2009 (7) TMI 689 - HC - Income Tax

Transfer fees paid before membership taxable only to extent exceeding government limit; non-occupancy charges held mutuality and non-taxable

HC held that transfer fees paid by transferees before admission as members are taxable to the extent they exceed the government-prescribed limit, as such ... Taxability of non occupancy charges - Transfer fee as contribution to common amenity fund/repairs and welfare fund being the first contribution made by the existing/new member - principle of mutuality - mutual relationship of the members of the co-operative housing society inter se - Held that:- Transfer fee, the Tribunal held that it is covered by the decision of the Special Bench in Walkeshwar Triveni Co-operative Housing Society Ltd. [2003 (4) TMI 506 - ITAT MUMBAI]. The Tribunal also noted that the transferees were admittedly not the members of the assessee-society on the date on which the payments were made to the assessee-society. The transferees were admitted as members of the society and flats were entered in their names only after the impugned payments were made to the assessee-society. It was also found that the amounts were paid in excess of the Government notification and consequently, the amount paid as transfer fees are exigible to tax. Non-occupation charges are again payable by the member on account of the fact that member is not occupying the premises. Bye-laws themselves provide for non-occupation charges. Contribution, therefore, is by the member. The object of the contribution is for the purpose of increasing the society's funds, which could be used for the object of the society. The object of the society as noted earlier is to provide service, amenities and facilities to its members. Though in the present appeal, the learned counsel for the assessee/appellants had not contested the order of remand nor the counsel appearing in the matters, in appeals arising from Sind Co-operative Housing Society v. ITO [2009 (7) TMI 15 - BOMBAY HIGH COURT], the learned counsel for the Revenue therein Shri Gupta had contested the findings in so far as the non-occupancy charges, though they were not issues in those appeals and he contended that amount over 10 per cent. in the alternative is assessable to tax. In our opinion, firstly, the 10 per cent. limit is not applicable to the commercial society like the appellant herein. The Tribunal itself in the case of M/s. Mittal Towers Co-operative Housing Society Ltd. has accepted that decision. It has been accepted by the Revenue. However, considering the order of remand, question (b) also will have to be answered in the negative against the Revenue and in favour of the assessee. Issues: (i) Whether contribution to common amenity fund/repairs and welfare fund (characterised as transfer fee) paid by incoming transferees is taxable or covered by the principle of mutuality; (ii) Whether non-occupancy charges received by a premises co-operative society (including amounts in excess of prescribed limits) are assessable to tax.Issue (i): Whether contributions described as transfer fee paid by incoming transferees to the society are taxable receipts or fall within the principle of mutuality.Analysis: The society's bye-laws mandate payment by the member for admission/transfer-related contributions and define the objects and application of society funds for members' benefit. The contributor under the bye-laws is the member (transferee on admission) and the receipts are applied for objects of the society for members. The identity of contributor and beneficiary under the bye-laws is determinative of mutuality. Prior authority treating such contributions as transfer fee taxable when paid by non-members is distinguished where payment is made under contractual bye-laws and appropriated as admission-related contribution on member admission.Conclusion: Contribution characterised as transfer fee is not taxable; conclusion is in favour of the assessee and against the Revenue.Issue (ii): Whether non-occupancy charges levied by a premises co-operative society, including amounts exceeding specified percentages in notifications, are taxable receipts.Analysis: Bye-laws provide for non-occupancy charges payable by members and the object of such contributions is to augment society funds for members' amenities and services. For a commercial/premises society the statutory notifications limiting collection applicable to residential housing societies are inapplicable. The principle of mutuality applies to non-occupancy charges collected under the bye-laws where contributor and beneficiary coincide and there is no element of profiteering; prior remand to Assessing Officer found amounts over specified percentages to be non-taxable under mutuality principles.Conclusion: Non-occupancy charges are not assessable to tax; conclusion is in favour of the assessee and against the Revenue.Final Conclusion: Both issues are decided in favour of the assessee; contributions payable under the society bye-laws (including admission/transfer-related contributions and non-occupancy charges) fall within the principle of mutuality and are not taxable in the hands of the society.Ratio Decidendi: Where society bye-laws require contributions by members for admission, transfer or non-occupancy and the contributor and beneficiary are identical under those bye-laws, such receipts form part of mutual dealings of members for society objects and are not taxable as income of the society.