2001 (8) TMI 86

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....elevant assessment years 1977-78, 1978-79 and 1979-80, respectively, from its members was not exempt on the principle of mutuality?" The petitioner-assessee is a co-operative society. It provides technical advice to the member-societies in lieu of the subscriptions. The petitioner received contributions from its members during the three years as noticed above. It claimed that the contributions made by the member-societies were not exigible to the levy of income-tax by the principle of mutuality. The Assessing Officer rejected the claim. The order having been confirmed by the Appellate Assistant Commissioner and the Tribunal, the assessee filed a petition under section 256(1) of the Income-tax Act, 1961. Hence, this reference. Mr. Garg....

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...., to dispose of the surplus, if any, remaining after paying the claims against the society, in such a manner as may be prescribed." Rule 65 provides as under: "65. Disposal of surplus assets (s. 59(k).-After discharging the liabilities of the co-operative society and repayment of share capital, the liquidator may utilise the surplus assets, if any, for one or more of the following purposes: (a) deposit the amount in a co-operative an until a new co-operative society with similar area of operation is registered when it shall be credited to the reserve fund of the new co-operative society; (b) any purpose connected with the development of the co-operative movement, subject to the approval of the Registrar; (c) an object of publ....

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....ower to collect contributions, etc., at a rate to be fixed by the board of directors with the approval of the Registrar. Neither the assessee nor the contributors have complete control over the funds. Mr. Garg contends that by virtue of the doctrine of mutuality the contributions made by the members cannot be treated as income. If the requirements of the principle of mutuality are satisfied, the contention is unexceptionable. However, "mutuality" implies that the members act for mutual benefit. It involves an element of reciprocity. The funds are collected and spent for mutual good. The surplus is returned to the contributor. The contributors have complete control over the funds. What is the position in the present case? The mem....