Transfer fee received by a co-operative housing society is not taxable income as it is a mutual concern and there is no element of profit involved.

AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (2) of the Income-tax Act, 1961, for the assessment year 1984-85, the following question of law has been referred to this court :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the transfer fee of Rs. 40,870 was not taxable income of the assessee ?"

( 2 ) SHORTLY stated, the facts are that the assessee is a co-operative housing society. During the year relevant to the assessment year 1984-85, the assessee received transfer fee amounting to Rs. 45,870 for change of hands of flats. Following the treatment given to similar receipts in earlier assessments, the Assessing Officer held that the receipts were taxable as income. The administrative expenditure of the assessee was estimated at Rs. 5,000. The Assessing Officer, therefore, included a sum of Rs. 40,870 as the assessee's income under the head "other sources".

( 3 ) THE assessee went in appeal. The Commissioner of Income-tax, following the earlier findings in the assessee's case, held that the persons became members first before they are entitled to get the flats transferred in their names or are liable to pay the transfer fees. There is an element of mutuality in respect of transfer fees and, therefore, this receipt is not to be subjected to tax. Accordingly, the sum of Rs. 40,870 was deleted from the total income.

( 4 ) BEING aggrieved by the order of the Commissioner of Income-tax (Appeals), the Department filed an appeal before the Appellate Tribunal. The Tribunal followed its earlier decision and upheld the action of the Commissioner of Income-tax (Appeals ).

( 5 ) AT the hearing before us, Mr. Moitra, appearing for the Revenue has submitted that, in view of the provisions of Section 2 (24) (vii), the income which has been derived should be brought to tax. Section 2 (24) (vii) provides as follows :"the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed in accordance with Section 44 or any surplus taken to be such profits and gains by virtue of the provisions contained in the First Schedule. "

( 6 ) THIS contention, in our view, has no substance. The question of assessability in terms of Section 2 (24) (vii) only arises if the co-operative society is engaged in business. In this case, it is a housing co-operative society and it does not carry on business. It only provides residential apartments to the members of the society. His next contention is about the word "surplus" in Section 2 (24) (vii) as mentioned in the First Schedule. The First Schedule deals with insurance business and it has nothing to do with the co-operative society. He has brought to our attention the judgment of the Madras High Court in the case of CIT v. Madras Race Club [1976] 105 ITR 433. In that case, the assessee was carrying on the business of a race club. It provided facilities for other games, etc. , to its members and subscriptions were taken from the members. The question was whether the club was entitled to exemption and whether the business which it was carrying on with profit motive was destructive of the principle of mutuality. There, the Madras High Court was of the view that, where there is a contribution of monies by certain persons coming together for trading or non-trading purposes without any idea of making a profit, the same cannot be brought within the ambit of taxation. Similarly, a members' club which comes into existence for the purpose of providing certain amenities to the members without any business element cannot also be taxed. In this case, as the Tribunal found that there was no profit element in the transaction, the society, under its regulations or bye-laws, realises transfer fee from a member when the member intends to transfer the flat to any other person, member or otherwise and this amount is taken for the benefit of the members of the society and not for business

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