2013 (12) TMI 1355 - AT - Income Tax

Tribunal upholds exemption on transfer fees & security deposits citing mutuality principle

The Tribunal upheld the exemption claimed by the assessee on transfer fees, non-refundable Security Deposits (S.D.), and nominee occupancy charges, citing ... Whether transfer fees, non-refundable security deposit and nominee occupancy charges are exempt on basis of mutuality - Held that:- Following assessee's own case for the A.Y. 2007-08 - All these expenses are exempt form tax on account of principle of mutuality - Decided against Revenue. Issues:Exemption claimed by the assessee on transfer fees, non-refundable Security Deposits (S.D.), and nominee occupancy charges based on the principle of mutuality.Detailed Analysis:1. Transfer Fees:The Revenue appealed against the order of the ld. CIT(A) claiming that the transfer fees received by the assessee company should not be exempt from income tax based on the principle of mutuality. The A.O. disallowed the exemption stating that a company cannot be considered a mutual concern and that the concept of mutuality applies only to cooperative societies. However, the ld. CIT(A) deleted the disallowance based on previous Tribunal orders in the assessee's favor for earlier years. The Tribunal upheld the ld. CIT(A)'s decision, citing that transfer fees received by the company, whether from outgoing or incoming members, are not taxable due to the principles of mutuality.2. Non-refundable Security Deposits (S.D.):Similarly, the Revenue contested the exemption claimed by the assessee on non-refundable Security Deposits, arguing that the principle of mutuality does not apply to corporate entities. The Tribunal, following previous decisions, ruled in favor of the assessee, stating that refundable SD collected from the members is also exempt from tax under the principles of mutuality.3. Nominee Occupancy Charges:Regarding nominee occupancy charges received from non-members (tenants), the Revenue challenged the exemption claimed by the assessee, asserting that these charges are not covered by the concept of mutuality. However, the Tribunal referred to a decision of the Bombay High Court and held that the principles of mutuality extend to nominee occupancy charges, even when received from non-member tenants. The Tribunal dismissed the Revenue's appeal, upholding the ld. CIT(A)'s order granting relief to the assessee on all issues.In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the exemption claimed by the assessee on transfer fees, non-refundable Security Deposits, and nominee occupancy charges based on the principle of mutuality. The decision was based on consistent Tribunal rulings in the assessee's favor for earlier years, establishing that these receipts were not taxable under the principles of mutuality.