1996 (10) TMI 497 - AT - Income Tax

Transfer fees received by Co-operative Housing Society held taxable, as mutuality was deemed to not exist post-transfer. Upheld Deputy Commissioner of Income-tax's decision.

The court held that transfer fees received by a Co-operative Housing Society were taxable as mutuality did not exist due to the change in ownership upon ... Mutuality - complete identity between the contributors and the participators - receipt not income where contributor and participator are identical - distinction between capital receipt and income arising from contractual rights - transfer fee exigible to tax where mutuality is absentMutuality - complete identity between the contributors and the participators - transfer fee exigible to tax where mutuality is absent - distinction between capital receipt and income arising from contractual rights - Whether the 'transfer fee' received by the co-operative housing society is exempt from income-tax under the principle of mutuality or is exigible to tax. - HELD THAT: - The tribunal applied the established test of mutuality: all contributors to the common fund must be entitled to participate in the surplus and all participators must be contributors, i.e., complete identity between contributors and participators. On the facts the transferor (contributor) ceases to be a member on transfer and is replaced by a new entrant; the society's contractual right to permit transfer and to charge the transfer fee means the charge is not a voluntary contribution but a payment for effecting change. Consequently there is no identity between contributors and participators and the receipts cannot be brought within mutuality. The tribunal noted the distinction that a receipt in the hands of members may be capital, but the same receipt in the hands of the society may amount to income by virtue of its contractually conferred source. Respectfully following the decision of the jurisdictional High Court on similar facts, the tribunal held that mutuality is lost and the transfer fee is exigible to tax.The transfer fee is not covered by mutuality and is assessable as income; the assessment and the appellate order upholding the addition are affirmed.Final Conclusion: The Tribunal dismissed the appeals and upheld the addition of the transfer fee to the society's taxable income for the assessment years 1987-88 and 1988-89, holding that mutuality does not apply where contributors cease to be participators and the society's contractual rights render the receipt income. Issues:Assessment of transfer fees received by a Co-operative Housing Society under the principle of mutuality for the assessment years 1987-88 and 1988-89.Detailed Analysis:1. Facts and Contention: The Co-operative Housing Society received transfer fees on the transfer of plots during the assessment years. The society contended that the transfer fee is not taxable under the principle of mutuality, citing relevant case laws.2. Arguments by the Assessee: The counsel for the assessee argued that the transfer fee should not be taxed as it falls under the concept of mutuality. Case laws such as CIT v. Apsara Co-operative Housing Society Ltd. and CIT v. Adarsh Co-operative Housing Society Ltd. were relied upon to support this argument.3. Revenue's Position: The revenue contended that mutuality does not apply in this case and referred to the decision in CIT v. Presidency Co-operative Housing Society Ltd. and a Tribunal decision in Sea Face Park Co-operative Housing Society Ltd. where mutuality was not applied.4. Principle of Mutuality: The judgment discussed the principle of mutuality, emphasizing that contributors to a common fund must be entitled to participate in the surplus, and there must be complete identity between contributors and participators to exclude the surplus from being considered income.5. Legal Precedents: Various legal precedents were cited to explain the concept of mutuality, including the requirement for complete identity between contributors and participators to exclude surplus from taxation.6. Decision: The judgment analyzed the facts and held that the transfer fee received by the society is taxable as mutuality did not exist due to the change in ownership upon transfer. The judgment upheld the decision of the Deputy Commissioner of Income-tax and dismissed the appeals.7. Conclusion: The judgment concluded that as there was no identity between contributors and participators due to the change in ownership upon transfer, the transfer fee received by the society was deemed taxable, following the decision of the jurisdictional High Court.In summary, the judgment focused on the application of the principle of mutuality in determining the taxability of transfer fees received by a Co-operative Housing Society, ultimately ruling that the transfer fee was taxable as mutuality was deemed not to exist in the circumstances of the case.