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TMI Blog2018 (3) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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. In the exercise of the powers conferred upon the State Government under Section 79A of the Maharashtra Cooperative Societies Act, 1960 following orders are hereby issued in the larger interests of the people in the State - The rate of premium to be charged for the transfer Flat/Premises as well as the rights and share in the share capital/property of the Cooperative Housing Society by a member in favour of another, should be determined at the General Meeting of the Society. No reason to take a view different from that taken by the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PPEAL NO(s).2734 OF 2018 (arising out of SLP(C) No. 29755/2013) CIVIL APPEAL NO(s).2735 OF 2018 (arising out of SLP(C) No. 17430/2015) CIVIL APPEAL NO(s).2736 OF 2018 (arising out of SLP(C) No. 17431/2015) CIVIL APPEAL NO(s).2740 OF 2018 (arising out of SLP(C) No. 37702/2016) CIVIL APPEAL NO(s).2739 OF 2018 (arising out of SLP(C) No. 36157/2016) CIVIL APPEAL NO(s).2737 OF 2018 (arising out of SLP(C) No. 34865/2016) CIVIL APPEAL NO(s).2738 OF 2018 (arising out of SLP(C) No. 34866/2016) CIVIL APPEAL NO(s).2741 OF 2018 (arising out of SLP(C) No. 4122/2017) CIVIL APPEAL NO(s).2742 OF 2018 (arising out of SLP(C) No. 4126/2017) CIVIL APPEAL NO(s).2743 OF 2018 (arising out of SLP(C) No. 12234/2017) CIVIL APPEAL NO(s).27662767 OF 2018 (arising out of SLP(C)Nos.65826583/ 2018 @ Diary No(s). 14603/2017) CIVIL APPEAL NO(s).2747 OF 2018 (arising out of SLP(C) No. 19340/2017) CIVIL APPEAL NO(s).2744 OF 2018 (arising out of SLP(C) No. 18935/2017) CIVIL APPEAL NO(s).27682769 OF 2018 (arising out of SLP(C)Nos.65856586 @ Diary No(s). 14672/2017) CIVIL APPEAL NO(s).27712772 OF 2018 (arising out of SLP(C)Nos.65876588/ 2018 @ Diary No(s). 14675/2017) CIVIL APPEAL NO(s).2770 OF 2018 (arising out of SLP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, to the extent that it was beyond 10% of the service charges/maintenance charges permissible under the notification dated 09.08.2001, stands excluded from the principle of mutuality and was taxable. The order was upheld by the Commissioner of Income Tax (Appeals). The Income Tax Appellate Tribunal held that the notification dated 09.08.2001 was applicable to cooperative housing societies only and did not apply to a premises society. It further held that the transfer fee paid by the transferee member was exigible to tax as the transferee did not have the status of a member at the time of such payment and, therefore, the principles of mutuality did not apply. The High Court set aside the finding that payment by the transferee member was taxable while upholding taxability of the receipt beyond that specified in the government notification. 4. Shri K.R. Radhakrishnan, learned senior counsel appearing on behalf of the Revenue in all the appeals, submitted that the receipts were exigible to tax no sooner that mutuality came to an end and the receipts had an element of profit, also generating a surplus, rendering commerciality to the nature of the activity. The benefit of a common i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , if it was contrary to the law, would be actionable at the instance of the person required to pay such charges as was the case in The New India Cooperative Housing Society (supra). Such receipts will not be exigible to tax so long as the doctrine of mutuality stood satisfied by commonality of identity between the contributors and the participants, and the contribution by the members was utilised for the common benefit of all the members. 8. The receipt of transfer fee before induction to membership under some of the byelaws shall not be liable to tax as the money was returned in the event that the person was not admitted to membership. The appropriation by the society took place only after admission to membership. Once a person was admitted to membership, the members forming a class, and the identity of the individual member being irrelevant, the principle of mutuality was automatically attracted. The receipt essentially was from a member and the fact that for convenience, part of it may have been paid by the transferee, was irrelevant as ultimately the amount was utilised for the mutual benefit of the members including the fresh inductee member. 9. Likewise, non-occupancy c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the general understanding of the doctrine of mutuality that a person could not make a profit from himself. Reliance was also placed on Commissioner of Income Tax, Bihar vs. M/s. Bankipur Club Ltd., (1997) 226 ITR 97 (SC ) = (1997) 5 SCC 394 and Bangalore Club vs. Commissioner of Income Tax and Another, (2013) 350 ITR 509 (SC)= (2013) 5 SCC 509. 13. We have considered the submissions on behalf of the parties. 14. 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. Section 2(24) of the Income Tax Act defines taxable income. The income of a cooperative society from business is taxable under Section 2(24)(vii) and will stand excluded from the principle of mutuality. 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 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter of convenience for the use of the members (and their friends, if any, availing of the facilities occasionally). 21. In the light of the above findings, it necessarily follows that the receipts for the various facilities extended by the clubs to their members, as stated hereinabove 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. 17. In Bangalore Club (supra), after referring to Styles, the doctrine of mutuality was explained further as follows : 8 ..The principle relates to the notion that a person cannot make a profit from himself. An amount received from oneself is not regarded as income and is therefore not subject to tax; only the income which comes within the definition of Section 2(24) of the Act is subject to tax [income from business involving the doctrine of mutuality is denied exemption only in special cases covered under clause (vii) of Section 2(24) of the Act]. The concept of mutuality has been extended to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s returned. The moment the transferee is inducted as a member the principles of mutuality apply. Likewise, 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 byelaws. 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. 20. 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, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the remainder of the term of his office and declare him to be disqualified to be such member for a period of six years from the date of the order: (b) if the person is an employee of the Society, direct the committee to remove such person from employment of the Society forthwith, and if any member or members of the committee, without any good reason or justification, fail to comply with this order, remove the members, appoint other persons as members and declare them disqualified as provided in clause (a) above: Provided that, before making any order under this subsection, the Registrar shall give a reasonable opportunity of being heard to the person or persons concerned and consult the federal Society is affiliated. Any order made by the Registrar under this section shall be final. 22. In The New India Cooperative Housing Society (supra), the challenge by the aggrieved was to the transfer fee levied by the society in excess of that specified in the notification, which is a completely different cause of action having no relevance to the present controversy. It is not the case of the Revenue that such receipts have not been utilised for the common benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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