Sagar Sanjog Co-Operative ... vs Ito
2003 Latest Caselaw 1299 Bom

ORDER

H.S. Sidhu, J.M. :

The assessee has filed the present appeal against the order of the Commissioner (Appeals)-XX., Mumbai, dated 3-10-2002, for assessment year 1996-97, on the following grounds :

1. "The Commissioner (Appeals) erred in confirming the order of the assessing officer treating the receipts of Rs, 20,00,000 and Rs. 5,00,000 as revenue receipts."

2, "The Commissioner (Appeals) erred in holding that the sums of Rs. 20,00,000 and Rs. 5,00,000 paid to the appellant society were the compensation for commercial exploitation of the property and the transfer fee respectively."

2. The assessee is a society formed and registered under the Maharashtra Cooperative Societies Act, 1960, in or about the year 1972 for the purpose of acquiring a plot of land No. 50-C, at J.P. Road, Versova. There was an existing bungalow on the said plot which was occupied by one Shri B. Devi Singh as a tenant of the property owner. The assessee constructed a residential building comprising of 66 flats for its members on the said plot. Under an agreement dated 25-6-1997 entered into between the assessee-society and Shri B. Devi Singh, the latter was admitted as a member entitling him to hold the said bungalow as a co-partner tenant member of the society. B. Devi Singh had surrendered his tenancy in respect of the bungalow. Clause 12 of the said agreement provided that the ownership of the land and the bungalow remained exclusively with the assessee and B, Devi Singh was merely permitted to occupy the said premises as member. Clause 17 contained an undertaking from B. Devi Singh to the effect that he would use the premises only for residential purpose and not for any commercial purpose, On admission of B. Devi Singh, the assessee had in all 67 members occupying apartments and the bungalow situated within its compound.

2. The assessee is a society formed and registered under the Maharashtra Cooperative Societies Act, 1960, in or about the year 1972 for the purpose of acquiring a plot of land No. 50-C, at J.P. Road, Versova. There was an existing bungalow on the said plot which was occupied by one Shri B. Devi Singh as a tenant of the property owner. The assessee constructed a residential building comprising of 66 flats for its members on the said plot. Under an agreement dated 25-6-1997 entered into between the assessee-society and Shri B. Devi Singh, the latter was admitted as a member entitling him to hold the said bungalow as a co-partner tenant member of the society. B. Devi Singh had surrendered his tenancy in respect of the bungalow. Clause 12 of the said agreement provided that the ownership of the land and the bungalow remained exclusively with the assessee and B, Devi Singh was merely permitted to occupy the said premises as member. Clause 17 contained an undertaking from B. Devi Singh to the effect that he would use the premises only for residential purpose and not for any commercial purpose, On admission of B. Devi Singh, the assessee had in all 67 members occupying apartments and the bungalow situated within its compound.

3. In contravention of the undertaking given in the aforesaid agreement, B. Devi Singh used the premises for commercial purposes viz., film shooting. The assessee maintained a record of such shootings. On account of the continued use of the bungalow and surrounding area for film shooting by B. Devi Singh, resolution was passed at the meetings held on 12-10-1980 and 8-6-1981 and legal action was proposed against him for this and other defaults/irregularities. Accordingly, a notice dated 21-1-1981 was issued by the assessee's advocate for (i) arrears of outgoings, (ii) illegal encroachment of land belonging to the assessee, and (iii) unauthorised use of the premises for film shooting and calling upon him to hand over vacant and peaceful possession of the bungalow. In July, 1981, the assessee filed a suit against B. Devi Singh for non-payment of dues, illegal encroachment of land surrounding the bungalow which land was meant for the common use of all members and hiring of the bungalow and surrounding area for film shooting causing inconvenience to other members. The reliefs inter alia prayed for by the appellant were eviction of B. Devi Singh and handing over of vacant possession of the bungalow, payment of arrears of dues and mesne profits for the period during the pendency of the proceedings. On 26-6-1994, Shri B. Devi Singh along with two other co-owners of the bungalow, transferred the property to Shri Mahendra. Singh Dua. The parties to the suit reached a settlement in respect of the claims and an award was passed in the suit in July, 1995 recording the consent terms. B. Devi Singh was permitted to use the said bungalow and a demarcated part of the surrounding area. It was agreed that the ownership of the said bungalow vested with the assessee. The monetary terms agreed upon were recorded in clause 4. Sub-clause (a) of clause 4 of the award refers to the sum of Rs. 20,00,000 paid by B. Devi Singh to the assessee in full and final settlement of all claims of the assessee by way of arrears, charges, mesne profits, damages, arrears of maintenance, car parking charges, taxes and legal costs. A further sum of Rs. 5,00,000 was paid as voluntary donation towards general welfare fund of the assessee as stated in sub-clause (b), a sum of Rs. 25,000 as transfer fee for transfer of the premises to Shri Mahendra Singh Dua under sub-clause (c) and premium of Rs. 50,000 under sub-clause (d). Shri Mahendra Singh Dua had been admitted as co-partner tenant member of the society and 5 shares belonging to Shri B. Devi Singh were transferred in his name.

3. In contravention of the undertaking given in the aforesaid agreement, B. Devi Singh used the premises for commercial purposes viz., film shooting. The assessee maintained a record of such shootings. On account of the continued use of the bungalow and surrounding area for film shooting by B. Devi Singh, resolution was passed at the meetings held on 12-10-1980 and 8-6-1981 and legal action was proposed against him for this and other defaults/irregularities. Accordingly, a notice dated 21-1-1981 was issued by the assessee's advocate for (i) arrears of outgoings, (ii) illegal encroachment of land belonging to the assessee, and (iii) unauthorised use of the premises for film shooting and calling upon him to hand over vacant and peaceful possession of the bungalow. In July, 1981, the assessee filed a suit against B. Devi Singh for non-payment of dues, illegal encroachment of land surrounding the bungalow which land was meant for the common use of all members and hiring of the bungalow and surrounding area for film shooting causing inconvenience to other members. The reliefs inter alia prayed for by the appellant were eviction of B. Devi Singh and handing over of vacant possession of the bungalow, payment of arrears of dues and mesne profits for the period during the pendency of the proceedings. On 26-6-1994, Shri B. Devi Singh along with two other co-owners of the bungalow, transferred the property to Shri Mahendra. Singh Dua. The parties to the suit reached a settlement in respect of the claims and an award was passed in the suit in July, 1995 recording the consent terms. B. Devi Singh was permitted to use the said bungalow and a demarcated part of the surrounding area. It was agreed that the ownership of the said bungalow vested with the assessee. The monetary terms agreed upon were recorded in clause 4. Sub-clause (a) of clause 4 of the award refers to the sum of Rs. 20,00,000 paid by B. Devi Singh to the assessee in full and final settlement of all claims of the assessee by way of arrears, charges, mesne profits, damages, arrears of maintenance, car parking charges, taxes and legal costs. A further sum of Rs. 5,00,000 was paid as voluntary donation towards general welfare fund of the assessee as stated in sub-clause (b), a sum of Rs. 25,000 as transfer fee for transfer of the premises to Shri Mahendra Singh Dua under sub-clause (c) and premium of Rs. 50,000 under sub-clause (d). Shri Mahendra Singh Dua had been admitted as co-partner tenant member of the society and 5 shares belonging to Shri B. Devi Singh were transferred in his name.

4. The assessing officer, for the reasons set out in the assessment order, concluded that both the receipts of Rs. 20,00,000 and Rs. 5,00,000 were in the nature of transfer fees received from the outgoing member of the society and taxed these amounts as non-mutual income relying upon the decision of Hon'ble Bombay High Court in the case of CIT v. Presidency Co-operative Housing Society Ltd. (1995) 216 ITR 321 (Bom), and of the Tribunal in the case of Dalamal Housing Commercial Complex Premises Co-operative Society Ltd. v. ITO ITA No. 5658/Bom/1996 dated 30-9-1997.

4. The assessing officer, for the reasons set out in the assessment order, concluded that both the receipts of Rs. 20,00,000 and Rs. 5,00,000 were in the nature of transfer fees received from the outgoing member of the society and taxed these amounts as non-mutual income relying upon the decision of Hon'ble Bombay High Court in the case of CIT v. Presidency Co-operative Housing Society Ltd. (1995) 216 ITR 321 (Bom), and of the Tribunal in the case of Dalamal Housing Commercial Complex Premises Co-operative Society Ltd. v. ITO ITA No. 5658/Bom/1996 dated 30-9-1997.

5. On appeal by the assessee, the first appellate authority held that the amount of Rs. 20,00,000 paid by B. Devi Singh was not a compensation against any capital asset but a payment for commercial exploitation of the property against rules of the society and it was in the nature of business income as property was used by a member for commercial purposes and, therefore, the amount received by the assessee was a revenue receipt. Alternatively, he held that the assessee transferred the shares in favour of Mr. Dua only on condition that Shri Devi Singh pays Rs. 20,00,000 to the society and, thus, the amount represents transfer fees which is taxable. He further held that the assessing officer rightly taxed Rs. 5,00,000 as revenue receipt. The said amount was received by way of voluntary donation but in fact it represented transfer fees as the said amount had been paid as per consent terms agreed by parties to the suit. Thus, it was not a voluntary payment but a payment made by Devi Singh for effecting transfer in favour of Mr. Dua. He also observed that even the assessee had in the P&L a/c credited Rs. 5,00,000 as non-mutual income. The first appellate authority, thus, upheld the action of the assessing officer in taxing the amount of Rs. 25,00,000 as revenue receipt. Against the order passed by the first appellate authority, the assessee has filed the present appeal.

5. On appeal by the assessee, the first appellate authority held that the amount of Rs. 20,00,000 paid by B. Devi Singh was not a compensation against any capital asset but a payment for commercial exploitation of the property against rules of the society and it was in the nature of business income as property was used by a member for commercial purposes and, therefore, the amount received by the assessee was a revenue receipt. Alternatively, he held that the assessee transferred the shares in favour of Mr. Dua only on condition that Shri Devi Singh pays Rs. 20,00,000 to the society and, thus, the amount represents transfer fees which is taxable. He further held that the assessing officer rightly taxed Rs. 5,00,000 as revenue receipt. The said amount was received by way of voluntary donation but in fact it represented transfer fees as the said amount had been paid as per consent terms agreed by parties to the suit. Thus, it was not a voluntary payment but a payment made by Devi Singh for effecting transfer in favour of Mr. Dua. He also observed that even the assessee had in the P&L a/c credited Rs. 5,00,000 as non-mutual income. The first appellate authority, thus, upheld the action of the assessing officer in taxing the amount of Rs. 25,00,000 as revenue receipt. Against the order passed by the first appellate authority, the assessee has filed the present appeal.

6. The learned counsel for the assessee contended that the learned Commissioner (Appeals) erred in confirming the order of the assessing officer treating the receipts of Rs. 20,00,000 and Rs. 5,00,000 as revenue receipts. He stated that the amount of Rs. 20,00,000 had not been received by the assessee-society towards transfer fee. He drew our attention towards award dated 27-4-1995 passed by the Judge, Co-operative court No. IV, Mumbai, a copy of which has been enclosed in the paper book filed by him at pp. 49 to 54. He stated that clause 4(c) of the said award clearly indicates that an amount of Rs. 25,000 had been paid by way of transfer fee as against a lower amount charged by the assessee-society previously. There was, therefore, no material on the basis of which the sums of Rs. 20,00,000 and Rs. 5,00,000 paid under clauses 4(a) and 4(b) of the award could have been construed as paid towards transfer fee. Moreover, the bungalow had been transferred by Devi Singh under agreement dated 17-12-1994 for a consideration of Rs. 77,00,000 to Shri Mahendra Singh Dua and hence, the question of an amount of Rs. 20,00,000 being paid by way of transfer fee defies commonsense.

6. The learned counsel for the assessee contended that the learned Commissioner (Appeals) erred in confirming the order of the assessing officer treating the receipts of Rs. 20,00,000 and Rs. 5,00,000 as revenue receipts. He stated that the amount of Rs. 20,00,000 had not been received by the assessee-society towards transfer fee. He drew our attention towards award dated 27-4-1995 passed by the Judge, Co-operative court No. IV, Mumbai, a copy of which has been enclosed in the paper book filed by him at pp. 49 to 54. He stated that clause 4(c) of the said award clearly indicates that an amount of Rs. 25,000 had been paid by way of transfer fee as against a lower amount charged by the assessee-society previously. There was, therefore, no material on the basis of which the sums of Rs. 20,00,000 and Rs. 5,00,000 paid under clauses 4(a) and 4(b) of the award could have been construed as paid towards transfer fee. Moreover, the bungalow had been transferred by Devi Singh under agreement dated 17-12-1994 for a consideration of Rs. 77,00,000 to Shri Mahendra Singh Dua and hence, the question of an amount of Rs. 20,00,000 being paid by way of transfer fee defies commonsense.

7. The learned counsel further stated that the decisions relied upon by the assessing officer have no relevance in the present case as both those decisions related to taxability of transfer fee. The only question before the Bombay High Court was whether the amount received as transfer fee is a capital receipt or a revenue receipt and the contention that the same was not taxable by reason of the principle of mutuality was not advanced and hence, not considered in that case, It is true the Tribunal in the case of Dalamal Housing Commercial Complex Premises Co-operative Society Ltd. (supra) has held transfer fee to be taxable. But, later judgments of Hon'ble Calcutta and Gujarat (sic-Raj) High Court reported in CIT v. Apsara Co-operative Housing Society (1993) 204 ITR 662 (Cal) and CIT v. Smt Lata Nawalikha (1993) 213 ITR 577 (Raj), have, relying upon the principle of mutuality, held that transfer fee is not taxable. The Gujarat High Court specifically considered the argument that the principle of mutuality would not apply when an outgoing member makes contribution. It was held at pp. 691-692, "the argument that contributor is not a member who could participate in the surplus is of no consequence and deserves to be rejected. It is to be noticed at pain of repetition that the identity of the individuals as contributors and participants is not essential but what is essential is the identity of character as contributors and participants". The learned counsel further stated that apart from the aforesaid two judgments which have considered the taxability of transfer fee in the case of co-operative housing societies in the context of mutuality principle and held that such fees are not taxable, the fact remains as borne out from the records that in the present case, these amounts have not been received towards transfer fees but for settlement of various claims pending since the year 1981, and that the fact that the amount was received at the point of time when the bungalow was to be transferred would not alter the character of the receipt. Hence, the action of the assessing officer in treating these amounts as transfer fee was erroneous. Further, the bifurcation of the claim of the assessee against Shri Devi Singh, set out in the assessment order at p. 3, indicated that a major portion is towards mesne profits for encroaching on land meant for the common use of all members and compensation/damages for the inconvenience caused to the members by unauthorised user of the bungalow and the area around it for film shooting. The learned counsel stated that the position in law is well settled that mesne profits being in the nature of damages are a capital receipt and cannot be subjected to tax, and the interest on such mesne profits also bears the same character as the mesne profits. In this connection, he referred to the decisions in the cases of CIT v. Mrs. Annamma Alexander (1991) 191 ITR 551 (Ker) followed in Smt. Annamma Alexander & Ors. v. CIT (1993) 199 ITR 303 (Ker) and Achesthan Pillai & Co. v. CIT (1998) 238 ITR 458 (Ker), and CIT v. Smt. Lila Ghosh (1994) 205 ITR 9 (Cal). Thus, mesne profits received by the assessee from Shri Devi Singh represented damages for depriving the members of the use of a portion of the land and were, therefore, capital in nature. So, also, the compensation/ damages paid for the inconvenience caused to the members as a result of the film shooting is a capital receipt. The assessee did not carry on any activity of a commercial nature; if at all, it was B. Devi Singh who carried on the commercial activity. The compensation paid under the consent terms was for the inconvenience he caused to the members and was not of an income nature.

7. The learned counsel further stated that the decisions relied upon by the assessing officer have no relevance in the present case as both those decisions related to taxability of transfer fee. The only question before the Bombay High Court was whether the amount received as transfer fee is a capital receipt or a revenue receipt and the contention that the same was not taxable by reason of the principle of mutuality was not advanced and hence, not considered in that case, It is true the Tribunal in the case of Dalamal Housing Commercial Complex Premises Co-operative Society Ltd. (supra) has held transfer fee to be taxable. But, later judgments of Hon'ble Calcutta and Gujarat (sic-Raj) High Court reported in CIT v. Apsara Co-operative Housing Society (1993) 204 ITR 662 (Cal) and CIT v. Smt Lata Nawalikha (1993) 213 ITR 577 (Raj), have, relying upon the principle of mutuality, held that transfer fee is not taxable. The Gujarat High Court specifically considered the argument that the principle of mutuality would not apply when an outgoing member makes contribution. It was held at pp. 691-692, "the argument that contributor is not a member who could participate in the surplus is of no consequence and deserves to be rejected. It is to be noticed at pain of repetition that the identity of the individuals as contributors and participants is not essential but what is essential is the identity of character as contributors and participants". The learned counsel further stated that apart from the aforesaid two judgments which have considered the taxability of transfer fee in the case of co-operative housing societies in the context of mutuality principle and held that such fees are not taxable, the fact remains as borne out from the records that in the present case, these amounts have not been received towards transfer fees but for settlement of various claims pending since the year 1981, and that the fact that the amount was received at the point of time when the bungalow was to be transferred would not alter the character of the receipt. Hence, the action of the assessing officer in treating these amounts as transfer fee was erroneous. Further, the bifurcation of the claim of the assessee against Shri Devi Singh, set out in the assessment order at p. 3, indicated that a major portion is towards mesne profits for encroaching on land meant for the common use of all members and compensation/damages for the inconvenience caused to the members by unauthorised user of the bungalow and the area around it for film shooting. The learned counsel stated that the position in law is well settled that mesne profits being in the nature of damages are a capital receipt and cannot be subjected to tax, and the interest on such mesne profits also bears the same character as the mesne profits. In this connection, he referred to the decisions in the cases of CIT v. Mrs. Annamma Alexander (1991) 191 ITR 551 (Ker) followed in Smt. Annamma Alexander & Ors. v. CIT (1993) 199 ITR 303 (Ker) and Achesthan Pillai & Co. v. CIT (1998) 238 ITR 458 (Ker), and CIT v. Smt. Lila Ghosh (1994) 205 ITR 9 (Cal). Thus, mesne profits received by the assessee from Shri Devi Singh represented damages for depriving the members of the use of a portion of the land and were, therefore, capital in nature. So, also, the compensation/ damages paid for the inconvenience caused to the members as a result of the film shooting is a capital receipt. The assessee did not carry on any activity of a commercial nature; if at all, it was B. Devi Singh who carried on the commercial activity. The compensation paid under the consent terms was for the inconvenience he caused to the members and was not of an income nature.

8. Alternatively, and without prejudice to the aforesaid submissions, the learned counsel for the assessee stated that the assessee being a mutual body, the sums of Rs. 20,00,000 received from its members and used/retained for use solely for the common benefits of the members is not taxable. In support of this submission, he placed reliance on the judgments of the Hon'ble Calcutta High Court reported in CIT v. Apsara Co-operative Housing Society (supra) and Hon'ble Gujarat High Court in CIT v. Adarsh Co-operative Housing Society (1995) 213 ITR 677 (Guj). During the relevant year, the assessee had in fact spent part of the sumon repairs to the building. In the subsequent years, the assessee had spent further amounts received under the consent terms on maintenance and repairs and invested the balance for future use for the benefit of the members. The learned counsel further stated that so far as the sum of Rs. 6,00,000 W concerned, the same had been specifically paid towards the general welfare fund of the assessee and in fact the entire sum had been spent for the repairs of the building during the relevant year itself. Accordingly, the assessee is not liable to be taxed on the said sum. In addition, the said sum is not taxable since, the assessee being a mutual body and the amount having been received from its members, the principle of mutuality would apply.

8. Alternatively, and without prejudice to the aforesaid submissions, the learned counsel for the assessee stated that the assessee being a mutual body, the sums of Rs. 20,00,000 received from its members and used/retained for use solely for the common benefits of the members is not taxable. In support of this submission, he placed reliance on the judgments of the Hon'ble Calcutta High Court reported in CIT v. Apsara Co-operative Housing Society (supra) and Hon'ble Gujarat High Court in CIT v. Adarsh Co-operative Housing Society (1995) 213 ITR 677 (Guj). During the relevant year, the assessee had in fact spent part of the sumon repairs to the building. In the subsequent years, the assessee had spent further amounts received under the consent terms on maintenance and repairs and invested the balance for future use for the benefit of the members. The learned counsel further stated that so far as the sum of Rs. 6,00,000 W concerned, the same had been specifically paid towards the general welfare fund of the assessee and in fact the entire sum had been spent for the repairs of the building during the relevant year itself. Accordingly, the assessee is not liable to be taxed on the said sum. In addition, the said sum is not taxable since, the assessee being a mutual body and the amount having been received from its members, the principle of mutuality would apply.

8. In view of the aforesaid submissions, the learned counsel contended that the assessee is not liable to be taxed in respect of the sums of Rs. 20,00,000 and Rs. 5,00,000.

8. In view of the aforesaid submissions, the learned counsel contended that the assessee is not liable to be taxed in respect of the sums of Rs. 20,00,000 and Rs. 5,00,000.

9. The learned Departmental Representative, on the contrary, opposed the contention of the assessee and relied upon the orders passed by the revenue authorities. He stated that Shri Devi Singh was commercially exploiting the property occupied by him, i.e., bungalow along with plot of land, by way of film shooting. Since it violated the rules of the society, Shri Devi Singh was asked to pay for use of the plot along with the bungalow for film shootings. Thus, it is not a compensation paid by Shri Devi Singh against any capital asset but a payment made for commercial exploitation of the property against the rules of the society. It was, therefore, in the nature of business income and the amount received by the assessee is a revenue receipt. As regards the amount of Rs. 5,00,000, the learned Departmental Representative stated that the amount was paid by Shri Devi Singh under the consent terms agreed by parties to the suit and it was not a voluntary payment but a payment made by him for effecting the transfer in favour of Shri Dua and is, thus, a revenue receipt. He, therefore, supported the order passed by the first appellate authority and stated that the appeal of the assessee deserves to be dismissed.

9. The learned Departmental Representative, on the contrary, opposed the contention of the assessee and relied upon the orders passed by the revenue authorities. He stated that Shri Devi Singh was commercially exploiting the property occupied by him, i.e., bungalow along with plot of land, by way of film shooting. Since it violated the rules of the society, Shri Devi Singh was asked to pay for use of the plot along with the bungalow for film shootings. Thus, it is not a compensation paid by Shri Devi Singh against any capital asset but a payment made for commercial exploitation of the property against the rules of the society. It was, therefore, in the nature of business income and the amount received by the assessee is a revenue receipt. As regards the amount of Rs. 5,00,000, the learned Departmental Representative stated that the amount was paid by Shri Devi Singh under the consent terms agreed by parties to the suit and it was not a voluntary payment but a payment made by him for effecting the transfer in favour of Shri Dua and is, thus, a revenue receipt. He, therefore, supported the order passed by the first appellate authority and stated that the appeal of the assessee deserves to be dismissed.

10. We have heard both sides and perused the relevant record available with us. We have also gone through the paper book filed by the learned counsel for the assessee as well as the judgments cited before us. In this case, the assessee-society was formed for the purpose of acquiring a plot of land No. 50C at J.P. Road, Versova, on which the assessee constructed a residential building comprising of 66 flats for its members. There was an existing bungalow on the plot which was occupied by Shri B. Devi Singh as tenant of the property owner, Shri Devi Singh became a member of the society as a copartner tenant member of the society. He surrendered his tenancy in respect of the bungalow. Clause 17 of the agreement between the society and Shri Devi Singh contained an undertaking from Shri Devi Singh to the effect that he would use the premises only for residential purposes. However, in contravention of the same, he used the premises for commercial purposes, viz. film shooting. The society, therefore initiated legal action against Shri Devi Singh and issued notice for (i) arrears of outgoings, (ii) illegal encroachment of land belonging to the assessee, and (iii) unauthorised use of the premises for film shooting, and calling upon him to hand over vacant and peaceful possession of the bungalow. A suit was filed claiming reliefs of eviction of B. Devi Singh and handing over of vacant possession of the bungalow, payment of arrears of dues and mesne profits for the period during the pendency of the proceedings. On 26-6-1994, Shri Devi Singh along with two other co owners of the bungalow, transferred the property to Shri Mahendra Singh Dua. The parties to the suit reached a settlement in respect of the claims. As per consent terms (pp.. 43 to 48 of the paper book) before the co-operative court No. IV at Ballard Pier Bombay, in Dispute No. 490/1981 of 1981 between Sagar Sanjog Co-operative Housing Society Ltd. and B. Devi Singh and Mohinder Singh Dua as opponents Nos. 1 and 2, Shri B. Devi Singh paid to the society Rs. 20,00,000 by way of full and final settlement of all the claims of the society, and Rs. 5,00,000 as voluntary donation towards the society's general welfare fund. The relevant clauses 4(a) and 4(b), read as under

10. We have heard both sides and perused the relevant record available with us. We have also gone through the paper book filed by the learned counsel for the assessee as well as the judgments cited before us. In this case, the assessee-society was formed for the purpose of acquiring a plot of land No. 50C at J.P. Road, Versova, on which the assessee constructed a residential building comprising of 66 flats for its members. There was an existing bungalow on the plot which was occupied by Shri B. Devi Singh as tenant of the property owner, Shri Devi Singh became a member of the society as a copartner tenant member of the society. He surrendered his tenancy in respect of the bungalow. Clause 17 of the agreement between the society and Shri Devi Singh contained an undertaking from Shri Devi Singh to the effect that he would use the premises only for residential purposes. However, in contravention of the same, he used the premises for commercial purposes, viz. film shooting. The society, therefore initiated legal action against Shri Devi Singh and issued notice for (i) arrears of outgoings, (ii) illegal encroachment of land belonging to the assessee, and (iii) unauthorised use of the premises for film shooting, and calling upon him to hand over vacant and peaceful possession of the bungalow. A suit was filed claiming reliefs of eviction of B. Devi Singh and handing over of vacant possession of the bungalow, payment of arrears of dues and mesne profits for the period during the pendency of the proceedings. On 26-6-1994, Shri Devi Singh along with two other co owners of the bungalow, transferred the property to Shri Mahendra Singh Dua. The parties to the suit reached a settlement in respect of the claims. As per consent terms (pp.. 43 to 48 of the paper book) before the co-operative court No. IV at Ballard Pier Bombay, in Dispute No. 490/1981 of 1981 between Sagar Sanjog Co-operative Housing Society Ltd. and B. Devi Singh and Mohinder Singh Dua as opponents Nos. 1 and 2, Shri B. Devi Singh paid to the society Rs. 20,00,000 by way of full and final settlement of all the claims of the society, and Rs. 5,00,000 as voluntary donation towards the society's general welfare fund. The relevant clauses 4(a) and 4(b), read as under

"4(a). The opponent No. 1 has this day paid to the disputant society a lump sum of Rs. 20,00,000 (Rupees twenty lakhs) by two pay orders Nos. 601709 dt, 20-4-1995. in the sum of Rs. 15,00,000 (rupees fifteen lakhs) and (b) pay order No. 213860 dated 9-3-1995 in the sum of Rs. 5,00,000 (rupees five lakhs) drawn by UCO Bank, Andheri (W) aggregating to Rs. 20,00,000 as and by way of full and final settlement of all the claims of the disputant society against opponent No. 1 claimed in the dispute by way of arrears, charges, mesne profits, damages, arrears of maintenance, car parking charges, taxes and costs of the dispute till date.

4(b) The opponent No. 1 has this day also paid to the disputant society a further sum of Rs. 5,00,000 (rupees five lakhs) by pay order No. 213856 dated 9-3-1995 drawn by UCO bank as voluntary donation towards disputant society's general welfare fund."

We may also quote clauses 4(c) and 4(d) of the said consent terms which are as follows :

"4(c) The opponent No. 2 has paid to the disputant society a sum of Rs. 25,000 (rupees twenty five thousand) by cheque No. 593636 dated 10-3-1996 drawn on Development Co-operative bank as transfer fee to the disputant society.

4(d) The opponent No. 2 has paid a further sum of Rs. 50,000 (rupees fifty thousand only) as a premium by cheque No. 593638 dated 10-3-1995 drawn on Development Co-operative Bank."

In terms of the consent terms mentioned above, the Judge, Fourth Co-operative court at Bombay, passed award dated 27-4-1996 (pp. 49 to 54 of the paper book), in which the clauses of consent terms quoted above have been incorporated. Finally the assessee-society withdrew the dispute. Shri Mahendra Singh Dua had been admitted as co-partner tenant member of the society and 5 shares belonging to Shri B. Devi Singh were transferred in his name.

11. The assessing officer taxed the aforesaid amounts of Rs. 20,00,000 and Rs. 5,00,000 as non-mutual income. He held that the said amounts were in the nature of transfer fees received from the outgoing member of the society. The first appellate authority upheld the action of the assessing officer by holding that the receipts were revenue receipts in the hands of the assessee.

11. The assessing officer taxed the aforesaid amounts of Rs. 20,00,000 and Rs. 5,00,000 as non-mutual income. He held that the said amounts were in the nature of transfer fees received from the outgoing member of the society. The first appellate authority upheld the action of the assessing officer by holding that the receipts were revenue receipts in the hands of the assessee.

12. After going through the facts of the present case, we are of the considered opinion that the revenue authorities were not right in holding that the receipts of Rs. 20,00,000 and Rs. 5,00,000 were revenue receipts. Keeping in view the consent terms and the award of the Judge referred to above, we accept the contention of the learned counsel for the assessee that the amount of Rs. 20,00,000 had not been received by the assessee-society towards transfer fee. The award clearly mentions that the amount had been paid by Shri Devi Singh as and by way of full and final settlement of all the claims of the society towards "arrears, charges, mesne profits, damages, arrears of maintenance, car parking charges, taxes and costs of the dispute till date". As regards the amount of Rs. 5,00,000, the award mentions that the amount had been paid by Shri Devi Singh as "voluntary donation towards disputant society's general welfare fund". There is no material on record on the basis of which it could be said that the aforesaid amount of Rs. 20,00,000 and Rs. 5,00,000 had been received by the assessee-society towards transfer fee. The bungalow had been transferred by Shri Devi Singh to Shri Mahendra Singh Dua for a consideration of Rs. 77,00,000 and as per the consent ' terms and award, Shri Mahendra Singh Dua paid to the assessee-society Rs. 25,000 towards transfer fee and a further sum of Rs. 50,000 as premium. As, in our view, the total amount of Rs. 25,00,000 taxed by the assessing officer, is not transfer fee, the decisions relied upon by the assessing officer have no application in the present case. We also accept the contention of the learned counsel for the assessee that the fact that the amount was received at the point of time when the bungalow was to be transferred would not alter the character of the receipt. A major portion of the receipt was towards mesne profits for encroaching on land meant for the common use of all members and compensation/damages for the inconvenience caused to the members by unauthorised user of the bungalow and the area around it for film shooting. As per settled law, mesne profits being in the nature of damages are a capital receipt and cannot be subjected to tax. The amount of Rs. 5,00,000 had been specifically paid towards the general welfare fund of the society. According to the learned counsel for the assessee, in fact the entire sum had been spent for the repairs of the building during the relevant year itself.

12. After going through the facts of the present case, we are of the considered opinion that the revenue authorities were not right in holding that the receipts of Rs. 20,00,000 and Rs. 5,00,000 were revenue receipts. Keeping in view the consent terms and the award of the Judge referred to above, we accept the contention of the learned counsel for the assessee that the amount of Rs. 20,00,000 had not been received by the assessee-society towards transfer fee. The award clearly mentions that the amount had been paid by Shri Devi Singh as and by way of full and final settlement of all the claims of the society towards "arrears, charges, mesne profits, damages, arrears of maintenance, car parking charges, taxes and costs of the dispute till date". As regards the amount of Rs. 5,00,000, the award mentions that the amount had been paid by Shri Devi Singh as "voluntary donation towards disputant society's general welfare fund". There is no material on record on the basis of which it could be said that the aforesaid amount of Rs. 20,00,000 and Rs. 5,00,000 had been received by the assessee-society towards transfer fee. The bungalow had been transferred by Shri Devi Singh to Shri Mahendra Singh Dua for a consideration of Rs. 77,00,000 and as per the consent ' terms and award, Shri Mahendra Singh Dua paid to the assessee-society Rs. 25,000 towards transfer fee and a further sum of Rs. 50,000 as premium. As, in our view, the total amount of Rs. 25,00,000 taxed by the assessing officer, is not transfer fee, the decisions relied upon by the assessing officer have no application in the present case. We also accept the contention of the learned counsel for the assessee that the fact that the amount was received at the point of time when the bungalow was to be transferred would not alter the character of the receipt. A major portion of the receipt was towards mesne profits for encroaching on land meant for the common use of all members and compensation/damages for the inconvenience caused to the members by unauthorised user of the bungalow and the area around it for film shooting. As per settled law, mesne profits being in the nature of damages are a capital receipt and cannot be subjected to tax. The amount of Rs. 5,00,000 had been specifically paid towards the general welfare fund of the society. According to the learned counsel for the assessee, in fact the entire sum had been spent for the repairs of the building during the relevant year itself.

13. We also find force in the argument of the learned counsel the assessee being a mutual body and the amounts having been received from one of its members, the principle of mutuality would apply and the same are not taxable. The Tribunal, Mumbai Bench (Special Bench), in the case of Walkeshar Triveni Co-op. Housing Society Ltd. v. Income Tax Officer ITA No. 4397/Mum/2001 (Asst. yr. 1997-98), vide order dated 4-7-2003, (reported at (2003) 80 TTJ (Mumbai)(SB) 673-Ed.) considered the question "whether the transfer fee received by the co-operative housing society is exempt from income-tax by the principle of mutuality". It was held by the Special Bench that the amount received from the transferor is not exigible to tax, whereas the amount received from the transferee is exigible to tax. In the present case, Shri Devi Singh transferred the property to Shri Mahendra Singh Dua and even if the amounts paid by Shri Devi Singh to the society are considered transfer fee, as per the decision of the Special Bench, the amount is not exigible to tax.

13. We also find force in the argument of the learned counsel the assessee being a mutual body and the amounts having been received from one of its members, the principle of mutuality would apply and the same are not taxable. The Tribunal, Mumbai Bench (Special Bench), in the case of Walkeshar Triveni Co-op. Housing Society Ltd. v. Income Tax Officer ITA No. 4397/Mum/2001 (Asst. yr. 1997-98), vide order dated 4-7-2003, (reported at (2003) 80 TTJ (Mumbai)(SB) 673-Ed.) considered the question "whether the transfer fee received by the co-operative housing society is exempt from income-tax by the principle of mutuality". It was held by the Special Bench that the amount received from the transferor is not exigible to tax, whereas the amount received from the transferee is exigible to tax. In the present case, Shri Devi Singh transferred the property to Shri Mahendra Singh Dua and even if the amounts paid by Shri Devi Singh to the society are considered transfer fee, as per the decision of the Special Bench, the amount is not exigible to tax.

14. The contention of the learned Departmental Representative is that the amount is not a compensation paid by Shri Devi Singh against any capital asset but a payment made for commercial exploitation of the property against the rules of the society and it was in the nature of business income. In our view, this contention has no force since it was not the assessee-society which carried on the commercial activity but it was Shri Devi Singh, who used the property in question for commercial purposes.

14. The contention of the learned Departmental Representative is that the amount is not a compensation paid by Shri Devi Singh against any capital asset but a payment made for commercial exploitation of the property against the rules of the society and it was in the nature of business income. In our view, this contention has no force since it was not the assessee-society which carried on the commercial activity but it was Shri Devi Singh, who used the property in question for commercial purposes.

Keeping in view the discussion made above, we are of the considered opinion that the revenue authorities were not right in treating the receipts of Rs. 20,00,000 and Rs. 5,00,000 as revenue receipts and we hold that the said amounts are not taxable.

15. In the result, the appeal of the assessee is allowed.

15. In the result, the appeal of the assessee is allowed.