Income Tax Appellate Tribunal - Chandigarh
Ludhiana Aggarwal Co-Operative House ... vs Income-Tax Officer. on 11 March, 1995
Equivalent citations: [1995]55ITD423(CHD)
ORDER
Per Agrawal - These are two appeals by the assessee relating to assessment years 1978-79 and 1979-80. There is a common issue in both the years and, therefore, these appeals are being decided by this common order.
2. The assessee was a cooperative housing society registered under the Punjab Cooperative Societies Act. Return of income was filed showing nil income in both the years. The society allotted plots of land to its members. Certain charges were recovered from the members and from the receipts, the assessee-society was running a school called as Tagore Public School. A community centre as well as a hospital were also being constructed with the funds raised from the members. Separate accounts (profits and loss account as well as the balance-sheet) were maintained in respect of the receipts and expenditures of the society and in respect of the Tagore Public School. The accounting year ended on 30th June, in both the years. The assessee-society had received transfer fee of Rs. 1,34,000 in the assessment year 1978-79 and Rs. 1,48,400 in the next assessment year. The assessment for the year 1978-79 was finalised on an income of Rs. 1,34,625 and in the next assessment year at Rs. 1,52,150. The Assessing Officer treated the amount received by way of transfer fee as income in the hands of the society. The assessees plea was that the society had received transfer fee from its members for the purposes of certain charitable activities like running a school and operating a community centre. The society had also shown certain interest income as well as rental income. Interest income was exempted by the Assessing Officer under section 80P(2)(a)(i) of the Act. Admission fee was also not subjected to tax. Rental income as well as the amount of transfer fee were brought to tax. The Assessing Officer was of the view that the assessee-society was not an institution wholly or mainly for charitable purposes. It was further noted that the society had not been registered with the Commissioner of Income-tax under section 12A of the Income-tax Act. Therefore, section 11 as well as section 12 were also held to be not attracted.
3. The assessee went in appeal but did not succeed.
4. The Id. counsel for the assessee has submitted that the assessee-society had received transfer fee at the time of transfer of plots from one member to another. While receiving the transfer fee, a receipt was issued and the specific head under which it was to be treated as a donation was also mentioned. In the assessment year 1978-79 (from 1-7-1976 to 30-6-1977) the break up of the receipts by way of transfer fee is as under:
Rs.
(i) Donation from five members in respect of community centre 11,000
(ii) Donation from 11 persons for school 24,000
(iii) Donation from one member to the hospital 1,000
(iv) Donations from 27 members in the A/c of Tagore Public School 98,000 1,34,000 The Id. counsel has, therefore, submitted that while receiving the transfer fee, the assessee-society had specifically shown it under the specific head to which the members had donated money. It is contended that the society was in the nature of a cooperative mutual society and whatever money was collected by way of transfer fee that was utilised to provide facilities to the residents and also for running the school, hospital and a community centre. The income was earned solely for the benefit of the members of the society. Though the school was not restricted to the children of the members and was open to all, it would not affect the applicability of the principle of mutuality. The assessee-society is said to be not carrying on any commercial or trading activity whatsoever. Transfer fee was charged from the members under resolution No. 3 passed by the managing committee of the society at the following rates :-
1. 200 sq. yds of land Rs. 2,000
2. 250 sq. yds of land Rs. 2,500
3. 500 sq. yds of land Rs. 5,000
4. Booth Rs. 500 There were lesser rates in respect of transfers between father and son, husband and wife and brother and sister. The ld. counsel has submitted that the amount collected by the society was utilised for carrying out the charitable objects of the society. The members had paid the amount of transfer fee specifically for charitable purposes. Since the assessee-society was not doing any trading but was a mutual concern rendering various services to the members, there was no question of treating the receipt as taxable income. The society was working for the advancement of the education and also for the benefit of the general public. As regards the receipt of the school, it is said to be exempt under section 10(22) of the Income-tax Act. The ld. counsel has argued that principle of mutuality was applicable to the facts of the assessees case and, on that basis, the amount by way of transfer fee should be held to be eligible for being not taxed. No commercial activity is said to have been carried out by the assessee-society. The society only rendered services for the mutual benefit of the members.
5. The Id. D.R. has, in reply, contended that the receipt in the hands of the assessee-society was neither casual in nature nor voluntary. A fixed schedule had been drawn as per which the members transferring plots of land were required to pay transfer fee. Therefore, it was not a voluntary donation by the members. The amounts were received as a consideration for the transfer of land from one member to another. Our attention had been drawn to the Tribunals order dated 2-9-1985 in ITA No. 270/84 relating to the subsequent assessment year 1980-81. It was held in that case that the transfer fee was a source of income of the assessee because it was neither cash nor voluntary receipt. The matter was restored by the Tribunal to the Assessing Officer to see if the income was exempt under section 10(22) and sub-section (22A) of the Income-tax Act. The Tribunal further directed the Assessing Officer to see if separate accounts had been maintained in respect of the different receipts and also to verify if sections 11 and 12 were applicable. The principle of mutuality was also required to be considered. The ld. D.R. has, therefore, submitted that the assessees case should not be accepted on the principle of mutuality because the assessee was collecting money in the event of transfer of land by one member to another member or to an outsider. The primary object of the assessee-society is to provide group housing to the members though certain facilities like school, hospital and community centre were also made available. Since the primary and dominant object was to purchase and develop land for the construction of houses, it was not a charitable activity. Our attention is also drawn to clause 58 of the Bye-laws of the society which lays down that surplus income may be distributed amongst the members at a rate not exceedings 10%. The ld. D.R. has, therefore, submitted that the income was neither exempt under sections 11 and 12 of the Act nor on the basis of the principle of mutuality. As regards the specific head under which the transfer fee was shown as donation, it is stated that it was self-serving evidence created by the assessee and since the payment was not voluntary, this was not a donation at all. The amount was collected in pursuance of resolution No. 3 dated 1-12-1974 and there was no element of voluntary or ex gratia payment. One of the objects, as per the bye-laws, happened to be charitable or educational purposes. It is stated that the receipts in the hands of the school was not in dispute and, therefore, the narrow question which is to be decided related to the nature of transfer fee received by the assessee-society.
6. The ld. counsel for the assessee had drawn our attention to certain judicial pronouncements. The following decisions have been cited before us which relate to the receipts in the hands of clubs :-
(i) CIT v. Merchant Navy Club [1974] 96 ITR 261 (AP);
(ii) Presidency Club Ltd. v. CIT [1981] 127 ITR 264 (Mad.);
(iii) CIT v. Bankipur Club Ltd. [1981] 129 ITR 787 (Pat.);
(iv) CIT v. Madras Race Club [1976] 105 ITR 433 (Mad.);
(v) CIT v. Delhi Gymkhana Club Ltd. [1985] 155 ITR 373 (Delhi);
(vi) Sports Club of Gujarat Ltd. v. CIT [1988] 171 ITR 504 (Guj.); &
(vii) CIT v. Trivandrum Club [1989] 177 ITR 550 (Ker.).
The ld. counsel has submitted that when a club received certain amount from the members and provided facilities, the income in the hands of the club was not taxable on the doctrine of mutuality. It is stated that a club was a mutual concern and profits and gains of a club were not assessable as income. It has been held in Sports Club of Gujarat Ltd.s case (supra) that the principle of mutuality can be confined to the transactions with members. The principle of mutuality is not destroyed by the presence of transactions which are non-mutual in character. The two activities can, in appropriate cases, be separated and the profits derived from non-members can be brought to tax. The ld. counsel has, on the strength of the said decision, submitted that in the case of the society also, the same principle of mutuality was attracted because the society utilised the receipts for providing facilities and benefits to the members. It is also stated that the income was also utilised for the charitable purposes and, in that light again, the entire income should be held to be exempt. In the case of CIT v. Cochin Oil Merchants Association [1987] 168 ITR 240, the Kerala High Court was dealing with a trade association which was rendering service to the members and non-members for a fee. That association was incorporated as a company. It was held that the association was a mutual association. Similarly, our attention has been drawn to a decision of the Andhra Pradesh High Court in the case of CIT v. Nataraj Finance Corpn. [1988] 169 ITR 732. In that case it was held that an entity would be a mutual benefit association if all the participators to the common fund are also contributors and their identity is established. What is required is that the members as a class should contribute to the common fund and participators as a class must be able to participate in the surplus. The ld. counsel has argued, on the basis of the said decision, that provision relating to the distribution of dividend up to 10% was only distribution of surplus to the members and, therefore, could not be an element against the principle of mutuality. A similar matter came up for examination before the Punjab and Haryana High Court also in CIT v. Northern India Motion Pictures Association [1989] 180 ITR 160. In that case, the assessee was an association and its members were film distributors and exhibitors. The association protected the rights of its members in return for admission fees and periodical subscription. It was held that the receipts were exempt from tax on the general principle of mutuality. The Gujarat High Court in the case of Adarsh Co-operative Housing Society Ltd. [1995] 213 ITR 677 has also taken the same view in respect of a cooperative society which acquired lands and leased the same to its members. The amounts paid by the outgoing members were utilised for the extension of amenities to the members. It was held that the cooperative society was a mutual concern and its income was exempt from tax. We may also advert to a decision of the Supreme Court in the case of Addl. CIT v. Surat Art Silk Cloth Mfrs. Association [1979] 121 ITR 1. That was a case of a company incorporated under the Companies Act. The income and property of the assessee-company were liable to be applied solely and exclusively for the promotion of the objects set out in the memorandum and no part of such income or property could be distributed amongst the members in any form. It was noted by the Honble Supreme Court that the dominant or primary purpose of the assessee was to promote commerce and trade in art silk yarn, raw silk, cotton yarn, art silk cloth etc. It was held that the dominant or primary purpose of the promotion of commerce and trade in art silk etc. was an object of public utility not involving the carrying on of any activity for profit within the meaning of section 2(15) of the Act. It was held that the company was entitled to exemption under section 11(1)(a) of the Act. A question relating to the receipt of transfer fee has been examined by the Calcutta High Court in the case of CIT v. Apsara Co-operative Housing Society Ltd. [1993] 204 ITR 662. In that case, the housing society provided residential apartments to its members and received a transfer fee for the transfer of flats. It was held that the members had formed themselves into a cooperative society for the purpose of having a cooperative housing society and there was no question of any profit element in such an association or in having a transfer fee. The assessee-cooperative society was a mutual concern. Therefore, the transfer fee received by the assessee was not taxable as the income of the assessee.
7. We have considered the rival contentions and we are of the view that there is no evidence on record to show that the assessee-society was engaged in any trading or commercial activity. In the absence of any commercial activity whatsoever, the receipt in the hands of the society by way of transfer fee has to be looked at after ascertaining its utilisation. The society extends certain facilities to the members, including the facility of a school, a hospital and a community centre. We have already noticed that the income in hands of the school reflected in a separate account has not been brought to tax. The question relates to the transfer fee only. We have also noticed that at the time of receipt of the transfer fee, the object was specifically mentioned on the receipt. It would be thus clear that the income was to be utilised for a specific charitable purpose. There is nothing on record to show that the income has been utilised for certain other purposes. In the light of the decision of the Calcutta High Court in Apsara Co-operative Housing Society Ltd.s case (supra), which is the direct authority on the issue, we hold that the assessee-society being mutual concern, was entitled to exemption. The transfer fee was being used for the benefit of the members and, therefore, the principle of mutuality was applicable to the case of the assessee.
8. In the result, it is held that the income by way of transfer fee was not assessable to tax on the principle of mutuality. Both the appeals stand allowed.