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 excess amounts are exigible to tax. Non-occupancy charges, levied under bye-laws and payable by members for society amenities and upkeep, were treated as contributions within the principle of mutuality and not taxable; the 10% limit did not apply to the commercial society at issue. On remand questions, the Revenue's contentions were rejected and relief granted to the assessee on non-occupancy charges.

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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.

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