Supreme Court of India
INCOME TAX OFFICER, MUMBAIversusVENKATESH PREMISES COOPERATIVE SOCIETY LTD.
- Citation
- 2018 INSC 232
- Decided
- 12 March 2018
- Disposal
- Disposed off
- Bench
- R F NARIMAN
Holding
Receipts used for the common benefit of members in a cooperative society, including non‑occupancy, transfer and amenity fund charges, are exempt from tax under the doctrine of mutuality, and the 2001 notification under Section 79‑A applies only to housing societies, not to premises societies.
Summary
The Supreme Court examined whether receipts such as non‑occupancy charges, transfer charges and common‑amenity‑fund contributions received by a premises cooperative society from its members are taxable as business income or exempt under the doctrine of mutuality. The Court held that the doctrine of mutuality, based on common‑law principles, excludes from tax any amount received from members that is used for the common benefit of the members, even if a surplus remains. The Court further ruled that the Government notification dated 09‑08‑2001 issued under Section 79‑A of the Maharashtra Co‑operative Societies Act applies only to housing societies and not to premises societies, so the notification does not render the receipts taxable. Consequently, the receipts, including transfer fees paid after a member is inducted, are exempt from tax. All appeals filed by the Revenue were dismissed and the appeal of the assessee‑society was allowed.
Issues considered
- The applicability of the doctrine of mutuality to receipts such as non‑occupancy charges, transfer charges and common‑amenity‑fund contributions of a cooperative society.
- Whether the Government notification dated 09‑08‑2001 under Section 79‑A of the Maharashtra Co‑operative Societies Act, 1960 applies to a premises cooperative society.
- Whether transfer fees paid by a transferee before induction as a member constitute taxable business income.
- Whether a surplus in the common fund of a cooperative society amounts to taxable income.
Legislation cited
- Income Tax Act, 1961s. 133(6), s. 2(24)
- Maharashtra Co-operative Societies Act, 1960s. 79-A
Subjects
doctrine of mutualitycooperative societyincome tax exemptionnon‑occupancy chargestransfer chargescommon amenity fundSection 79‑AMaharashtra Co‑operative Societies Acttaxable incomesurplus
Judgment
214 [2018]
SUPREME COURT 3 S.C.R. 214
REPORTS [2018] 3 S.C.R.
A INCOME TAX OFFICER, MUMBAI
v.
VENKATESH PREMISES COOPERATIVE SOCIETY LTD.
B (Civil Appeal No. 2706 of 2018)
MARCH 12, 2018
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
C Income Tax Act, 1961:
Exemption from income tax – Of certain receipts by Co-
operative Societies from its members i.e. non-occupancy charges,
transfer charges, common amenity fund charges etc., on the basis
of doctrine of mutuality – Stand by Revenue that such receipts are
D in the nature of business income, generating profits and surplus,
having an element of commerciality and therefore exigible to tax –
Held: Doctrine of mutuality is premised on the theory that a person
cannot make a profit from himself – The essence of the principle
lies in the commonality of the contributors and the participants who
are also beneficiaries – There has to be complete identity between
E the contributors and the participants – Any surplus in the common
fund shall not constitute income but will only be an increase in the
common fund meant to meet sudden eventualities – The receipts in
the present cases have been used for mutual benefit towards
maintenance of the premises, repairs, infrastructure and provision
F of common amenities and hence will fall within purview of mutuality
– Doctrine of Mutuality.
Receipts by Housing Society, to the extent they were beyond
the limits specified in the Government Notification dated 09.08.2001
issued u/s. 79-A of Maharashtra Co-operative Societies Act –
G Exigibility to tax – Held: The Notification is applicable only to co-
operative housing societies and not to a premises society which
consists of non-residential premises – Hence, the receipts in the
present case fall within purview of doctrine of mutuality and
therefore, not exigible to tax – Maharashtra Co-operative Societies
Act, 1960 – s. 79-A.
H
214
INCOME TAX OFFICER, MUMBAI v. VENKATESH PREMISES 215
COOPERATIVE SOCIETY LTD.
Dismissing the appeals of Revenue and allowing that of the A
assessee-Society, the Court
HELD : 1.1 The doctrine of mutuality, based on common
law principles, is premised on the theory that a person cannot
make a profit from himself. An amount received from oneself,
therefore, cannot be regarded as income and taxable. The B
essence of the principle of mutuality lies in the commonality of
the contributors and the participants who are also the
beneficiaries. The contributors to the common fund must be
entitled to participate in the surplus and the participators in the
surplus are contributors to the common fund. The law envisages
a complete identity between the contributors and the participants C
in this sense. The principle postulates that what is returned is
contributed by a member. Any surplus in the common fund shall
therefore not constitute income but will only be an increase in
the common fund meant to meet sudden eventualities. A common
feature of mutual organizations in general, can be stated to be D
that the participants usually do not have property rights to their
share in the common fund, nor can they sell their share. Cessation
from membership would result in the loss of right to participate
without receiving a financial benefit from the cessation of the
membership. [Para 14] [222-E-H; 223-A]
E
1.2 Section 2(24) of the Income Tax Act defines taxable
income. The income of a co-operative society from business is
taxable under Section 2(24)(vii) and will stand excluded from the
principle of mutuality. [Para 14] [223-D]
1.3 The receipts in the present cases have indisputably F
been used for mutual benefit towards maintenance of the premises,
repairs, infrastructure and provision of common amenities. [Para
19][225-E-F]
1.4 Non-occupancy charges are levied by the society and
is payable by a member who does not himself occupy the premises G
but lets it out to a third person. The charges are again utilised
only for the common benefit of facilities and amenities to the
members. Contribution to the common amenity fund taken from
a member disposing property is similarly utilised for meeting
sudden and regular heavy repairs to ensure continuous and proper
H
216 SUPREME COURT REPORTS [2018] 3 S.C.R.
A hazard free maintenance of the properties of the society which
ultimately enures to the enjoyment, benefit and safety of the
members. These charges are levied on the basis of resolutions
passed by the society and in consonance with its bye-laws. [Para
19] [225-C-D]
B 1.5 Transfer charges are payable by the outgoing member.
If for convenience, part of it is paid by the transferee, it would
not partake the nature of profit or commerciality as the amount
is appropriated only after the transferee is inducted as a member.
In the event of non-admission, the amount is returned. The
moment the transferee is inducted as a member, the principles
C of mutuality apply. [Para 19] [225-B-C]
1.6 Any difference in the contributions payable by old
members and fresh inductees cannot fall foul of the law as
sufficient classification exists. Membership forming a class, the
identity of the individual member not being relevant, induction
D into membership automatically attracts the doctrine of mutuality.
If a Society has surplus FSI available, it is entitled to utilise the
same by making fresh construction in accordance with law.
Naturally such additional construction would entail extra charges
towards maintenance, infrastructure, common facilities and
E amenities. If the society first inducts new members who are
required to contribute to the common fund for availing common
facilities, and then grants only occupancy rights to them by draw
of lots, the ownership remaining with the society, the receipts
cannot be bifurcated into two segments of receipt and costs, so
as to hold the former to be outside the purview of mutuality
F classifying it as income of the society with commerciality. [Para
20] [225-F-H; 226-A]
Commissioner of Income Tax, Bihar v. M/s. Bankipur
Club Ltd., (1997) 226 ITR 97 (SC) : (1997) 5 SCC
394 : [1997] 1 Suppl. SCR 263 ; Bangalore Club v.
G Commissioner of Income Tax and Another (2013) 350
ITR 509 (SC) : (2013) 5 SCC 509 : [2013] 1 SCR
267; Chelmsford Club v. Commissioner of Income Tax,
(2000) 3 SCC 214 – relied on.
H
INCOME TAX OFFICER, MUMBAI v. VENKATESH PREMISES 217
COOPERATIVE SOCIETY LTD.
Commissioner of Income Tax, Madras v. Kumbakonam A
Mutual Benefit Fund Ltd., AIR 1965 SC 96 : [1964] 8
SCR 204 – distinguished.
Commissioner of Income Tax-21 v. Jai Hind
Co-operative House Construction Society, (2012) 349
ITR 541 (Bom) ; Commissioner of Income Tax, Mumbai B
v. D.P. Sandhu Bros. Chembur (P) Ltd., (2005) 273 ITR
1 (SC) ; CIT v. Royal Western India Turf Club Ltd.,
AIR 1954 SC 85 : [1954] SCR 289 ; The Commissioner
of Income Tax v. Common Effluent Treatment Plant,
(Thane Belapur) Association, (2010) 328 ITR 362
(Bom) – referred to. C
Styles v. New York Life Insurance Company, (1889) 2
T.C. 460 – referred to.
2. The notification dated 09.08.2001 is applicable only to
co-operative housing societies and has no application to a D
premises society which consists of non-residential premises.
[Para 24] [227-G]
The New India Co-operative Housing Society v. The
State of Maharashtra, 2013 (2) MHLJ 666 –
distinguished. E
Mittal Court Premises Co-operative Society Ltd. v.
Income Tax Officer (2010) 320 ITR 414 (Bom) –
referred to.
Case Law Reference
F
2013 (2) MHLJ 666 distinguished Para 4
[1964] 8 SCR 204 distinguished Para 4
(2000) 3 SCC 214 relied on Para 4
(2010) 320 ITR 414 (Bom) referred to Para 6
G
(2012) 349 ITR 541 (Bom) referred to Para 10
(2005) 273 ITR 1 (SC) referred to Para 12
[1954] SCR 289 referred to Para 12
H
218 SUPREME COURT REPORTS [2018] 3 S.C.R.
A [1997] 1 Suppl. SCR 263 referred to Para 12
[2013] 1 SCR 267 referred to Para 12
(1889) 2 T.C. 460 referred to Para 15
(2010) 328 ITR 362 (Bom) referred to Para 18
B
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2706
of 2018.
From the Judgment and Order dated 11.01.2010 of the High Court
C of Judicature at Bombay in ITA No.680 of 2009
WITH
Civil Appeal Nos.3271, 3272 and 3827 of 2012, Civil Appeal
Nos.1180 of 2015, Civil Appeal Nos.2997 and 8741 of 2017, Civil Appeal
D Nos. 2708, 2707, 2713, 2710, 2709, 2711, 2712, 2716, 2714, 2715, 2717,
2728, 2718, 2720, 2721, 2719, 2722, 2724, 2726, 2723, 2725, 2727, 2729,
2730, 2731, 2732, 2733, 2734, 2735, 2736, 2740, 2739, 2737, 2738, 2741,
2742, 2743, 2766-2767, 2747, 2744, 2768-2769, 2771-2772, 2770, 2746,
2745 and 2765 of 2018.
E K. Radhakrishnan, Aman Sinha, Yashank Adhyaru, Aman Sinha,
Ajay Vohra, Sr. Advs, Rupesh Kumar, Sarad Kumar Singhania, Deepak
Prakash, Pravesh Thakur, Ms. Anil Katiyar, Saswat Pattanaik, Ms. Kavita
Jha, Shiv Kumar Suri, B.V. Balaram Das, Farookh Irani, Subrat Birla,
S.C. Birla, Sahil Kapoor, Sumit Lalchandani, Anil K. Chopra, Sanat
Kapoor, Ms. Ananya Kapoor, Ms. Soumya Singh, Kslaya Parashar,
F Kamal Mohan Gupta, S. Basudevan, Saurav Sood, Ankur Saigal,
Ms. Aastha Mehta, Mrs. Shally Bhasin, Nikhil Nayyar, N. Sai Vinod,
Dhananjay Baijal, Ms. Smriti Shah, Divyanshu Rai, Salil Kapoor,
Kishlay Parashar, Rashmikumar Manilal Vithlani, Aditya Panda,
Dr. Shashwat Bajpai, Sharad Agarwal, V.N. Raghupathy, Parikshit P.
G Angadi, Md. Apzal Ansari, Mrs. V.D. Khanna, Anil K. Chopra, Imran
Burney, Arvind Kumar, Pratap Venugopal, Ms. Kanika Kalaiyarasan,
M/s K J John and Co., Siddhartha Dave, Ms. Jentiben AO, Senthil
Jagadeesan, Nandini Gore, Mandeep Kalra, M/s Karanjawala & Co.,
Siddhartha Chowdhury, Sanjeeb Panigarhi, S. Mahrotra, Advs for the
appearing parties.
H
INCOME TAX OFFICER, MUMBAI v. VENKATESH PREMISES 219
COOPERATIVE SOCIETY LTD.
The Judgment of the Court was delivered by A
NAVIN SINHA, J. 1. Delay condoned. Leave granted in all the
Special Leave Petitions.
2. A common question of law arises for consideration in this batch
of appeals, whether certain receipts by co-operative societies, from its
B
members i.e. non-occupancy charges, transfer charges, common amenity
fund charges and certain other charges, are exempt from income tax
based on the doctrine of mutuality. The challenge is based on the premise
that such receipts are in the nature of business income, generating profits
and surplus, having an element of commerciality and therefore exigible
to tax. The assessee in Civil Appeal No.1180 of 2015 assails the finding C
that such receipts, to the extent they were beyond the limits specified in
the Government notification dated 09.08.2001 issued under Section 79-
A of the Maharashtra Co-operative Societies Act, 1960 (hereinafter
referred to as ‘the Act’) was exigible to tax falling beyond the mutuality
doctrine.
D
3. The primary facts, for better appreciation shall be noticed from
SLP (C) No.30194 of 2010. The assessing officer held that receipt of
non-occupancy charges by the society from its members, to the extent
that it was beyond 10% of the service charges/maintenance charges
permissible under the notification dated 09.08.2001, stands excluded from
the principle of mutuality and was taxable. The order was upheld by the E
Commissioner of Income Tax (Appeals). The Income Tax Appellate
Tribunal held that the notification dated 09.08.2001 was applicable to
co-operative housing societies only and did not apply to a premises society.
It further held that the transfer fee paid by the transferee member was
exigible to tax as the transferee did not have the status of a member at F
the time of such payment and, therefore, the principles of mutuality did
not apply. The High Court set aside the finding that payment by the
transferee member was taxable while upholding taxability of the receipt
beyond that specified in the government notification.
4. Shri K.R. Radhakrishnan, learned senior counsel appearing on G
behalf of the Revenue in all the appeals, submitted that the receipts
were exigible to tax no sooner that mutuality came to an end and the
receipts had an element of profit, also generating a surplus, rendering
commerciality to the nature of the activity. The benefit of a common
identity between the contributors and the participants could not alone be
H
220 SUPREME COURT REPORTS [2018] 3 S.C.R.
A the final test. The Tribunal had correctly held that the transferee not
being a member at the time of payment, the doctrine of mutuality had no
application to such receipts. The principle of mutuality could not be invoked
to prevent taxability of high value receipts by a society selling properties
and then inducting such purchasers as members. The validity of the
notification dated 09.08.2001 having been upheld by the Bombay High
B
Court in The New India Co-operative Housing Society vs. The State
of Maharashtra, 2013 (2) MHLJ 666, any receipt by the society beyond
that permissible in the law under the notification, was not only illegal, but
also amounted to rendering of services for profit attracting an element
of commerciality and thus was taxable. It stands to reason that if the
C society levied maintenance charge upon a resident member at the rate
of Rs.1.35 per sq.ft./p.m. and charged the much higher rate of Rs.7/-
per sq.ft./p.m. as non-occupancy charges from others, the society was
acting commercially to earn profit. Reliance was placed on
Commissioner of Income Tax, Madras vs. Kumbakonam Mutual
Benefit Fund Ltd., AIR 1965 SC 96 = (1964) 8 SCR 204, Chelmsford
D
Club vs. Commissioner of Income Tax, (2000) 3 SCC 214.
5. Sri Radhakrishnan, sought to invoke Article 43B of the
Constitution of India mandating professional management of co-operative
societies, to justify taxability of receipts beyond that permissible under
the government notification. Reliance was further placed on Article 243ZI
E to submit that economic participation had to be restricted to members
and had no application to a transferee who was not a member, rendering
receipt from them sans mutuality taxable.
6. The submission on behalf of the respondents shall be considered
cumulatively for convenience except to the extent necessary. Relying
F on Mittal Court Premises Co-operative Society Ltd. vs. Income Tax
Officer, (2010) 320 ITR 414 (Bom), it was submitted that the notification
dated 09.08.2001 was restricted in its application to housing co-operative
societies only and had no application to a premises Society. Any receipt
by the latter beyond the same was thus not exigible to tax on that ground.
G 7. The receipt by a housing co-operative society of an amount
beyond that mentioned in the notification dated 09.08.2001, if it was
contrary to the law, would be actionable at the instance of the person
required to pay such charges as was the case in The New India Co-
operative Housing Society (supra). Such receipts will not be exigible
H to tax so long as the doctrine of mutuality stood satisfied by commonality
INCOME TAX OFFICER, MUMBAI v. VENKATESH PREMISES 221
COOPERATIVE SOCIETY LTD. [NAVIN SINHA, J.]
of identity between the contributors and the participants, and the A
contribution by the members was utilised for the common benefit of all
the members.
8. The receipt of transfer fee before induction to membership
under some of the bye-laws shall not be liable to tax as the money was
returned in the event that the person was not admitted to membership. B
The appropriation by the society took place only after admission to
membership. Once a person was admitted to membership, the members
forming a class, and the identity of the individual member being irrelevant,
the principle of mutuality was automatically attracted. The receipt
essentially was from a member and the fact that for convenience, part
of it may have been paid by the transferee, was irrelevant as ultimately C
the amount was utilised for the mutual benefit of the members including
the fresh inductee member.
9. Likewise, non-occupancy charges were levied for the purpose
of general maintenance of the premises of the Society and provision of
other facilities and general amenities to the members. The fact that D
such members who were not in self occupation may have had to pay at
a higher rate was irrelevant so long as the receipts were utilised for the
benefit of the members as a class. It is not the case of the Revenue
that such receipts had been utilised for any purpose other than the
common benefit of the members. Even if any amount was left over as E
surplus at the end of the financial year after meeting maintenance and
other common charges, that would constitute surplus fund of the society
to be used for the common benefit of members and to meet heavy repairs
and other contingencies and will not partake the character of profit or
commerciality so as to be exigible to tax.
F
10. Relying on Commissioner of Income Tax-21 vs. Jai Hind
Co-operative House Construction Society, (2012) 349 ITR 541 (Bom),
it was contended that premium receipts by a housing society for allowing
a member to construct using extra FSI was also not taxable on principles
of mutuality as the receipts were utilised by the society for maintenance
and infrastructure including to defray the extra burden on account of the G
additional FSI constructed.
11. Fresh construction by a society itself, utilising extra FSI
available, with grant of occupancy rights only to a member who may
have had to pay more as membership fees than an existing member, will
H
222 SUPREME COURT REPORTS [2018] 3 S.C.R.
A likewise not detract from the principle of mutuality as the contribution
was ultimately to be used for the maintenance, repairs and facilities to
members in the society including the additional construction. There could
be no bifurcation between the receipts and costs to deny exemption to
the extent paid by the new members to qualify the same as non-mutual.
Crucially, the admission to membership preceded the payment and
B
allotment of premises was done by draw of lottery.
12. It was next submitted that every receipt could not ipso facto
be classified as income, relying on Commissioner of Income Tax,
Mumbai vs. D.P. Sandhu Bros. Chembur (P) Ltd., (2005) 273 ITR 1
(SC). Referring to CIT vs. Royal Western India Turf Club Ltd., AIR
C 1954 SC 85, it was submitted that so long as the three tests to determine
mutuality and commonality of interests were met, there could not be
exigiblity to tax under the general understanding of the doctrine of
mutuality that a person could not make aprofit from himself. Reliance
was also placed on Commissioner of Income Tax, Bihar vs. M/s.
D Bankipur Club Ltd., (1997) 226 ITR 97 (SC ) = (1997) 5 SCC 394
and Bangalore Club vs. Commissioner of Income Tax and Another,
(2013) 350 ITR 509 (SC)= (2013) 5 SCC 509.
13. We have considered the submissions on behalf of the parties.
14. The doctrine of mutuality, based on common law principles, is
E premised on the theory that a person cannot make a profit from himself.
An amount received from oneself, therefore, cannot be regarded as
income and taxable. Section 2(24) of the Income Tax Act defines taxable
income. The income of a co-operative society from business is taxable
under Section 2(24)(vii) and will stand excluded from the principle of
F mutuality. The essence of the principle of mutuality lies in the
commonality of the contributors and the participants who are also the
beneficiaries. The contributors to the common fund must be entitled to
participate in the surplus and the participators in the surplus are
contributors to the common fund. The law envisages a complete identity
between the contributors and the participants in this sense. The principle
G postulates that what is returned is contributed by a member. Any surplus
in the common fund shall therefore not constitute income but will only be
an increase in the common fund meant to meet sudden eventualities. A
common feature of mutual organizations in general can be stated to be
that the participants usually do not have property rights to their share in
H the common fund, nor can they sell their share. Cessation from
INCOME TAX OFFICER, MUMBAI v. VENKATESH PREMISES 223
COOPERATIVE SOCIETY LTD. [NAVIN SINHA, J.]
membership would result in the loss of right to participate without receiving A
a financial benefit from the cessation of the membership.
15. The doctrine of mutuality based on common law is predicated
on the principles enunciated in Styles vs. New York Life Insurance
Company, (1889) 2 T.C. 460, by Lord Watson in the House of Lords in
the following words: B
“When a number of individuals agree to contribute funds for a
common purpose, such as the payment of annuities or of capital
sums, to some or all of them, on the occurrence of events certain
or uncertain, and stipulate that their contributions, so far as not
required for that purpose, shall be repaid to them, I cannot conceive C
why they should b regarded as traders, or why contributions
returned to them should be regarded as profits.”
16. In Bankipur Club Ltd. (supra),considering the surplus of
receipts over expenditure generated from the facilities extended by a
club to its members and its exemption from tax on principles of mutuality, D
it was observed :-
“20……..In all these cases, the appellate tribunal as also the High
Court have found that the amounts received by the clubs were
for supply of drinks, refreshments or other goods as also the letting
out of building for rent or the amounts received by way of admission E
fees, periodical subscription etc. from the members of the clubs
were only for/towards charges for the privileges, conveniences
and amenities provided to the members, which they were entitled
to as per the rules and regulations of the respective clubs. It has
also been found that different clubs realised various sums on the
above counts only to afford to their members the usual privileges, F
advantages, conveniences and accommodation. In other words,
the services offered on the above counts were not done with any
profit motive and were not tainted with commerciality. The facilities
were offered only as a matter of convenience for the use of the
members (and their friends, if any, availing of the facilities G
occasionally).
21. In the light of the above findings, it necessarily follows that
the receipts for the various facilities extended by the clubs to their
members, as stated hereinabove as part of the usual privileges,
advantages and conveniences, attached to the membership of the
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224 SUPREME COURT REPORTS [2018] 3 S.C.R.
A club, cannot be said to be “a trading activity”. The surplus —
excess of receipts over the expenditure as a result of mutual
arrangement, cannot be said to be “income” for the purpose of
the Act.”
17. In Bangalore Club(supra),after referring to Styles, the doctrine
B of mutuality was explained further as follows :-
“8………..The principle relates to the notion that a person cannot
make a profit from himself. An amount received from oneself is
not regarded as income and is therefore not subject to tax; only
the income which comes within the definition of Section 2(24) of
C the Act is subject to tax [income from business involving the
doctrine of mutuality is denied exemption only in special cases
covered under clause (vii) of Section 2(24) of the Act]. The
concept of mutuality has been extended to defined groups of people
who contribute to a common fund, controlled by the group, for a
common benefit. Any amount surplus to that needed to pursue
D the common purpose is said to be simply an increase of the common
fund and as such neither considered income nor taxable……..A
common feature of mutual organisations in general and of licensed
clubs in particular, is that participants usually do not have property
rights to their share in the common fund, nor can they sell their
E share. And when they cease to be members, they lose their right
to participate without receiving a financial benefit from the
surrender of their membership……”
18. In The Commissioner of Income Tax vs. Common Effluent
Treatment Plant, (Thane Belapur) Association, (2010) 328 ITR 362
F (Bom), the assessee, an incorporated association under Section 25 of
the Companies Act, 1956 comprising of industries operating in the Thane-
Belapur region, was set up with a view to provide a centralised treatment
facility for industrial effluents in view of the inability of each industrial
unit to set up a separate effluent treatment facility. Chandrachud, J. (as
he then was), speaking for the Division Bench, applying the principles of
G mutuality to the surplus so generated not being exigible to tax, held :-
“10. ….The income of the assessee is contributed by its members.
The assessee has been formed specifically with the object of
providing a common effluent facility to its members. The income
is not generated out of dealings with any third party. The entire
H
INCOME TAX OFFICER, MUMBAI v. VENKATESH PREMISES 225
COOPERATIVE SOCIETY LTD. [NAVIN SINHA, J.]
contribution originates in its members and is expended only in A
furtherance of the object of the Association for the benefit of the
members. On these facts, both the Commissioner (Appeals) and
the Tribunal were justified in coming to the conclusion that the
surplus so generated falls within the purview of the doctrine of
mutuality and was not exigible to tax….”
B
19. The proceedings in the present appeals relate to different
assessment years based on information gathered by the Assessing Officer
pursuant to notice under Section 133(6) of the Income Tax Act. Transfer
charges are payable by the outgoing member. If for convenience, part
of it is paid by the transferee, it would not partake the nature of profit or
commerciality as the amount is appropriated only after the transferee is C
inducted as a member. In the event of non-admission, the amount is
returned. The moment the transferee is inducted as a member the
principles of mutuality apply. Likewise, non-occupancy charges are levied
by the society and is payable by a member who does not himself occupy
the premises but lets it out to a third person. The charges are again D
utilised only for the common benefit of facilities and amenities to the
members. Contribution to the common amenity fund taken from a
member disposing property is similarly utilised for meeting sudden and
regular heavy repairs to ensure continuous and proper hazard free
maintenance of the properties of the society which ultimately enures to
the enjoyment, benefit and safety of the members. These charges are E
levied on the basis of resolutions passed by the society and in consonance
with its bye-laws. The receipts in the present cases have indisputably
been used for mutual benefit towards maintenance of the premises, repairs,
infrastructure and provision of common amenities.
20. Any difference in the contributions payable by old members F
and fresh inductees cannot fall foul of the law as sufficient classification
exists. Membership forming a class, the identity of the individual member
not being relevant, induction into membership automatically attracts the
doctrine of mutuality. If a Society has surplus FSI available, it is entitled
to utilise the same by making fresh construction in accordance with law. G
Naturally such additional construction would entail extra charges towards
maintenance, infrastructure, common facilities and amenities. If the
society first inducts new members who are required to contribute to the
common fund for availing common facilities, and then grants only
occupancy rights to them by draw of lots, the ownership remaining with
H
226 SUPREME COURT REPORTS [2018] 3 S.C.R.
A the society, the receipts cannot be bifurcated into two segments of receipt
and costs, so as to hold the former to be outside the purview of mutuality
classifying it as income of the society with commerciality.
21. Section 79A of the Maharashtra Co-operative Societies Act
reads as follows:
B “79A. Government’s power to give directions in the public
interest, etc.- (1) If the State Government, on receipt of a report
from the Registrar or otherwise, is satisfied that in the public interest
or for the purposes of securing proper implementation of co-
operative production and other development programmes approved
C or undertaken by Government, or to secure the proper management
of the business of the Society generally, or for preventing the
affairs of the Society being conducted in a manner detrimental to
the interests of the members or of the depositors or the creditors
thereof, it is necessary to issue directions to any class of societies
generally or to any Society or societies in particular, the State
D Government may issue directions to them from time to time, and
all societies or the societies concerned, as the case may be, shall
be bound to comply with such directions.
(2) The State Government may modify or cancel any directions
issued under subsection (1), and in modifying or cancelling such
E directions may impose such conditions as it may deem fit.
(3) Where the Registrar is satisfied that any person was responsible
for complying with any directions or modified directions issued to
a Society under sub-sections (1) and (2) and he has failed without
any good reason or justification, to comply with the directions, the
F Registrar may by order—
(a) if the person is a member of the committee of the Society,
remove the member from the Committee and appoint any other
person as member of the committee for the remainder of the
term of his office and declare him to be disqualified to be such
G member for a period of six years from the date of the order:
(b) if the person is an employee of the Society, direct the
committee to remove such person from employment of the
Society forthwith, and if any member or members of the
committee, without any good reason or justification, fail to
H
INCOME TAX OFFICER, MUMBAI v. VENKATESH PREMISES 227
COOPERATIVE SOCIETY LTD. [NAVIN SINHA, J.]
comply with this order, remove the members, appoint other A
persons as members and declare them disqualified as provided
in clause (a) above:
Provided that, before making any order under this sub-section,
the Registrar shall give a reasonable opportunity of being heard to the
person or persons concerned and consult the federal Society is affiliated. B
Any order made by the Registrar under this section shall be final.”
22. In The New India Co-operative Housing Society (supra),
the challenge by the aggrieved was to the transfer fee levied by the
society in excess of that specified in the notification, which is a completely
different cause of action having no relevance to the present controversy. C
It is not the case of the Revenue that such receipts have not been utilised
for the common benefit of those who have contributed to the funds.
23. The notification dated 09.08.2001 in the relevant extract reads
as follows:-
D
ORDER
In the exercise of the powers conferred upon the State Government
under Section 79-A of the Maharashtra Co-operative Societies
Act, 1960 following orders are hereby issued in the larger interests
of the people in the State.
E
1) Xxxxxx
2) The rate of premium to be charged for the transfer Flat/
Premises as well as the rights and share in the share capital/
property of the Co-operative Housing Society by a member
in favour of another, should be determined at the General F
Meeting of the Society.
24. We do not find any reason to take a view different from that
taken by the High Court, that the notification dated 09.08.2001 is
applicable only to co-operative housing societies and has no application
to a premises society which consists of non-residential premises. G
25. Kumbakonam (supra), is distinguishable on its own facts.The
doctrine of mutuality was held to be inapplicable because the members
who had not contributed to surplus as customers were nevertheless
entitled to participate and receive part of the surplus. In Chelmsford
H
228 SUPREME COURT REPORTS [2018] 3 S.C.R.
A Club (supra), it was held that there was no profit motive or sharing of
profits as such amongst the members. The surplus, if any, from the
business was not shared by the members but was used for providing
better facilities to the members. There was a clear identity between the
contributors and the participators to the fund and the recipients thereof.
B 26. In the result, all appeals preferred by the Revenue are
dismissed. Civil Appeal No.1180 of 2015 preferred by the assessee society
is allowed.
Kalpana K. Tripathy Appeals disposed of.
C
D
E
F
G
H
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