SIND COOP HSG SOCIETY Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) In all these appeals, the appeal is admitted on the following question:

(2.) As the question of law arises not only in these appeals but also in several other companion appeals and Writ Petitions which were on board we have heard the learned Counsel appearing in those appeals and petitions while deciding these appeals. For the sake of brevity some of the facts from the appeals filed by Sind Coop. Housing Society Ltd. will be considered. The Tribunal by its Order dated, 23rd June, 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. V/s. Income Tax Officer1, (21004) 88 ITD 159 (MUM)*. 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 beipg 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 benefit of its members. In order to satisfy the test of mutuality, the contributers and the participants in the common fund must be identical. When one looks at the contributers or participant/s one must look to the class and not whether an individual member has contributed an X amount, or the very same member gets back the same amount. The members body is a fluctuating body. The members may come and go but as a class, they remain as contributers and participants in the common fund. The transfer fees paid by the incoming members are akin to admission fees and entrance fees paid by the incoming member of a club. The mutual concern it is submitted may take any form. It can be incorporated or unincorporated body and also a Co-operative society. The word participation in that context does not mean actual distribution to the members. It is enough if they have the right to decide how to distribute or pay the surplus on winding up. Section 110 of the Maharashtra Co-operative Societies Act, 1960 (hereinafter, referred to as Act) read with Rule 90 of the M.C.S. Rules (hereinafter, referred to as Rules) provides, that the Liquidator shall distribute such surplus amongst the members or to any public charity etc as would be specified by them i.e. Members. It is submitted that the Tribunal overlooked this principle while holding that the contribution by the transferee would not attract the principle of mutuality. In the case of a transfer the amount can only be adjusted if such transferee is admitted as a member. If the transferee is held to be a stranger and he make the payment of transfer fees, it would be in the nature of gift and certainly not income.