Commissioner of Income Tax, Gujarat-II vs Premanand Industrial Co-operative Service Society Ltd.

Divan, C.J.—In this group of six appeals the order of the Tribunal is common and the appeals arise out of the acquisition under Chap. XX-

A of three open plots of land sold or purported to be sold by the same transferors to three different co-operative societies. The transferors in these

three transactions are Ramanlal Motiram and three others who were all co-owners of the three plots of land situated on the outskirts of Surat. The

three transferee-co-operative societies are Nand Industrial Co-operative Service Society Ltd., Anand Industrial Co-operative Service Society

Ltd. and Paramanand Industrial Co-operative Society Ltd. By three sale deeds, the transferors sold to the respective industrial co-operative

service society different plots of land roughly admeasuring about ten or eleven thousand square yards on the outskirts of Surat for considerations

which were mentioned in the respective sale deeds. These sale deeds were registered on December 31, 1973. The District Valuation Officer found

on his valuation report that the properties were worth Rs. 4,75,000 or so and thereafter the competent authority functioning under S. 269D(1) of

the I.T. Act issued notices to the transferors and the transferees. The notice under S. 269D(1), which is a condition precedent to the initiation of

proceedings for acquisition under this Chap. XX-A, was published in the Official Gazette on September 28, 1974. The notices were served on the

transferors and the transferees in November, 1974, that is, on 22nd November, 1974, and 26th November, 1974, and the proclamation was

made at the site and also on the notice board of the competent authority and by the beat of thali on December 14, 1974. No objections were filed

either by the transferors or the transferees and it appears from the report of the competent authority that repeated opportunities were given to the

transferors and the transferees and to their chartered accountant for putting forward the views of the parties regarding the proposed acquisition.

The reports of the Valuation Officer were made available but no objections as contemplated by the provisions of S. 269E were filed either by the

transferors or the transferees within the time contemplated by law and whatever comments were offered were not pressed and no arguments were

advanced by the chartered accountant. Ultimately, the competent authority passed the orders in the three different matters acquiring these

properties which were sold to the respective co-operative societies. Against the decision of the competent authority appeals were filed by the

transferors and the transferees to the Income Tax Appellate Tribunal and by a common order the Tribunal held that inasmuch as the members of

the three co-operative societies were not served with notices inviting objections, the acquisition orders were vitiated. The Tribunal directed that

notices under S. 269D(1) should also have been served by the competent authority on the individual members of the transferee co-operative

societies. The appeals were allowed and the three cases were restored to the file of the competent authority with direction to dispose of the matter

afresh according to law after service was effected on the individual members of the three co-operative societies. It is against these orders of the

Income Tax Appellate Tribunal that this group of six appeals has been filed by the Commissioner of Income Tax. It may be pointed out that in First

Appeals Nos. 242, 246 and 247, the respondents are the three different co-operative societies and in First Appeals Nos. 243, 244 and 245 the

transferors in respect of the three different transactions are the respondents, namely, Ramanlal Motiram and three others.

The main argument which appealed to the Income Tax Appellate Tribunal was that the individual members of the three transferee co-operative

societies were persons interested and since those interested persons were not served with individual notices as required by S. 269D(1) the orders

of acquisition passed by the competent authority were vitiated. Now, for the purpose of Chap. XX-A, S. 269D(1) is the definition section and

under clause (g), ""person interest"" in relation to any immovable property includes all persons claiming, or entitled to claim, an interest in the

compensation payable on account of the acquisition of that property under that chapter. It is thus clear that the definition in S. 269A(g) is an

inclusive definition. In Dilworth v. Commissioner of Stamps [1899] AC 99 (PC), the interpretation to be given to such inclusive definitions has

been clearly laid down by the House of Lords. In the interpretation of statutes it is well known that when the Legislature wants to enlarge the

natural meaning of the words or phrase, it uses the word ""includes"" and in such a context an inclusive definition means that over and above the

natural meaning of the words, the specially provided meaning of the word will also have to be attributed for the purpose of interpretation of that

particular statute or that particular chapter, as is the case before us. ""Person interested"" is a phrase not unknown to other statutes. In S. 3(b) of the

Land Acquisition Act, the expression ""person interested"" includes all persons claiming an interest in compensation to be made on account of the

acquisition of land under that Act and a person shall be deemed to be interested in land if he is interested in an easement affecting the land. We are

not concerned with the last part of the definition for the purpose of the Land Acquisition Act but the first part of S. 3(b) of the Land Acquisition

Act is in pari materia with the definition in S. 269A(g) of the I.T. Act, and since both these definitions occur in the context of acquisition of

property, whatever interpretation has been given to the words ""person interested"" in the context of the Land Acquisition Act will also help us in

considering the meaning to be attributed to the words ""person interested"" in the context of Chap. XX-A of the I.T. Act. In Sunder Lal Vs.

Paramsukhdas, , the Supreme Court has pointed out that the definition of ""person interested"" is an inclusive definition. It is not necessary that in

order to fall within the definition a person should claim an interest in land which has been acquired. A person becomes a person interested if he

claims an interest in compensation to be awarded. That interpretation on the words ""person interested"" was given by the Supreme Court in the

context of the Land Acquisition Act, S. 3(b), and, as we have pointed out earlier, it will have a bearing in the context of S. 269A(g) of the I.T. Act

as well.

Therefore, we have to ask ourselves whether the members of the three individual co-operative societies can be said to be ""persons having an

interest"" in the land or the ""person having an interest"" in the compensation to be awarded for the acquisition of the lands or immovable property.

Under the provisions of the Gujarat Co-operative Societies Act, 1961, every co-operative society registered under the Act is a body corporate

having a common seal and a perpetual succession and, therefore, primarily it is the co-operative society which is the owner of the land which it

purchased and which is transferred to it. The members of the society will have rights or interest in that land only if under the bye-laws of the society

it can be said that the members have an interest in that land. Mr. Shah appearing for the respondents in First Appeals Nos. 242, 246 and 247,

namely, the transferees, has contended that the legal position is that the members of a co-operative society have an interest in the immovable

property belonging to the society. It must be pointed out that so far as co-operative housing societies are concerned, there are different types of

co-operative societies, one is what is known as tenant-owner society where the individual member of the co-operative society is allotted a plot or

a portion of land from the lands belonging to the society and the member puts up a superstructure on that land at his own cost and is the owner of

the superstructure. Another type of society is what is known as a tenant-co-partnership society where, particularly in big urban centres like

Bombay and now even in Ahmedabad, the land belongs to the co-operative society and all the members of the co-operative society in co-

partnership put up a structure over the land. In such an eventuality, different rights inter se in the light of the bye-laws will emerge as between

members on the one hand and as between the members and the co-operative society on the other.

We will now take up the decisions on the point in a chronological order. In Sakarchand Chhaganlal Vs. Controller of Estate Duty, Gujarat, the

question before this High Court was of a co-operative housing society of the tenant-ownership type and there, after examining the bye-laws of the

society, it was found that out of the land belonging to the society, plot may be allotted and given by the society on lease to a member who holds at

least five shares and the member may build his own house upon it. The plot would continue to be held by the member so long as he is a member. If

he ceased to be a member for any reason by expulsion or otherwise, the society can determine the lease and take back the plot and if it does so,

the building built by the member on the plot would also go to the society with the plot and the society would be bound to pay the value of the

member''s interest in the house. In this context, it was held by the Division Bench of this High Court of which I was a member that, unlike the

English Law, the law in India recognises dual ownership, the land belonging to one person and the structure upon it belonging to another, and,

therefore, though the land of the plot was owned by the society, the superstructure upon it belonged to the deceased. It was further held (p. 562) :

..... since the deceased being lawfully in possession had constructed on the land belonging to the society, the only right which the deceased had in

regard to the superstructure was to remove it, if for any reason his possession of the land came to an end.

It was held that the member had no interest in the plot which he could transfer at his will. It was further held :

It is settled law that if a person who, whilst lawfully in possession, had constructed on the land of another, does not remove the superstructure

when parting with the possession of the land, he loses his right to remove the superstructure.

That is the position which prevails in the case of a tenant-ownership society. In Ramesh Himmatlal Shah Vs. Harsukh Jadhavji Joshi, , the case

before the Supreme Court was of a co-operative housing society of the category of tenant co-partnership society and there the question was

whether the right of a member in such a society under the provisions of the Maharashtra Co-operative Societies Act was liable to attachment and

sale in execution of a decree against the member in whose favour or for whose benefit the plot had been allotted by the co-operative society. After

examining the bye-laws of that particular co-operative society and after considering the provisions of the Maharashtra Co-operative Societies Act,

the Supreme Court held that the right to occupy a flat of this type assumes significant importance and acquires under the law a stamp of

transferability in furtherance of the interest of commerce and there was no fetter under any of the legal provisions against such a conclusion and the

attachment and sale of the property in execution of the decree are valid under the law. It was in the context of the provisions of the Maharashtra

Co-operative Societies Act and in the context of the bye-laws of that particular society that this conclusion was reached by the Supreme Court in

that particular case. It must be pointed out that what seems to have weighed with the Supreme Court has been very clearly stated in paragraph 19

of the decision of the Supreme Court, at page 1476, by Goswami J., speaking for the Supreme Court :

Multi-storeyed ownership flats on co-operative basis in cities and big towns have come to stay because of dire necessity and are in the process of

rapid expansion for manifold reasons. Some of these are : ever-growing needs of an urban community necessitating its accommodation in proximity

to cities and towns, lack of availability of land in urban areas, rise in price of building material, restrictions under various rent legislations,

disincentive generated by tax laws and other laws for embarking upon housing construction on individual basis, security of possession depending

upon fulfilment of the conditions of membership of a society which are none too irksome. In the absence of clear and unambiguous legal provisions

to the contrary, it will not be in public interest nor in the interest of commerce to impose a ban on saleability of these flats by a tortuous process of

reasoning. The prohibition, if intended by the Legislature, must be in express terms. We have failed to find one.

Thus, so far as a tenant-co-partnership housing society is concerned, in the co-operative field, in view of this decision of the Supreme Court, it

must be held that in such a case a member has an interest in the property, namely, the flat which is allotted to him or the superstructure which is

allotted to him and any such interest is transferable and will be attachable in execution of a decree against a member.

In Mulshankar Kunverji Gor v. Juvansinhji Shivubha Jadeja [1979] 20 GLR 878 : AIR 1980 Guj. 62 , a Full Bench of this High Court has

considered the provisions of the Gujarat Co-operative Societies Act in the context of a tenant-co-operative society. One of the plots was allotted

by the society to one Girish Morarji Mehta. The society constructed the houses and the house constructed on plot No. 8 was allotted by the

society to Girish. The question before the Full Bench was whether any registered document was necessary in favour of any transferee for

transferring the superstructure standing on the land allotted by any co-operative housing society in favour of any of its members in the context of a

tenant-co-partnership society and after considering the decision of the Supreme Court in Ramesh Himmatlal Shah Vs. Harsukh Jadhavji Joshi, , the

answer given by the Full Bench was that the transfer of the property in question from Girish was a valid transfer. It was held that the answer to the

question referred to the Full Bench will be in the affirmative if the land and the superstructure belong in the eye of the law to the co-operative

housing society and in the negative if they or any one of them belonged to the member personally. Thus, in the light of this decision of the Full

Bench, a registered document would not be necessary if either the land or the superstructure belongs to the member but a registered document

would be necessary to effect a transfer if both the land and the superstructure belong to the co-operative society. Again, in this particular case, the

scheme of the bye-laws and the provisions of the Gujarat Co-operative Societies Act were considered by the Full Bench. At page 883 of the

report, S. H. Sheth J., speaking for the Full Bench, has pointed out ( AIR 1980 Guj 62 ) :

We have no doubt in our minds that section 42 of the Gujarat Co-operative Societies Act, 1961, inter alia, exempts from compulsory registration

instruments relating to shares in a society notwithstanding that the assets of such society consist wholly or in part of immovable property. Shares in

a co-operative housing society have a necessary relation to the immovable properties which the society constructs and which are allotted by the

society to its members. It is necessary, therefore, to find out what an instrument of transfer relating to ''shares in a society'' conveys to the

transferee. It has been argued that there are two types of co-operative housing societies. One type is called ''tenant-co-partnership society''

another is called ''tenant ownership society''. A ''tenant-co-partnership society'' is a society where the land is owned by the society and upon which

houses are constructed by the society for the benefit of its members. It is the co-operative venture of all the members of a co-operative housing

society which brings-into being the houses which the members in their turn may occupy. They are constructed out of its own assets and out of the

money borrowed by it. The debt is discharged by the society by collecting periodical contributions from them in specified amounts. It such a

society, it is the society in which the land and the buildings in the eye of law vest. The learned District Judge has on facts found in the instant case

that the society in question is a tenant-co-partnership society. Therefore, when a member of such a co-operative housing society transfers his

shares to another with the approval of the society, he not only transfers the shares but also, as a necessary incident thereof, transfers his interest in

the immovable property which has been allotted to him. What section 42, clause (a), therefore, exempts from the rule of compulsory registration is

an instrument relating to ''shares in a society'' which carry with them, as a necessary incident, member''s interest in the immovable property

occupied by him. We say so because both the land on which the house has been constructed by the society and the house itself vest in the society

in the eye of law. It is, therefore, difficult to uphold the argument raised by Miss Shah that with the transfer of ''shares in such society'', what are

transferred are merely the shares in the society and not the right to occupy the house which necessarily flows from the allotment of the houses by

the society to its members. In the case of a ''tenant-co-partnership society'', ''shares in the society'' which a member holds appear to us to be

inseverable from his interest in the immovable property which has been allotted to him for his occupation and enjoyment.

With great respect, in view of the decision of the Supreme Court in Ramesh Himmatlal Shah Vs. Harsukh Jadhavji Joshi, , in the context of a

tenant-co-partnership housing society, this is the only conclusion that can be reached and that was the conclusion reached by the Full Bench as

well.

Unfortunately, we have no materials before us in the share of bye-laws or rules and regulations of the respective industrial co-operative

societies to indicate whether each of these societies is a tenant-ownership society or a tenant-co-partnership society. Nor is there any material on

record to show whether any of the plots had been actually allotted to any of the members on the date of the publication of the notification in the

Official Gazette. The dividing line between the two is very clear and that is the answer given by the Full Bench as well and that is the decision of the

Division Bench in Sakarchand Chhaganlal Vs. Controller of Estate Duty, Gujarat, . It is only if these co-operative societies are held to be tenant-

co-partnership societies that it can beheld that the individual members have an interest in the immovable property which was proposed to be

acquired or in any of the lands which was proposed to be acquired by the competent authority under Chap. XX-A of the I.T. Act.

As to what is meant by the words ""interest in immovable property"", the position has been very clearly and succinctly stated by the Supreme

Court in The Collector of Bombay Vs. Nusserwanji Rattanji Mistri and Others, , where the Supreme Court has pointed out that ""interest"" is of the

type of lease, mortgage, easement, etc. Venkatarama Ayyar J., in para. 13, at page 305, has observed :

In its normal acceptation, ''interest'' means one or more of those rights which go to make up ''ownership''. It will include, for example, mortgage,

lease, charge, easement and the like, but the right to impose a tax on land is a prerogative right of the Crown, paramount to the ownership over the

land and outside it. Under the scheme of the Land Acquisition Act, what is acquired is only the ownership over the lands, or the inferior rights

comprised therein.

It was held that in the context of S. 3(b), the right of the Government to levy assessment on the land cannot enable the Government to amount

to a ""person interested"" within the meaning of S. 3(b) of the Land Acquisition Act. Therefore, under the ordinary meaning of ""other persons

interested in the land"" the members of the societies of which we have no knowledge about the bye-laws and about which we do not know whether

they are tenant-co-partnership societies or tenant-ownership societies, we are unable to say that they are persons having an interest in the lands.

When it comes to the extended meaning of ""person interested"" under S. 269A(g) of the I.T. Act, then, compensation is given by the

Government for acquisition of this land in accordance with the scheme of Chap. XX-A. The compensation amount will go to the co-operative

society and under the scheme of the Gujarat Co-operative Societies Act, each individual members, particularly in the light of S. 115, will only get

back his own capital which he originally contributed and the balance of what is left will have to be distributed in accordance with the provisions of

that chapter but the entire amount will not be distributed to the members of the society.

It may also be pointed out that no individual member of the society of any of the three co-operative societies has made any grievance about

any non-service of notice upon him. In the context of notice required to be served under the provisions of the Administration of Evacuee Property

Act, it was held by the Supreme Court in Begum Noorbanu and Others Vs. Deputy Custodian General of Evacuee Property, , that an objection as

to non-service of notice can properly be taken not by third parties, but only by the person on whom the notice is not served. In the instant case, no

objection whatsoever has been raised by the members. The objections were raised by the co-operative societies themselves, the transferees. In the

instant case, however, the contention urged on behalf of the Commissioner is correct, namely, that the Tribunal should not have entertained these

objections about non-service of the notice on the individual members and should have rejected those contentions. In our opinion, it was all the

more necessary to reject those contentions because no material has been placed on record by the co-operative societies to indicate as to what are

the rights of the individual members and whether these societies were tenant-co-partnership societies or tenant-ownership societies. It must be

pointed out that there are different types of co-operative societies, for example, there may be a co-operative society for co-operative farming or

these may be a co-operative society of fishermen; there could be a co-operative society of sugarcane growers for the purpose of collective

purchase and collective marketing of their products, and unless the bye-laws of the particular co-operative society are before the court or before

the judicial authority, it is difficult to ascertain whether the members are ""interested"" or are ""persons interested"" in the property. With respect to the

Tribunal, the Tribunal was in error and has overlooked the meaning of the words ""persons interested in the property"" and appears to have gone by

a loose impression, namely, that all members of co-operative societies are persons interested because they have contributed to the funds of the

society. The veil of incorporation should not be allowed to be lifted unless it is pointed out first that individual members have as per the bye-laws of

that particular society an interest in the immovable property of the society and, therefore, would be covered by S. 269D(2)(a) of the I.T. Act. We

may point out that the decision we are arriving at is not going to work individual hardship on any member of the co-operative society, simply

because notices were not served on the individual members under S. 269D(1). They would be persons affected, or being in possession of the

properties, they would be entitled to raise objections if, on the date which is material for the purpose of the the section, namely, the date upon

which the notification was issued in the Official Gazette, any of the members was in occupation of any of the immovable properties of the societies.

In Commissioner of Income Tax, Gujarat II Vs. Vimlaben Bhagwandas Patel and Kamlaben Kanjibhai Patel, the difficulty of the type which may

be faced by a member of a co-operative society of the type before us was envisaged and it has been pointed out that the period of limitation would

affect the person concerned only from the time when the proposed acquisition came to his knowledge and it would be open to him to point out that

he came to know about the proposed acquisition much later than the date of the official publication or publication at the site and, therefore, the

delay in filing objections before the competent authority should be condoned. The right of the interested or affected person would be time-barred

only if he filed objections beyond the prescribed period of limitation from the date of actual or constructive knowledge of acquisition and hence the

order which we propose to pass will not work hardship in the actual working out so far as the rights of the individual members are concerned.

We, therefore, allow these six appeals and set aside the orders passed by the Income Tax, Appellate Tribunal. The matter will now go back

before the Tribunal from the stage where it was when it passed the orders and the appeals before the Tribunal will now be disposed of on merits

so far as the six appeals are concerned. There will be no order as to costs in any of these appeals.