1981 (7) TMI 84 - AT - Income Tax

Summary

Issues Involved:
1. Mutuality principle applicability
2. Taxability of receipts from members for lease allotment
3. Taxability of 50% excess received on transfer of lease

Detailed Analysis:

1. Mutuality Principle Applicability:
The primary issue was whether the activities of the co-operative society constituted a mutual concern, thereby making it non-taxable. The Tribunal held that the society must succeed on this ground. The society was formed for a public purpose, namely, to provide housing sites and facilities to its members, and not to carry on a business of purchasing and selling land or earning income from leasing out the land. The society's bye-laws, which stipulate that the land remains the property of the society and is only leased out to members, further support the non-profit motive. The Tribunal cited the Gujarat High Court decision in CIT vs. Shri Jari Merchants Association and the Supreme Court decision in CIT vs. Royal Western India Turf Club Ltd., emphasizing the principle of mutuality, which states that contributors to the fund and recipients from the fund must be identical. The Tribunal concluded that the society's activities were mutual in nature and thus exempt from tax.

2. Taxability of Receipts from Members for Lease Allotment:
The second issue was whether the amounts received from members at the time of lease allotment were taxable. The Tribunal held that these receipts were exempt on the principle of mutuality and did not constitute income. The society collected these amounts to cover the cost of amenities and development of the land. The receipts were considered reimbursements for expenses incurred in the betterment of the land, and any surplus was to be used for further improvements. The Tribunal noted that the amounts collected were not the market value of the lease but were decided by the committee based on several factors, including civic amenities and development costs.

3. Taxability of 50% Excess Received on Transfer of Lease:
The third issue was whether the 50% excess received by the society on the transfer of lease from one member to another was taxable. The Tribunal held that these receipts were also exempt from tax. The society remained the owner of the land, and the transfer involved only the leasehold interest. The excess amount received was considered a contribution towards the development and betterment of the land. The Tribunal emphasized that the society's activities extended over two decades, and the amount of lease obtainable from a member varied over time. The 50% excess was seen as a contribution towards ongoing development costs and not as a profit or capital gain. The Tribunal rejected the Department's argument that these receipts were expectant and regular, noting the uncertainty of when and whether a transfer would occur and result in an excess.

Conclusion:
The Tribunal dismissed the appeals, holding that both types of receipts-amounts collected from members at the time of lease allotment and 50% excess received on transfer of lease-were not taxable in the hands of the assessee co-operative society. The society's activities were deemed to be mutual in nature, and the receipts were considered reimbursements for development and betterment expenses, thus exempt from tax.