Mutuality principle shields co-operative housing society receipts from tax where member contributions fund common benefits and surplus remains mutual.

Receipts collected by a co-operative housing society from members on allotment of leasehold plots and on transfer of lease were held not taxable as income because the principle of mutuality applied. The Court found identity between the contributors to the common fund and the persons entitled to the surplus, and treated the collections as made for members' common benefit and amenities. The fact that the corpus was not divisible on winding up, or that surplus use was regulated by statute and bye-laws, did not destroy mutuality on these facts.

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Issues: Whether the receipts collected by a co-operative housing society from its members on allotment of leasehold plots and on transfer of lease by members were taxable income or were exempt on the principle of mutuality.

Analysis: The decisive test was whether there was identity in character between those who contributed to the common fund and those who participated in the surplus, and whether the society collected money from members only for their mutual benefit. The Court applied the settled principle that a mutual concern does not earn taxable profit from dealings with its own members, and held that the possibility of a different mode of utilisation of surplus on dissolution did not destroy mutuality in the facts of the case. The statutory scheme of the Gujarat Co-operative Societies Act, 1961 and the society's bye-laws showed that the surplus was earmarked for the members' common purposes and amenities, and the receipts from allotment and transfer were part of that mutual arrangement.

Conclusion: The receipts were not taxable as income of the society, and the principle of mutuality applied in favour of the assessee.

Ratio Decidendi: Where a co-operative society collects money from its members and applies it for their common benefit, with identity of character between contributors and participators, the receipts are not taxable income, even if the corpus is not divisible on winding up and the surplus is regulated by statute or bye-laws.

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