Case Law Details
ITO Vs. Venkatesh Premises Co-op Society Ltd (Supreme Court of India)
A common question of law arises for consideration in this batch of appeals, whether certain receipts by cooperative societies, from its members i.e. non occupancy charges, transfer charges, common amenity fund charges and certain other charges, are exempt from income tax based on the doctrine of mutuality.
The assessing officer held that receipt of non occupancy charges by the society from its members, to the extent that it was beyond 10% of the service charges/ maintenance charges permissible under the notification dated 09.08.2001, stands excluded from the principle of mutuality and was taxable. The order was upheld by the Commissioner of Income Tax (Appeals). The Income Tax Appellate Tribunal held that the notification dated 09.08.2001 was applicable to cooperative housing societies only and did not apply to a premises society. It further held that the transfer fee paid by the transferee member was exigible to tax as the transferee did not have the status of a member at the time of such payment and, therefore, the principles of mutuality did not apply. The High Court set aside the finding that payment by the transferee member was taxable while upholding tax ability of the receipt beyond that specified in the government notification.
Held by Hon’ble Supreme Court
Transfer charges are payable by the outgoing member. If for convenience, part of it is paid by the transferee, it would not partake the nature of profit or commerciality as the amount is appropriated only after the transferee is inducted as a member. In the event of non admission, the amount is returned. The moment the transferee is inducted as a member the principles of mutuality apply. Likewise, non occupancy charges are levied by the society and is payable by a member who does not himself occupy the premises but lets it out to a third person. The charges are again utilized only for the common benefit of facilities and amenities to the members. Contribution to the common amenity fund taken from a member disposing property is similarly utilized for meeting sudden and regular heavy repairs to ensure continuous and proper hazard free maintenance of the properties of the society which ultimately enures to the enjoyment, benefit and safety of the members. These charges are levied on the basis of resolutions passed by the society and in consonance with its bye laws. The receipts in the present cases have indisputably been used for mutual benefit towards maintenance of the premises, repairs, infrastructure and provision of common amenities.
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very useful article .