1. These two appeals by the assessee are directed against the order of the Deputy Commissioner of Income-tax (Appeals), E-Range, Mumbai, and pertain to the assessment years 1987-88 and 1988-89.
2. Briefly the facts : The assessee is a Co-operative Housing Society.
It is registered under section 10 of the Bombay Co-operative Societies Act, 1925. During the assessment year 1987-88, a sum of Rs. 1,06,150 and for the assessment year 1988-89, a sum of Rs. 1,05,130 were received on the transfer of plots. These amounts were reflected in the accounts as "transfer fees".
It was stipulated in the Agreement that if the building is used for not less than 10 years then at the rate of Rs. 250 per sq.yd. and in other cases at the rate of Rs. 500 per sq.yd. should be charged from the seller of the plot towards transfer fees.
Before the Assessing Officer it was contended that such transfer fee is not exigible to tax in view of the principle of mutuality. This contention was not accepted. The amount of "Transfer fee" was added to the income. The DCIT(A) upheld the addition. Hence these appeals.
3. Sri Atul K. Jassani, learned counsel for the assessee appeared. The relevant documents and papers were filed. It was vehemently contended that the amount of transfer fee is not exigible to tax under the concept of mutuality. To buttress the point, the learned counsel relied on the following judgments : 1. CIT v. Apsara Co-operative Housing Society Ltd. [1993] 204 ITR 662 (Cal.).
2. CIT v. Adarsh Co-operative Housing Society Ltd. [1995] 213 ITR 677/81 Taxman 241 (Guj.).
4. Sri U. Vishwakumaran, learned D.R. represented the revenue. It was contended that the concept of mutuality will not apply in the facts of the present case. It was submitted that the issue involved in the present appeals stand covered against the assessee by the decision of the jurisdictional High Court rendered in the case of CIT v. Presidency Co-operative Housing Society Ltd. [1995] 216 ITR 321 (Bom.). Our attention was also invited on the decision of the Tribunal rendered in the case of Sea Face Park Co-operative Housing Society Ltd. [IT Appeal Nos. 5314 to 5316 (Bom.) of 1984, dated 16-10-1987], wherein the Tribunal did not apply the concept of mutuality on identical facts.
5. I have heard the rival submissions in the light of the material placed before me and the precedents relied upon. No one can make a profit out of himself. This is an accepted axiom. The general principle applicable to mutual concerns is that the surplus accruing to it cannot be regarded as income, profits or gains for the purpose of income-tax.
In the case of Municipal Mutual Insurance Ltd. v. Hills [1932] 16 Tax Case 430, 447, it was held : "The cardinal requirement is that all the contributors to the common funds must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund, in other words, there must be complete identity between the contributors and the participators." 6. The Hon'ble High Court of Bombay in the case of CIT v. Bombay Oil-seeds & Oil Exchange Ltd. [1993] 202 ITR 198/71 Taxman 351 has held : "The cardinal principle to apply the test of mutuality is that all the contributors to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund. In other words, there must be complete identity between the contributors and the participators." 7. In the K.J. Aiyer's Judicial Dictionary at page 651, 'Mutuality' is defined as reciprocity of obligations, the state of things in which one person, being bound to perform some act, for the benefit of another, that other on his side is bound to do something for the benefit of the former.
8. The Apex Court in the case of CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 (SC) explained the principle of mutuality as under : "Mutual association is an association of persons who agree to contribute funds for some common purpose mutually beneficial and pay back the surplus left out of those funds in the same capacity in which they made the contribution. Thus the receipt was already thereon. They contribute not with an idea to trade but with an idea of mutuality. The receipt which came back in their hands is not a profit because no one can make profit out of himself." 9. In the case of Apsara Co-operative Housing Society Ltd. (supra), it was held that the fee received by the Co-op. Society is not exigible to tax, on the ground of mutuality.
10. In the case of Adarsh Co-operative Housing Society Ltd. (supra), it was held that in all matters where the scope of mutuality has to be considered the particular case and the provisions of law as applicable should not be lost sight of. In the facts of the case, the assessee-society was regarded as a mutual body and, consequently, the amount received by the assessee from its members on allotment of land by lease as also 50 per cent of the amount from its members on transfer of lands by such members has been held not liable to be taxed as income of the assessee.
11. In the case of Presidency Co-operative Housing Society Ltd. (supra), the assessee, a co-operative society took on lease certain land from Bombay Housing Board for the purpose of building houses for its members. It divided the loan so allotted to it into plots in favour of its members by taking an amount, which was, in turn, handed over to the Housing Board. The Lease Deed executed by each of the members in favour of the society stipulated, inter alia, that whenever there was a transfer of a plot by a member in favour of another person half the amount of the premium received by the member would be paid to the society while transferring the plot. On this factual backdrop the Tribunal held that the amount so received by the assessee was a capital receipt and could not be considered as its income. The High Court reversed the decision of the Tribunal. It was noticed by the Hon'ble High Court that the payment was certainly not in repayment of capital on account of parting with any property of the housing society, nor was it repayment of capital instalments. It could not, therefore, all in the category of capital receipt. Looking at from a commercial point of view, the society received the payment under its contract with the lessee every time the lease changed hands. It was the source of income for the society. The receipt of an amount in the hands of the members may be a capital receipt. But that did not mean that the same character of the receipt continued in the hands of the society also. The Society had not received this amount for the transfer of its capital asset. The Society had received this amount because of the terms in its contract of lease which gave to the society this benefit. Moreover, the receipt of this amount by the society, could never be considered as akin to a windfall because the receipt of the amount by the society was in the terms of the contract which had been entered into by the society with its members. Therefore, whenever, there was any excess receipt by the principle on transfer of its interest, the society was entitled to half of this excess. It was true that there was no irregularity about the receipt of such an amount. It depended on the member transferring his interest. But this itself was not sufficient to take away from the receipt the character of income. Even a payment which may be received occasionally can be income. Hence, the amount received by the society was not capital receipt but was assessable to tax as income of the society.
12. The identity of the recipient with the contributor is a condition precedent to enable the benefit of mutuality. In the present case, the contributor is the transferor. De hors such contribution society can put interdict on the transfer because such right remains with the society. By taking the transfer money, society permits the transferor to execute the transfer agreement. Resultantly, a new person enters into the society in place of the old.13. Undoubtedly the transferor had ownership rights over the property.
Jurisprudential concept of ownership as defined by Salmond is - "Ownership is a right over a determinate thing, indefinite in point of user, unrestricted in point of disposition and unlimited point of duration.
Society put clog over the ownership right. Right apropos disposition was encumbered. This is one of the essential ingredients of ownership.
It is within the power of the society to refuse to admit new entrant as a member. Membership of the society for owning the flat was made sine qua non by agreement. Therefore, what society charges is not a voluntary contribution. It is cost for effecting the change. This is a continuous process. On these facts, I find that identity between the contributors and participators did not exist. The contributors goes out after executing the transfer. In his place a new person enters. In these circumstances, the concept of mutuality cannot be extended to the facts of the present case. The income becomes liable to tax as soon as the mutuality is lost. The benefit flowing due to the principle of mutuality cannot be conferred on the society.
14. Having regard to the facts and respectfully following the decision of the jurisdictional High Court I am of the opinion that the amount of 'transfer fee' received by the society is exigible to tax. I, therefore, find no infirmity in the impugned order. Accordingly, I uphold the same.