of persons consisting of about 125 distributors of M/s American Spring & Pressing Works Pvt. Ltd. The association was formed sometime in 1971 and had adopted a written constitution at its meeting held on 30th Oct., 1971. The aims and objects of the Association are as follows :
“1. To forge and foster co-operation amongst the members of the Association and to strengthen the ties between the members corporately and the principals.
2. To develop business relationship mutually amongst members.
3. To develop and strengthen fellowship amongst members.
4. To promote knowledge of scientific methods of sales promotion, service, market research, publicity, planning, statistics and display amongst Aspee Distributors.
5. In general, to undertake such activities of a temporary or permanent nature, as may be deemed necessary, for promoting the cause of trade, in particular, and to undertake such other measure which might contribute to the fulfilment of the above aims and objects.
6. To award prizes or incentives to agricultural graduates or progressive farmers with a view to encourage excellence in plant protection subjects.
7. To publish a regular bulletin for dissemination of information amongst the members about the special developments in the science of plant protection, in general, and in the affairs of the company and the members, in particular.
8. To undertake such other activities which might contribute to the fulfilment of the above aims and objects.”
The membership of the Association is confined to the distributors of M/s American Spring & Pressing Works Pvt. Ltd., known as Aspee. The fees which are payable by the members are : (a) entrance fee and (b) annual membership fee. Minimum fee is Rs. 150, subject to maximum business of Aspee products worth Rs. 2 lakhs during the year ending 31st December of the previous year. An additional fee of Rs. 75 is charged for every additional Rs. 1 lakh of business or part thereof. The activities of the Association consisted mainly of encouraging fellowship and brotherhood amongst the member-distributors of the different regions of the country and to do all such things which might promote the healthy growth of trade in agricultural inputs, particularly the plant production equipment in which the members deal.
2. The income of the Association consisted of membership fees, interest on deposits and subsidy received from the manufacturing companies. For the asst. yrs. 1973-74 to 1976-77, the question was whether the membership fees received by the assessee came under s. 28(iii) of the IT Act, 1961. The ITO held that the membership fees came under s. 28(iii) of the Act and hence the surplus in the hands of the assessee was liable to be taxed.
3. Ultimately, the matter came up before the Tribunal. The assessee contended before the Tribunal that the income derived by the assessee did not come under s. 28(iii), because it was not received for rendering any specific services to its members. The Tribunal held that considering the aims and objects of the assessee-association as well as the activities carried on by it during the year under consideration, the membership fees were not received by the assessee for any specific services rendered by it to anyone or more of its members and so the assessee-association was not a trading association but was merely a trade association existing for promoting common interest of all its members. It held that the membership fees received by the assessee were not taxable.
4. From this finding of the Tribunal, the following question of law is referred to us at the instance of the Revenue :
“Whether, on the facts and in the circumstances of the case, the membership fees received by the assessee-association were not relatable to any specific services rendered by it to its members and that the assessee was merely a trade association and not a trading association and therefore, the said membership fees were not taxable under s. 28(iii) of the IT Act, 1961 ?”
5. Looking at the facts set out above, it is clear that the assessee is not a trading association. It does not carry on any activities in the nature of trade. Its purpose is basically to encourage fellowship amongst its members who are all distributors of one concern viz. M/s American Spring & Pressing Works Pvt. Ltd. Undoubtedly each member of the Association carries on trading activities, but the assessee itself does not carry on any trading activity. The aims and objects of the assessee also make it clear that no trading activities are being carried on by the Association. It was also found by the Tribunal that during the relevant assessment years, the assessee did not carry on any trading activity. Hence the Tribunal was right in coming to the conclusion that the assessee-association was merely a trade association and not a trading association.
6. Under s. 28(iii) of the IT Act, 1961, any income derived by a trade, professional or similar association from specific services performed for its members is chargeable to income-tax under the head “Profits and gains of business or profession”. In the present case, the membership fee is not taken by the assessee-association for any specific services performed by it to its members. The Tribunal has commented that the assessee does not render any specific services to its members. In view of this fact, as found by the Tribunal, it cannot be said that the membership fees are relatable to any specific services which are rendered by the assessee to its members. In the premises, the question is answered as follows :
The membership fees received by the assessee-association were not related to any specific services rendered by it to its members. The assessee was merely a trade association. Hence the membership fees were not taxable under s. 28(iii) of the IT Act, 1961.
7. The question referred to us is accordingly answered in favour of the assessee and against the Revenue. No order as to costs.
