INCOME TAX OFFICER, MUMBAI versus VENKATESH PREMISES COOPERATIVE SOCIETY LTD.

Citation: [2018] 3 S.C.R. 214 · Decided: 12-03-2018 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Disposed off

Cited by 2 judgment(s) · cites 2 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2018] 3 S.C.R.
INCOME TAX OFFICER, MUMBAI
v.
   VENKATESH PREMISES COOPERATIVE SOCIETY LTD.
(Civil Appeal No. 2706 of 2018)
MARCH 12, 2018
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
Income Tax Act, 1961:
Exemption from income tax – Of certain receipts by Co-
operative Societies from its members i.e.  non-occupancy charges,
transfer charges, common amenity fund charges etc., on the basis
of doctrine of mutuality – Stand  by Revenue that such receipts are
in the nature of business income, generating profits and surplus,
having an element of commerciality and therefore exigible to tax –
Held: Doctrine of mutuality is premised on the theory that a person
cannot make a profit from himself – The essence of the principle
lies in the commonality of the contributors and the participants who
are also beneficiaries – There has to be complete identity between
the contributors and the participants – Any surplus in the common
fund shall not constitute income but will only be an increase in the
common fund meant to meet sudden eventualities – The receipts in
the present cases have been used for mutual benefit towards
maintenance of the premises, repairs, infrastructure and provision
of common amenities and hence will fall within purview of mutuality
– Doctrine of Mutuality.
Receipts by Housing Society, to the extent they were beyond
the limits specified in the Government Notification dated 09.08.2001
issued u/s. 79-A of Maharashtra Co-operative Societies Act –
Exigibility to tax – Held: The Notification is applicable only to co-
operative housing societies and not to a premises society which
consists of non-residential premises – Hence, the receipts in the
present case fall within purview of doctrine of mutuality and
therefore, not exigible to tax – Maharashtra Co-operative Societies
Act, 1960 – s. 79-A.
  [2018]  3 S.C.R. 214
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Dismissing the appeals of Revenue and allowing that of the
assessee-Society, the Court
HELD :  1.1 The doctrine of mutuality, based on common
law principles, is premised on the theory that a person cannot
make a profit from himself.  An amount received from oneself,
therefore, cannot be regarded as income and taxable.  The
essence of the principle of mutuality lies in the commonality of
the contributors and the participants who are also the
beneficiaries. The contributors to the common fund must be
entitled to participate in the surplus and the participators in the
surplus are contributors to the common fund.  The law envisages
a complete identity between the contributors and the participants
in this sense. The principle postulates that what is returned is
contributed by a member. Any surplus in the common fund shall
therefore not constitute income but will only be an increase in
the common fund meant to meet sudden eventualities.  A common
feature of mutual organizations in general, can be stated to be
that the participants usually do not have property rights to their
share in the common fund, nor can they sell their share.  Cessation
from membership would result in the loss of right to participate
without receiving a financial benefit from the cessation of the
membership. [Para 14] [222-E-H; 223-A]
1.2 Section 2(24) of the Income Tax Act defines taxable
income. The income of a co-operative society from business is
taxable under Section 2(24)(vii) and will stand excluded from the
principle of mutuality. [Para 14] [223-D]
1.3 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. [Para
19][225-E-F]
1.4  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 amenity fund taken from
a member disposing property is similarly utilised for meeting
sudden and regular heavy repairs to ensure continuous and proper
INCOME TAX OFFICER, MUMBAI v. VENKATESH PREMISES
COOPERATIVE SOCIETY LTD.
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SUPREME COURT REPORTS
[2018] 3 S.C.R.
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 bye-laws.  [Para
19] [225-C-D]
1.5  Tr

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