Income Tax Act, 1961:
Exemption from income tax – Of certain receipts by Cooperative 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 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 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 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 – Exigibility to tax – Held: The Notification is applicable only to cooperative 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.
Dismissing the appeals of Revenue and allowing that of the 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 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 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 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]
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 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 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 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]
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 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 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 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 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. 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.
Commissioner of Income Tax, Madras v. Kumbakonam 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 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.
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 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.
Mittal Court Premises Co-operative Society Ltd. v. Income Tax Officer (2010) 320 ITR 414 (Bom) – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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