Patna High Court
Bihar Rajya Sikshak Sahyog Sangh Ltd. vs Commissioner Of Income-Tax on 10 March, 1987
Author: B.N. Agrawal
Bench: B.N. Agrawal
JUDGMENT
1. These are three references under Section 256(1) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act"). They relate to the assessment years 1971-72, 1972-73 and 1973-74. The accounts of the assessee showed that the assessee had made profits of Rs. 5,800, Rs. 2,641 and Rs. 9,726 by indulging in trade with the members of the assessee during the three assessment years respectively.
2. The assessee is a registered co-operative society. Its members are of two categories : (i) other co-operative societies of teachers, and (ii) individual teachers. The assessee gets text books from the Government at concessional rates and sells them to any person who buys them as also to the members of the society at a discount. During the assessment proceedings, the stand of the assessee was that the profits earned by sales to the members of the society was not taxable as it was not the income of the society. The surplus from trading with members had been arrived at by taking proportionate profit on sales to the members. The surplus worked out, as mentioned above, in the three years is under consideration. The claim of the assessee was rejected at all stages. Hence, the present references under Section 256(1) of the Act.
3. The question referred to us for our opinion is as follows :
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the sums of Rs. 5,800, Rs. 2,641 and Rs. 9,726 could not be exempted by treating them as income from mutual trading with the members for the assessment years 1971-72, 1972-73 and 1973-74, respectively ? "
4. The question referred to us is really concluded by a decision of this court in the case of Jamshedpur Co-operative Stores Ltd. v. CIT [1986] 157 ITR 127. That case also related to a co-operative store. In that case, the question was " whether subsidy or grant from non-members was income of the assessee ? " In that connection, it was considered whether there was mutuality between the society and the members and it was held in that case that since there did not exist complete identity between the contributors and the participators, the principle of mutuality was defeated. In that case, the contributors were the individuals indulging in buying goods from the co-operative stores. Not only the members of the society but every employee of TISCO and other factories at Jamshedpur were entitled to purchase. Thus the identity was lost. That having been lost, the assessee was not entitled to claim exemption from tax on the ground of mutuality.
5. Let us see the position in this case. The assessee is a profit-making organisation. It buys text books at discount from the Government and sells them at a profit to various categories of persons. It sells to members and to the whole world. Every sale involves some profit. The assessee is obviously, therefore, a trading society aiming at increasing its profit. In this case also, therefore, there is no identity between the contributors and the participators. The participators in the profits are only members but the contributors are every individual who may buy from the assessee. Obviously, therefore, this case stands on the same footing as the case of Jamshedpur Co-operative Stores Ltd. [1986] 157 ITR 127 (Pat).
6. Learned counsel for the assessee contended that so far as the trading activities between the society and non-members are concerned, there was certainly no mutuality and to that extent the profit earned from sales to non-members would certainly be liable to tax. It was contended that the sales to members--individual or co-operative societies--must, however, be treated differently. It was submitted that since the society had been formed for promoting the common interest of the members, the profits earned from them had an element of mutuality. Thus, the submission urged on behalf of the assessee was that the entire earning of the society must be bisected. Those earned from members must be excluded and those earned from non-members may be taxed. This submission loses sight of the situation that once mutuality is lost, the whole income becomes liable to tax. If the doctrine of mutuality is not available for the reason that the assessee has indulged in trading activities with all and sundry, the benefit flowing from the principle of mutuality cannot be accorded to the assessee in a limited field. We are, therefore, unable to accede to the suggestion that it is open in law to dissect the income.
7. Learned counsel for the assessee relied upon a decision of the Madras High Court in the case of CIT v. Madras Race Club [1976] 105 ITR 433, in support of his submission, that dissection of the profits was permissible in law. The Madras High Court in that case held that the application of the principle of mutuality would not be destroyed by the presence of transactions with, or profit derived from, non-members. According to it, the principle of mutuality would apply to transactions with members. With respect, I have some difficulty in accepting this proposition as correct. The parameter of mutuality was laid down by the Supreme Court in the cases of CIT v. Royal Western India Turf Club Ltd, [1953] 24 ITR 551 (SC) and CIT v. Kumbakonam Mutual Benefit Fund Ltd. [1964] 53 ITR 241 (SC). In none of those cases, the Supreme Court laid down the principle of dissection of income derived from trading with members and non-members. In that view of the matter, we are unable to accede to the submission made on behalf of the assessee that the income derived from trading with members cannot form part of the taxable income of the assessee. In our view, therefore, the Tribunal was justified in holding that the sums of Rs. 5,800, Rs. 2,641 and Rs. 9,726 could not be exempted by treating them as income from mutual trading with members for the relevant assessment years.
8. The references are thus answered in favour of the Revenue and against the assessee. The references are thus disposed of with costs. Hearing fee Rs. 250 payable by the assessee for each of the three years. Let a copy of this judgment be transmitted to the Assistant Registrar, Income-tax Appellate Tribunal, Patna, in terms of Section 260 of the Act.