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2018 (3) TMI 675

ncome tax - Contribution to the common amenity fund - Held that:- The charges are utilised only for the common benefit of facilities and amenities to the members. Contribution to the common amenity fund taken from a member disposing property is similarly utilised for meeting sudden and regular heavy repairs to ensure continuous and proper hazard free maintenance of the properties of the society which ultimately enures to the enjoyment, benefit and safety of the members. These charges are levied on the basis of resolutions passed by the society and in consonance with its byelaws. The receipts in the present cases have indisputably been used for mutual benefit towards maintenance of the premises, repairs, infrastructure and provision of common amenities. - Any difference in the contributions payable by old members and fresh inductees cannot fall foul of the law as sufficient classification exists. Membership forming a class, the identity of the individual member not being relevant, induction into membership automatically attracts the doctrine of mutuality. If the society first inducts new members who are required to contribute to the common fund for availing common facilities, an .....

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APPEAL NO(s).2719 OF 2018 (arising out of SLP(C) No. 378/2011) CIVIL APPEAL NO(s).2722 OF 2018 (arising out of SLP(C) No. 2623/2011) CIVIL APPEAL NO(s).2724 OF 2018 (arising out of SLP(C) No. 2745/2011 CIVIL APPEAL NO(s).2726 OF 2018 (arising out of SLP(C) No. 4096/2011) CIVIL APPEAL NO(s).2723 OF 2018 (arising out of SLP(C) No. 2744/2011) CIVIL APPEAL NO(s).2725 OF 2018 (arising out of SLP(C) No. 3283/2011) CIVIL APPEAL NO(s).2727 OF 2018 (arising out of SLP(C) No. 5382/2011) CIVIL APPEAL NO(s).2729 OF 2018 (arising out of SLP(C) No. 17102/2011) CIVIL APPEAL NO(s).2730 OF 2018 (arising out of SLP(C) No. 17667/2011) CIVIL APPEAL NO(s).2731 OF 2018 (arising out of SLP(C) No. 19992/2012) CIVIL APPEAL NO(s).2732 OF 2018 (arising out of SLP(C) No. 19993/2012) CIVIL APPEAL NO(s).2733 OF 2018 (arising out of SLP(C) No. 17428/2015) CIVIL APPEAL NO(s).2734 OF 2018 (arising out of SLP(C) No. 29755/2013) CIVIL APPEAL NO(s).2735 OF 2018 (arising out of SLP(C) No. 17430/2015) CIVIL APPEAL NO(s).2736 OF 2018 (arising out of SLP(C) No. 17431/2015) CIVIL APPEAL NO(s).2740 OF 2018 (arising out of SLP(C) No. 37702/2016) CIVIL APPEAL NO(s).2739 OF 2018 (arising out of SLP(C) No. 36157/2016) CIVIL A .....

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in other charges, are exempt from income tax based on the doctrine of mutuality. The challenge is based on the premise that such receipts are in the nature of business income, generating profits and surplus, having an element of commerciality and therefore exigible to tax. The assessee in Civil Appeal No.1180 of 2015 assails the finding that such receipts, to the extent they were beyond the limits specified in the Government notification dated 09.08.2001 issued under Section 79A of the Maharashtra Cooperative Societies Act, 1960 (hereinafter referred to as the Act ) was exigible to tax falling beyond the mutuality doctrine. 3. The primary facts, for better appreciation shall be noticed from SLP (C) No.30194 of 2010. The assessing officer held that receipt of nonoccupancy charges by the society from its members, to the extent that it was beyond 10% of the service charges/maintenance charges permissible under the notification dated 09.08.2001, stands excluded from the principle of mutuality and was taxable. The order was upheld by the Commissioner of Income Tax (Appeals). The Income Tax Appellate Tribunal held that the notification dated 09.08.2001 was applicable to cooperative housi .....

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e 243ZI to submit that economic participation had to be restricted to members and had no application to a transferee who was not a member, rendering receipt from them sans mutuality taxable. 6. The submission on behalf of the respondents shall be considered cumulatively for convenience except to the extent necessary. Relying on Mittal Court Premises Cooperative Society Ltd. vs. Income Tax Officer, (2010) 320 ITR 414 (Bom), it was submitted that the notification dated 09.08.2001 was restricted in its application to housing cooperative societies only and had no application to a premises Society. Any receipt by the latter beyond the same was thus not exigible to tax on that ground. 7. The receipt by a housing cooperative society of an amount beyond that mentioned in the notification dated 09.08.2001, if it was contrary to the law, would be actionable at the instance of the person required to pay such charges as was the case in The New India Cooperative Housing Society (supra). Such receipts will not be exigible to tax so long as the doctrine of mutuality stood satisfied by commonality of identity between the contributors and the participants, and the contribution by the members was ut .....

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the maintenance, repairs and facilities to members in the society including the additional construction. There could be no bifurcation between the receipts and costs to deny exemption to the extent paid by the new members to qualify the same as nonmutual. Crucially, the admission to membership preceded the payment and allotment of premises was done by draw of lottery. 12. It was next submitted that every receipt could not ipso facto be classified as income, relying on Commissioner of Income Tax, Mumbai vs. D.P. Sandhu Bros. Chembur (P) Ltd., (2005) 273 ITR 1 (SC). Referring to CIT vs. Royal Western India Turf Club Ltd., AIR 1954 SC 85, it was submitted that so long as the three tests to determine mutuality and commonality of interests were met, there could not be exigiblity to tax under the general understanding of the doctrine of mutuality that a person could not make a profit from himself. Reliance was also placed on Commissioner of Income Tax, Bihar vs. M/s. Bankipur Club Ltd., (1997) 226 ITR 97 (SC ) = (1997) 5 SCC 394 and Bangalore Club vs. Commissioner of Income Tax and Another, (2013) 350 ITR 509 (SC)= (2013) 5 SCC 509. 13. We have considered the submissions on behalf of th .....

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ts received by the clubs were for supply of drinks, refreshments or other goods as also the letting out of building for rent or the amounts received by way of admission fees, periodical subscription etc. from the members of the clubs were only for/towards charges for the privileges, conveniences and amenities provided to the members, which they were entitled to as per the rules and regulations of the respective clubs. It has also been found that different clubs realised various sums on the above counts only to afford to their members the usual privileges, advantages, conveniences and accommodation. In other words, the services offered on the above counts were not done with any profit motive and were not tainted with commerciality. The facilities were offered only as a matter of convenience for the use of the members (and their friends, if any, availing of the facilities occasionally). 21. In the light of the above findings, it necessarily follows that the receipts for the various facilities extended by the clubs to their members, as stated hereinabove as part of the usual privileges, advantages and conveniences, attached to the membership of the club, cannot be said to be a trading .....

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only in furtherance of the object of the Association for the benefit of the members. On these facts, both the Commissioner (Appeals) and the Tribunal were justified in coming to the conclusion that the surplus so generated falls within the purview of the doctrine of mutuality and was not exigible to tax…. 19. The proceedings in the present appeals relate to different assessment years based on information gathered by the Assessing Officer pursuant to notice under Section 133(6) of the Income Tax Act. Transfer charges are payable by the outgoing member. If for convenience, part of it is paid by the transferee, it would not partake the nature of profit or commerciality as the amount is appropriated only after the transferee is inducted as a member. In the event of non-admission, the amount is returned. The moment the transferee is inducted as a member the principles of mutuality apply. Likewise, non-occupancy charges are levied by the society and is payable by a member who does not himself occupy the premises but lets it out to a third person. The charges are again utilised only for the common benefit of facilities and amenities to the members. Contribution to the common amenit .....

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to them from time to time, and all societies or the societies concerned, as the case may be, shall be bound to comply with such directions. (2) The State Government may modify or cancel any directions issued under subsection (1), and in modifying or cancelling such directions may impose such conditions as it may deem fit. (3) Where the Registrar is satisfied that any person was responsible for complying with any directions or modified directions issued to a Society under subsections (1) and (2) and he has failed without any good reason or justification, to comply with the directions, the Registrar may by order- (a) if the person is a member of the committee of the Society, remove the member from the Committee and appoint any other person as member of the committee for the remainder of the term of his office and declare him to be disqualified to be such member for a period of six years from the date of the order: (b) if the person is an employee of the Society, direct the committee to remove such person from employment of the Society forthwith, and if any member or members of the committee, without any good reason or justification, fail to comply with this order, remove the members, .....

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