AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2009 (7) TMI 15
X X X X Extracts X X X X
X X X X Extracts X X X X
....by Sind Coop. Housing Society Ltd. will be considered. The tribunal by its order dated 23.6.2004 in dismissing the appeal has placed reliance on the judgment of the special Bench of the tribunal in Walkeshwar Triveni Coop. Housing Society Ltd. Vs. Income Tax Officer (21004) 88 ITD 159 (MUM)(SB). The Special Bench of the tribunal therein observed that amounts received as donations towards welfare fund, common amenities fund, is in fact a transfer fee. It held that in so far as the amount paid by the transferor member, the principle of mutuality would apply and that amount would not be subject to tax. The tribunal however, held that in so far as transferee is concerned, as at the time of effecting the transfer, the transferee being not a member, the amount received from the transferee would not be satisfying the test of mutuality and consequently is exigible to tax. 3. At the hearing of this appeal, on behalf of the appellants, their learned counsel contends that on facts there is no dispute that in none of the activities carried on by the society, is there any commerciality or taint of commerciality. It collects various funds as authorised by its bye-laws, strictly for the be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mber of the same club. The society may have different types of members like associate members, nominal members, sympathizer members who constitute members of the class. Similarly the club can have a class of members who may be permanent, temporary or honorary. Non members however, cannot be equated as belonging to the same class of members. The payment received by the society towards transfer fee is not voluntary payment, because if any incoming/outgoing member does not pay the premium, the flat/plot will not be transferred and the proposed transfer will fall through. There is no element of voluntary contribution in the payment of transfer fees. The premium represents the fixed amount charged by the assessee society to effect change in the membership of the society. The payment is a conditional payment and does not satisfy the test of mutuality. The premium is charged by the society to earn profits. There is absolutely no legal bar on cooperative societies to earn profit. What is required under the Act is that the objects of the cooperative society should not be to make profit. Cooperatives societies can earn reasonable amount of profit which should be assessable to tax. At the tim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tted by the other counsel. In addition it is submitted that the amounts charged are in excess of what is laid down by the bye laws or Government Notification. It is therefore, not voluntary. Similar arguments have been advanced in Income Tax Appeal No. 92 of 2008 by Mrs. Anuradha Mane on behalf of the Revenue. 5. Before, we proceed to answer the issue, let us first consider the relevant bye laws of the Sind Cooperative Housing Society to the extent necessary. Byelaw 6A of the Regulations relating to lease to be granted by the society to the members reads as under : "6A. On every permitted disposition or devolution of or dealing with the said plot and buildings or any part thereof under or by virtue of these regulations the member shall pay to the society : (a) For a plot with completed constructions on its Rs.250/- per sq. meter in respect of the said plot and Rs.100/- per sq. meter of the total covered area of the building, taken floorwise on the said plot, provided that for hits purpose the building areas shall not include compound walls and canopies, or (b) For a plot with incomplete construction on it, (i.e. Where at least the slab is laid), the Member shall pay Rs.50....
X X X X Extracts X X X X
X X X X Extracts X X X X
....se bylaw therefore permit the charging of transfer fee in terms of the notification issued by the Government of Maharashtra. The latter part of byelaw 38(e)(ix) indicates that the transfer fee could be charged from both the transferor or transferee. 8. The Government of Maharashtra, Ministry of Cooperation and Textiles, has issued Notification dated 9.8.2001 cancelling the earlier notification dated 27.11.1989 and directed that the premium shall not exceed what is set out in the notification. The premium ranges from Rs. 5,000/- to Rs.25,000/- depending on the area. The earlier notification dated 27.11.1989 noted that byelaw No. 407 of the then new byelaws for payment of transfer premium to the society was maximum upto Rs. 1000/- while transferring the flat and was very less. It was also set out that if any member wants to transfer the flat to another person, he will have to pay the fee as transfer premium as set out therein which ranges from Rs.5,000/- to Rs.25,000/-. Thereafter by notification of 20.12.1989, it was pointed out that notification of 27.9.1989 would be effective from the date on which the amendment to the bylaw has been approved and suitable provisions t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was in respect of a company limited by shares carrying on banking business restricted to its shareholders. A shareholder was entitled to participate in the profits as and when dividend was declared, even though he had not taken any loan from the respondent. The question was whether the respondent was assessable to tax on the profits derived from these transactions with its shareholders. The court observed that the essence of mutuality lies in the return of what one has contributed to a common fund, and if profits are distributed to shareholders as shareholders the principle of mutuality is not satisfied. The court there noted that the shareholder was entitled to participate in the profits without contributing to the funds of the company by taking loans. On these facts the court held that his position is no way different from the shareholders in the banking company limited by the shares and position of the assessee is no different from an ordinary bank except that it lends money to and receives deposits from its shareholders and that by itself does not make its income any the less income from business within section 10 of the Indian Income Tax Act. 12. In C.I.T. Vs. Royal Wes....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 495. The Supreme Court there noted that the appellant was a company which was an association which carried on a trade and its profits were divisible as dividend amongst the shareholders. The object with which the company was formed was to promote and regulate the business in share, stocks and securities etc. and to establish and conduct the business of a Stock Exchange in Delhi and to facilitate the transaction of such business. The court accordingly held that the principle of mutuality would not apply. 14. In C.I.T. Vs. Presidency CHS Ltd. 1995 (216) ITR 321, in the lease deed of the society, there was a clause whereby the member was to pay a portion of the excess amount received to the society while transferring their rights to another. The only issue considered there was the character of income. The court held that these were not capital receipts but were assessable to tax as income of the society. The issue of mutuality was neither argued nor considered. In C.I.T. Vs. W.I.A.A. Club Ltd. (Bom H.C. ) 218 I.T.R. 569, the court proceeded on the footing that the assessee club had been held to be a trading company. The issue was whether the membership fees received from the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the receipts for the various facilities extended by the clubs to their members, as part of the usual privileges, advantages and conveniences, attached to the membership of the 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. 16. In C.I.T. Vs. Willingdon Sports Club, (2008) 302 ITR 279 (Bom), this court observed as under : "Once a finding is recorded that there is no commerciality and what is being offered are usual privileges, advantages and conveniences that would attract the principle of mutuality." It may be noted that both in Bankipur and Willingdon case, the Supreme Court and this court was concerned amongst others with the admission fees/entrance fees paid by the incoming members. But this fact was not considered relevant so as to effect the principle of mutuality. In Willingdon, this court relied on the quoted passage in the case in Judicial Committee of the Privy Council in Fletcher Vs. Income Tax Commissioner (1971) 3 ALL ER 1185 at page 1189 as under : "....... is the activity, on the one hand, a trade, or an adventure in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....by the society for transfer of flat was not taxable income of the assesee. 19. In C.I.T. Vs. Adarsh Cooperative Housing Society Ltd. (Guj) 213 ITR 677, the issue again was whether on transfer of lease, the amount received by the society from the member out of the premium received by him from the purchaser was exigible to tax. After considering the provisions of the Gujarat Cooperative Societies Act, 1961, the Gujarat High Court noted that the corpus of fund is not divisible as such pro rata between the members on the winding up of the society. However, such surplus is to be devoted to any object or objects provided in the bylaws of the society if they specify that such a surplus shall be utilized for particular purpose. The court therefore, held that the right of the members to deal with the surplus was not destroyed and that did not detract from the concept of return of surplus to members which they had contributed. The court also noted that there was identity of contributors and beneficiaries. It was also reiterated that it is not necessary that the participants of the surplus need be the same individuals who have contributed but they must bear the same character, namely, contri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat the class of members means, members such as permanent, temporary, honorary etc. This is based on the assumption that there can be different classes of members. In a Cooperative Housing Society there can be members and associate members. We have already quoted from the judgments where reference is to members as a class and that class may be diminished by members going out or increased by the members coming in. But the class remains the same. As already noted by the Supreme Court in Bankipur Club (supra), the identity must be as a class of contributers and participants and it does not matter that the class may; be diminished or increased by members going out or coming in. Similarly it is not necessary that each member should contribute or each member should participate in the surplus and get back from the surplus ... what he has paid, as long as they have control over the surplus. 22. It was also sought to be contended that the payment is not voluntary and at any rate the excess amount charged than what is permitted in the bye-laws will be exigible to tax. Firstly whether it is voluntary or not would make no difference to the principle of mutuality. Secondly payments are m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urt there held that even if the case of member or professional association, general fees levied by the association on its members by way of entrance fees or periodical subscription or otherwise would not constitute business. Since these are not related to any specific services rendered by its members. We are in respectful agreement with that view. 26. In so far as Section 80P is concerned, the deduction is available in respect of the charges from certain commercial activities by the cooperative housing society. That is not relevant for the issue being answered. 27. An argument has been advanced that the societies are charging more than the amount as notified or permitted by the Government Notification dated 9.8.2001. The cases before us are for the assessment years previous to that. Earlier notification of 20.12.1989 provided that only if the bye-laws were amended in terms of the notification dated 27.11.1989, then the society could not charge more than what was set out in the notification. We really would not be concerned therefore, in this group of cases with notification as now notified by the Government. If therefore, any amount has been received beyond the amount notif....