Shri P. V. B. Rao, Judicial Member
1. This appeal has been placed before the Special Bench in view of the conflicting opinions expressed by the Tribunal as noticed by the Bench referring the matter to the President for constituting a Special Bench. We will deal with those decisions at the appropriate stage.
2. The assessee is a member of co-operative society by name "Rajab Mahal Co-operative Housing Society Ltd." with its registered address at 145, Queens Road, fort, Bombay-1. As a member of the Co-operative housing society, who held shares, the assessee was is possession of two flats, flat No. 4 and flat No. 5 with a garage. The building, in which the flats are situated, belonged to the co-operative society. By an agreement dated 28-10-1974 the assessee agreed to sell flat No. 4 and garage No. 4 to Mr. and Mrs. Narandas Vithaldas Badyani. The total consideration is stipulated at Rs. 2,50,000 made up of as follows :
"a. Rs. 45,625 : value of shares and deposits paid by the vendor to the said society which the said society will be requested to transfer to the name of the purchasers;
b. Rs. 15,375 : agreed value of fittings, fixtures and furnitures and general expenses; and
c. Rs. 1,89,000 : compensation to the vendor for relinquishing her rights in the said flat No. 4 and the said garage No. 4."
By another agreement dated February 1974, the assessee agreed to sell flat No. 5 in favour of Mr. and Mrs. Nasiruddin H. Javeri for a consideration of Rs. 2,10,000 which is made up as follows :
"a. Rs. 43,625 : value of share and deposits paid by the vendor to the said society which the said society will be requested to transfer to the name of the purchasers;
b. Rs. 7,375 : agreed value of fittings and fixtures and general expenses; and
c. Rs. 1,50,000 : compensation to the vendor for relinquishing her right in the flat No. 5."
3. By virtue of the transfer effected by the assessee, as indicated above, the assessee became liable to pay tax on capital gain. We are not concerned with various contentions raised by the assessee in regard to the levy of capital gains tax, since there is no dispute that there is a transfer of capital asset and the assessee is liable to tax on capital gains, but we are only concerned with the claim of the assessee that she is entitled to deduction under section 80T (b) (ii) of the Income-tax Act, 1961 ("the Act") at 40 per cent on the basis that what was transferred by the assessee is neither lands and buildings nor any rights therein. This contention has been rejected by the ITO. The Commissioner (Appeals), however, accepted the same. In this appeal filed by the revenue the order of the Commissioner (Appeals) in granting deduction under section 80T (b) (ii) is assailed.
4. When the matter came up for hearing before the Bench, the revenue relied on a decision of the Tribunal in IT Appeal No. 704(Bom.) of 1980 dated 14-5-1981 and contended that the relief due to the assessee should be worked out in accordance with the provisions of section 80T (b) (i). A contrary decision in IT Appeal No. 1159 (Bom.) of 1980 dated 111-3-1981 and also the decision in IT Appeal No. 307 (Bom) of 1980 and IT Appeal No 478 (Bom.) of 1980 decided on 23-2-1981 were relied on by the assessee. The Bench, which, heard the appeal of the assessee, noticed that there were conflicting views expressed by different Benches of the Tribunal on the question and since it would arise in several cases, referred the matter to the President for constituting a Special Bench on the following question :
"Whether the capital gains made but he assessee by the sale of shares in a housing co-operative society is one relating to the capital assets, being building or lands or any rights in building or lands with the meaning of section 80T (b) (i)."
The President was pleased to constitute special Bench and that is how we are in seisin of the matter.
5. Inspite of due notice, unfortunately, the assessee remained absent, while the revenue was represented by the learned standing counsel for the department. However, one of the interveners represented by Shri V. H. Patil put forth the contentions in favour of the assessee. We have, thus, had the benefit of the arguments on both the sides.
6. Shri Joshi at the outset pointed the relevant provisions of the Co-operative Societies Act, the bye-laws of the society of which the assessee is a member, as also the Maharashtra Ownership Flats (Regulation of the Promotion of Construction, Sale, Management and Transfer) Act, 1963 (which is hereinafter called as "the Maharashtra Act" for convenience). From a conspectus of various provisions mentioned in the above enactments coupled with the relevant provisions of the Income-tax Act. such as, section 2(14), defining "capital asset", section 2(47), defining "transfer", section 45, dealing with levy of tax on capital gains and finally section 80T, his main argument, as we have understood, is that the assessee, being a member of the co-operative society, is entitled to occupy a flat or flats and this right to occupy is a right in land and building as contemplated under section 80(b) (i). He particularly drew support form the various observations made by the Supreme Court in the case of Ramesh Himmatlal Shah v. Harsukh Jadhavji Joshi AIR 1975 SC 1470. Shri Joshi also invited our attention to the provisions of the General Clauses Act defining "immovable property" and the Commentary of Mulla's Transfer of Property Act, 6th edn., at pages 49 and 50, which deals with the concept of a benefit or interest arising out of land, in order to show that the same concept should be applied in construing the expression "rights" in land and building used in section 80T (b) (i). Shri Joshi further urged that the word "in" must be understood as "with reference to", "in relation to ", or "in connection with", etc., as indicated in the book, Law Lexicon by Venkataramaiah at page 594.
7. The learned counsel appearing for the interveners at the outset points out that a co-operative society is a separate legal entity and the ownership of the land and building vests with it. Each member according to Shri Patil, is entitled only to certain rights on the basis of his or her share holding. These rights include a right to occupy. He has also pointed out that there are two kinds of housing societies, one is ownership society and the second is tenancy society. He has, however, pointed out that we are concerned with the second category of societies, viz., a tenant co-partnership housing society. On these premises, Shri Patil contended that when there is a transfer of the interest of an assessee in a co-operative society, it is only a transfer of share capital and there is no transfer of a right to occupy separately or independently. When there is a transfer of share capital incidentally, there is a transfer of the right to occupy, which is within that larger right. In other words, what Shri Patil contended for is that there is neither a transfer of right to occupy nor there can be such a right to occupy not there can be such a right and on the transfer of shares there is incidental transfer of right to occupy and, therefore, there is no question of the right to occupy being treated as a transfer of any rights in the land and building. In support of the above contentions, Shri Patil drew analogy from those lines of cases where it was held that when there is a transfer of interest in partnership or transfer of shares in a company what is transferred is only the shares and by virtue of such transfer so many other rights flow. According to him, the transfer is only of the shares and there is no other transfer involved even though the transferee may get further benefits flowing from the transfer. He particularly emphasised on the decision given by the Supreme Court in the case of CIT v. Juggilal Kamlapat  63 ITR 292. The learned counsel also invited out attention to a Full Bench decision of the Gujarat High Court in Mulshankar Kunverji Gor v. Juvansihji Shivubha AIR 1980 Guj. 62, in support of his contentions. Reliance was also placed on the decision of the Gujarat High Court in the case of Artex Manufacturing Co. v. CIT  131 ITR 559. The learned counsel also brought to our notice a decision of the Bombay High Court in the case of Contessa Knitwear v. Udyog Mandir Co-operative Housing Society  Bom. CR 493. In the last, Shri Patil referred to a decision of the Gujarat High Court in the case of CIT v. Premanand Industrial Co-operative Service Society Ltd.  124 ITR 772, though we will presently show that this decision fully supports the revenue's stand.
8. Before we deal with the above contentions of both the parties, it in useful to refer to the decision of the Supreme Court in the case of Ramesh Himmatlal Shah (supra), inasmuch as, it deals with a housing co-operative society which is identical with the co-operative housing society of which the assessee is a member. The Supreme Court examined the various provisions of the Co-operative Societies Act and the bye laws (the bye-laws of housing co-operative Societies of which and assessee is a member are exactly similar to those bye-laws dealt with by the Supreme Court). The Supreme Court reviewed those provisions for deciding the issue as to whether the right of a member of a Co-operative society to occupy a flat belonging to the co-operative society is attachable and can be put to sale in execution of a decree. It reversed the decision of the Bombay High Court and in that context it dealt with the various provisions of the Co-operative Societies Act as well as the bye-laws of the particular society. In para 17 of the judgment at page 1475 their Lordships held :
"17. From a review of the foregoing provisions the position with reference to the particular society is as follows :
There is no absolute prohibition in the Act or in the rules or in the bye-laws against transfer of interest of a member in the property belonging to the society. The only transfer which is void under the Act is one made in contravention of sub-section (2) of section 47 [see section 47(3) 0]. We have not been able to find any other provision anywhere to the same effect. In the scheme of the provisions a dichotomy is seen between share or interest in the capital and interest in property of the society. While section 29(2) refers to transfer of a member's share or his interest in the capital or property of any society, section 31 in contrast speaks of 'the share or interest of member in the capital of a society.' The Act, therefore, makes a clear distinction between the share or interest in the capital and share or interest in property of the society. We have also noticed that the Act does recognize interest in the immovable property of the society as well [see section 47(1) (b)]. We have seen the qualifications for membership. There is no reason under the bye-laws are fulfilled an application for membership may be rejected (sic). It is admitted that the flat is owned by the society and the judgment debtor has a right or interest to occupy the same".
In para 18 their Lordships further held as under :
"We, therefore, unhesitatingly come to the conclusion that this species of property, namely, 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. We have seen no fetter under any of the legal provisions against such a conclusion. The attachment and the sale of the property in this case in execution of the decree are valid under the law."
The same idea is expressed more tersely in para 19 to the following effect :
"In 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 salability 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."
9. It is clear form the aforesaid observations of the Supreme Court that it may be totally unnecessary to deal with the contentions raised by both the sides in greater detail, since, in our opinion, the observations of the Supreme Court clinch the issue in favour of the revenue. The Supreme Court brought out a distinction between the right of a member of the society to hold shares and the right to occupy a flat. The right to occupy a flat is treated as distinct right, though it is inextricably connected with the right to hold shares. The right to occupy naturally flows from the right to hold shares, though the former is a distinct and separate right recognised in law. According to the decision of the Supreme Court, such a right is clearly alienable and heritable. That right is clearly a right arising out of the flat which is nothing but a building. Prima facie, therefore, the right to occupy is a right in land and building and, therefore, falls under section 80T (b) (i).
10. However, it will be proper for us to deal with the contentions raised by Shri Patil before we conclude the matter. There argument of Shri Patil is based mainly on the plea that the right to occupy only flows as an incidence of the transfer of the shares and, therefore, what is the subject matter of transfer is only the shares. This contention is unacceptable for more than one reason. In the case before us the transfer is undoubtedly in respect of flat Nos. 4 and 5, as is clear from the two agreements refereed to by us above. The preamble to the agreement read as follows :
"WHEREAS the Vendor is a member of the Rajab Mahal Co-operative Housing Society Ltd. (hereinafter referred to as 'the said society') and is absolutely possessed of and otherwise well and sufficiently entitled to Flat No. 4 on the first floor and garage No. 4 statute in the compound of the property known as 'Rajab Mahal' situate at 144, Maharshi Karve Road, Bombay-400 020 belong to the said society :
AND WHEREAS the vendor has agreed to sell to the purchasers flat No. 4 on the first floor and the said garage No. 4 situate in the compound of the said property and all her rights, title and interest therein on the following terms and conditions."
Similar is the wording in respect of the agreement for the sale of flat No. 5. What was, therefore, intended to be sold or conveyed is the right, title and interest in the flat. No doubt the consideration for the transfer of the flat comprised of three different items. That hardly makes any difference. What was really transferred is the flat or what can be properly described as the right to occupy. The consideration for the transfer was merely expresses as comprising of three different items. There is, therefore, no substance in the contention of the learned counsel appearing for the interveners that there was only a transfer of shares.
11. Even otherwise the contention of Shri Patil cannot be accepted, in view of the decision of the Supreme Court. The Supreme Court, unequivocally laid down that there are two distinct rights, one is the right to shares and the other is the right to occupy. It has also been held that the right to occupy can be the subject-matter of transfer. It may be that when such a right is transferred, it would be necessary to have the shares also transferred by applying to the co-operative society. Even when the shares are only transferred what is in substance transferred is the right to occupy.
In a case of a co-operative housing society when a member transfers his shares to another, it automatically means that the right to occupy, which is a substantive right, is transferred. Otherwise there is no meaning in transferring the shares only. Transfer of shares in the context of housing co-operative society is only a matter involving a procedural formality, while the substance of the transaction is that of a transfer of a right to occupy a flat or flats. It is, therefore, clear that even if there is only transfer of shares, it inextricably involves a transfer of a right to occupy and such a right is definitely in relation to or in respect of land and building and as such coming under section 80T (b) (i). In this view of the matter, the principles regarding transfer of shares in a company or interest in a partnership firm have no relevance.
12. The decision of the Gujarat High Court in the case of Premanand Industrial Co-operative Service Society (supra), referred to by Shri Patil, undoubtedly helps the case of the revenue and fully supports the view expressed by us. The Court was concerned with a question arising under Chapter XXA of the Income-tax Act dealing with the acquisition of properties. The question was whether a member of the co-operative society is a person interested to have a notice from the income-tax authorities. Admittedly, their Lordships were dealing with a tenant co-partnership housing society which is similar to the one which we are dealing with in this case. Relying on the decision of the Supreme Court, referred to by us above, their Lordships of the Gujarat High Court at page 778 of the report held :
"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."
Their Lordships also referred to the decision of the same High Court in Mulshankar Kunverji (supra). The Full Bench also dealt with similar provisions, though no doubt under the Gujarat High Court enactments. At page 65 their Lordships held :
"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 a 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 case of a 'tenant co-partnership society', 'shares in a society' which a member holds appear to us to be in severable from his interest in the immovable property which has been allotted to him for his occupation and enjoyment."
13. Finally we come to the decision referred to by Shri Patil in the case of Artex Manufacturing Co. (supra) and also to the decision in Contessa Knitwear (supra). These decisions, in our opinion, are completely distinguishable and are not on the point at all. Accordingly we need not discuss these decisions in detail.
14. In the view we have taken it is also not necessary to deal with the provisions of the Maharashtra Act which were referred to by Shri Joshi, as they do not throw much light, especially after the decision of the Supreme Court in the case of Ramesh Himmatlal Shah (supra).
15. The order of the Commissioner (Appeals) with regard to the application of section 80T (b) (ii) is reversed and that of the ITO is restored and the appeal filed by the revenue is allowed.