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Judgment
This appeal filed under Section 260A of the Income Tax Act, 1961 (the Act) by the Revenue challenges the order of the Income Tax Appellate Tribunal dated 9th May, 2006. The impugned common order is passed for the Assessment Years 1998-99 to 2001-02.
Although the Revenue has filed only one Appeal, the challenge in its memo of appeal is to the issues arising in all the four Assessment Years. On an earlier occasion, Mr. Suresh Kumar sought permission to treat this appeal as relating to A.Y. 2001-02 and be permitted to pay further Court Fees for the further three years. This permission was granted and the appellant has paid the Court Fees for the appeals relating to A.Y. 1998-99, 1999-2000 and 2000-01.
The Revenue has urged the following substantial questions of law for our consideration :-
(i) Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that the collection of Rs.2 lac by the assessee society as interest free loan, from incoming members as a binding pre-condition for becoming a member, are not revenue receipts ?
(ii) Whether on the facts and circumstances of the case and in law, the Tribunal was right in not treating the income of Rs.1.1 crores as Business Income arising from the sale of four flats constructed by the Society by utilising additional FSI available with it ?
Question No.(i) framed herein above is an issue which arises in Assessment Years 1998-99, 1999-2000, 2000-01 and 2001-02. Question No.(ii) as framed arises only in the Assessment Year 2001-02.
Re. Question No.(i) :-
(a) Mr. Suresh Kumar, learned Counsel for the Revenue very fairly states that the issue arising herein namely: loans taken from incoming members which have in fact been returned to the incoming members, cannot be treated as Income of the respondent assessee. Mr. Suresh Kumar, learned Counsel for the Revenue fairly states that this issue stands concluded against the Revenue and in favour of the respondent assessee by the decision of the Apex Court in the case of Siddheshwar Sahakari Sakhar Karkhana Ltd. v. Commissioner of Income-Tax, (2004), 270 ITR 1.
(b) In view of the above, question No.(i) as formulated does not give rise to any substantial question of law. Thus, not entertained.
Re. question (ii) : -
(a) The respondent assessee is a tenant co-partnership housing Society. Thus, the Society owns both the land and the building and only allots its tenaments to its members. The respondent society was constituted in the year 1954 and has 198 members occupying its tenaments. The respondent Society had available un-utilized FSI (Floor Space Index) and sought to exploit it by constructing four additional tenaments and also enclosing the balconies (Verandah) of the existing tenaments resulting in additional 100 sq.ft. to its members. None of the existing members came forward to seek allotment of the four additional tenaments which were to be constructed on exploitation of the unutilized FSI.
(b) In 1998, four persons sought membership of the Society. The factual matrix of the events relating to the admission and contribution for the new four tenaments from the four new members of the society is summarised as under :-
Sr. No.
Name of New Member
Date of Application by new members from fresh membership
Date of managing committee meeting approving the membership
Date of first instalment of contribution
Date of allotment letter issued by Society
1
Mr. Ram V. Rane
05/09/98
05/09/98
05/09/98
30/10/98
2
Mr. Sudhir V. Rane
05/09/98
05/09/98
05/09/98
30/10/98
3
Mr. Sudhir G. Pisat
15/08/98
16/08/98
23/08/98
22/11/98
4
Mrs. Minal S. Pisat
21/11/98
21/11/98
21/11/98
22/11/98
(c) The above four new members were subsequently allotted the tenaments on construction by the respondent Society. The four new members had after becoming members contributed to the Society in the aggregate an amount of Rs.1.10 Crores. This resulted in allotment of four new tenaments constructed by the Society. However, the aforesaid contribution received from the four new members was not offered to tax by the respondent Society on the principle of mutuality. However, by an order dated 23rd March, 2004 the Assessing Officer did not accept assessee''s contention in respect of mutuality and held that the contribution from the four new members is in fact consideration received for Sale of four new tenaments and, therefore, chargeable to tax as the income of the Society.
(d) In first Appeal, the Commissioner of Income Tax (Appeal) by order dated 14th January, 2005 dismissed the Society''s appeal holding there is no reason to disturb the findings of the Assessing Officer.
(e) On further appeal by the respondent Society, the Tribunal by the impugned order has held that it is undisputed position that all the four persons who were allotted the tenaments were the members of the Society at the time when they made contribution in the aggregate of Rs.1.10 Crores and also when the four additional tenaments were allotted to them. The amounts paid by them would be covered under the concept of mutuality. This is so as a class contributors and the participants of the respondent Society are common. The Tribunal while allowing the Society''s appeal inter alia placed reliance upon the decision of the Apex Court in Commissioner of Income Tax v. Bankipur Club Ltd. 226 ITR 97 and in particular the following observations :-
"Where a number of persons combine together and contribute to a common fund for the financing of some venture or object and will in this respect have no dealings or relations with any outside body, then any surplus returned to those persons cannot be regarded in any sense as profit. There must be complete identity between the contributors and the participators."
This to conclude that the contribution received by the Society from its four new members would be covered by the concept of mutuality and not chargeable to tax. Thus allowing the appeal of the respondent Society.
(f) Mr. Suresh Kumar, learned Counsel for the Revenue submits that the amounts received from the four new members for the additional tenaments constructed by the Society has to be treated as the income of the Society. It is submitted that if the test of mutuality has to be applied, then the four new members had only to pay the cost of construction and not Rs.1.10 crores in aggregate for the allotment of the same. This is particularly so when the existing 198 tenants to whom also additional space has been allotted, consequent to the exploitation of the un-utilized FSI, have contributed to the Society only the construction costs. In the above view, it is submitted that the appeal requires consideration.
(g) We find that the test to determine the satisfaction of mutuality has been laid down by the decision of the Apex Court in Banglore Club v. Commissioner of Income Tax, 350 ITR, 509. The Apex Court has observed that the basis of not taxing surplus funds in the hands of an Assessee on the principle of Mutuality finds its origin in the concept of no man can make a profit of himself. The Apex Court in Banglore Club (supra) set out three tests to be satisfied as under before the principle of mutuality can be applied as under :-
(i) There must be a complete identity between the contributors and the participants as a class;
(ii) The actions of the participants and contributors must be in furtherance of the activities of the assessee; and
(iii) There must be no scope of profiteering by the contributors from a fund made by them, which could only be expended or returned to them. The Court in Banglore Club (supra) also observed that at what point mutuality ceases and commerciality begins is a question of fact.
(h) Keeping the aforesaid tests in mind, we find that the Tribunal on examination of the facts before it has came to the conclusion that the contribution of Rs.1.10 Crores received by the Society was from its members (four new members) and the allotment of four new tenaments was also done only to the existing members. It is an undisputed position that the four new members were members of the Society prior to the allotment of the tenaments to them and also before making their contribution. It is not the case of the Revenue that there is absence of complete identity of the contributors and participants of the Society. So far the second test is concerned viz. that the actions of the Society must be in furtherance of the object of the Society. This is also satisfied. This is so as it is not the case of the Revenue that building tenaments and giving it to its members is not the object of the Society. Thirdly, there is no scope for profiteering in the present facts, as the members have not purchased the flat but have only got a right to occupy a tenament allotted by the Society. Thus, on facts, the Tribunal has so held without specifically referring to the three tests.
(i) Thus, on facts, the view taken by the impugned order stand covered in favour of the respondent Society. Therefore, the questions as proposed do not give rise to any substantial question of law. Thus not entertained.
The Appeal is dismissed. No order as to costs.