Case Law Details
In re Prinsep Association of Apartment Owners (GST AAAR West Bengal)
M/s Prinsep Association of Apartment Owners filed an appeal against the West Bengal Advance Ruling Authority’s decision on GST applicability regarding corpus funds and electricity charges. This article delves into the intricacies of the case and its ramifications for RWAs in India.
The appeal raises pertinent questions:
1. Corpus Fund Taxability: Are contributions towards corpus funds subject to GST?
As per the ‘ICAI Guidance Note on Terms Used in Financial Statements‘ [GN(A) 5 issued 1983], published by The Institute of Chartered Accountants of India, a ‘Sinking Fund‘ is a fund created for the repayment of a liability or for the replacement of an asset. Again, in common business parlance, a ‘Corpus Fund‘ refers to a pool of money set aside for a specific purpose or organization. It represents the principal amount or the initial investment capital, which is typically kept intact, with only the returns or earnings being utilized for designated activities. In the case of a RWA, such sinking/corpus fund is created in order to meet future contingencies e.g., to meet the expenses for structural repairing, reconstruction work etc. RWA creates a sinking/corpus fund which serves as a backup fund for supply of specific services. A member contributes to such funds with an agreed condition that the RWA will provide some specific services in future, as and when required out of the said funds. So, it is pertinent to refer that the contributions towards the sinking/corpus fund are made by the members of the RWA with a presumption that such funds will be used for bearing the burden of expenses of future supply of services like common area maintenance and other future contingencies as may arise. This contribution is thus an acceptance of the offer of guarding future burden of expenses as made by the RWA, i.e. the appellant in this case to its members. This money is never refunded back to the members but is always in the possession of the RWA for bearing such expenses.
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