Case Law Details
Transfer fee and non occupancy charges received from the members are not taxable on the principle of mutuality
HIGH COURT OF JUDICATURE AT BOMBAY
INCOME TAX APPEAL NO.999 OF 2004
INCOME TAX APPEAL NO. 1028 OF 2004
INCOME TAX APPEAL NO. 1029 OF 2004
INCOME TAX APPEAL NO. 1030 OF 2004
Mittal Court Premises Co-operative Society Ltd. Vs. The Income-tax Officer
PRONOUNCED ON: 17th July, 2009.
JUDGMENT: (Per Ferdino I. Rebello, J.)
1. In these appeals admit on the following questions: “(a) Whether, the Hon’ble Tribunal erred in holding that the contribution to Common Amenity Fund/Repairs & Welfare Fund being the first contribution made by the existing/new member is transfer fee as in the case of Walkeshwar Triveni Co-operative Housing Society Ltd. v/s I.T.O. 267 ITR 86 (AT) (SB) ?
(b). Whether, on the facts and in the circumstances of the case, the Hon’ble Tribunal erred in setting aside the issue as regards the tax ability of non-occupancy charges when there were three decisions of Mumbai Tribunal directly on the point without there being any contrary decision ?
2 For some factual aspects, it will be necessary to reproduce some of the relevant bye-laws of Mittal Court Premises Co-operative Society Limited.
“D.3.4 No member shall let, sub-let or give on leave and license or care- taker ship or part with possession of his/her premises or any part thereof without the prior written permission of the Managing Committee of the Society. A Member who has let, sub-let or given on care-taker or leave and license basis or has parted with possession of his/her premises or any part thereof to any person other than family members or sister concerns with or without the***** permission of the Managing Committee of the Society shall pay additional taxes if any as may be levied by the Municipal Corporation and shall pay to the society additional monthly charges as may be fixed and decided by the Managing Committee from time to time per sq.ft. per month to the extent of the area of the premises as per the records of the Society subject to ratification by the General Meeting. If a member has let, sub-let or parted with possession of his/her premises on any basis whatsoever even prior to the registration of the Society with or without the permission of the Builder he shall also obtain permission from the Managing Committee and shall also be liable to pay aforesaid charges. It is expressly made clear that recovery of additional charges as aforesaid shall not deemed to be grant of permission.”
We may also quote bye-laws D.3.5 which reads as under: “D.3.5 A member desiring to purchase office premises shall contribute to the Society for common Amenity Fund/Repairs & Welfare Fund sum or sums as may be prescribed by the Managing Committee from time to time for Offices/Godowns etc. according to the area subject to ratification by the General Body Meeting.” “D.3.3. A Licensee or a care-taker, who has been allowed temporary use of any Residential and or non-Residential office premises by the Society may also be admitted as nominal member of the Society on payment of Rs.10/- as entrance fee. Such member shall not exercise any right of membership or receive any advantage or benefit or dividend etc.
3 Similarly we may reproduce relevant bye-laws of Maker Chambers-III Premises Co-operative Society Ltd., which though are not the subject matter of these appeals, nonetheless are related as they are the subject matter of writ petitions when such issue is for consideration.
40.(a)……….
(b)……….
(c)………..
5
(d) If the Committee is satisfied that the member is prima-facie eligible to transfer his shares and interest in the capital/property of the Society and that the admission of the transferee is not in any manner prejudicial to the interests of the Society and/or its existing members, the Committee shall direct the Secretary of the Society to inform the member within 3 days of the decision of the Committee to make the compliance as under: (i) to (vi)……………….
(vii) to pay amount of premium at a rate to be fixed by the general body meeting, or Rs.100/- per sq.ft. whichever is higher;
Also it would be relevant bye-law 43(2)(iii)(c) which reads as under: “43(2)(iii)(c). he shall pay non-occupancy charges to the society at such rate as is decided by the meeting of the general body of the Society or 50 ps. per sq.ft. per month whichever is higher.”
With the above background, we may now advert to the issues in these appeals.
4 In Income-tax Appeal No. 931 of 2004 alongwith other appeals which we have decided by the separate judgment today, we have set out the various facts and consequently, the Government Notifications involved as also the provisions of the Act and the Rules and as such, it is not necessary to refer to them once again. Suffice it to say that the Notification issued by the State of Maharashtra putting restrictions on the amount of transfer fee when the member desires to transfer his shares or occupancy rights are only in respect of housing residential societies. In the instant case, the appellants before us are not housing residential societies and consequently, those Notifications would not be applicable. Having said that, we may note again that as an illustration in so far as Maker Chambers are concerned, the main object is to manage, maintain and administer the property of the society; to undertake and provide amenities and facilities for the benefit of its members of public benefit on his own account or jointly with the co-operative institutions, social, cultural or recreational activities. Similarly under the bye-law B.1.1.(b) and (c), similar are the objects of Mittal Court Premises Co- operative Society Ltd.
5 In so far as transfer fee is concerned, the Tribunal held that it is covered by the decision of the Special Bench in Walkeshwar Triveni Co-operative Housing Society Ltd. 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 the tax.
6 In so far as issue of non occupancy charges are concerned, CIT (A) held that the amount received by the assessee society on account of non occupancy charges are not taxable. The learned Tribunal referred to the Government Notification dated 1.8.2001 which sets out that the society should not collect non occupancy charges at the rate exceeding 10% of the service charges (excluded Municipal Corporation/Nagar Palika Taxes). The Tribunal found that the non-occupancy charges collected by the assessee society are in excess of the limits laid down by the aforesaid Notification. It was contended before the Tribunal that the said Notification was made effective from 1.8.2001 and hence, would not be applicable to the assessment years under the appeals. It had been further contended that the society had collected non occupancy charges strictly in terms of Notification dated 9.3.1995, which was in force during the previous years relevant to the assessment years under appeal. This contention was rejected relying upon commentary by Mahendra C. Jain and H.M.Bhatt on the Maharashtra Co-operative Societies Act, 1960. It was also held that the observations in the case of Walkeshwar Triveni Co-operative Housing Society (Supra) are apposite and for that reasons allowed the appeal preferred by the Revenue.
7 Arguments advanced on behalf of the Appellants/petitioners are based on the principles of mutuality which we have adverted to in the other appeals. It is, therefore, submitted that because of mutual relationship of the members of the Co-operative Housing Society inter-se, neither the society nor the members can make profits from amongst themselves in transactions relating to society. Considering the objects of the society, society is not carrying on any trade, occupation or business. In the case of Tenant Co-operative Housing Society, it is pointed out that building is owned by the society and the members occupying flats in the said society are only tenants who have limited right to occupy the premises subject to the charges payable by them but determined by the society. It is contended that the principle of mutuality has been denied mainly on the ground that the contribution is from the incoming members and not outgoing members. It is pointed out that relying on the observations in Walkeshwar Triveni Co-operative Housing Society Ltd. that the Special Bench arrived at the conclusion that the contribution by way of transfer fee by members, the principle of mutuality would apply however, not applied in the case of incoming members. We have referred to the bye-laws of both, the Mittal Court Premises Co-operative Society Ltd. and Maker Chambers-III Premises Co-operative Society Ltd. The bye-laws are nothing but the contract between the Society and the member. Under these bye-laws, it is the member who has to make the payment. Any inter-se arrangement between the incoming members and the transferee is irrelevant in so far as the society is concerned. There is an agreement by which the amount is paid by the transferee. In so far as society is concerned, even if receipt is issued in the name of transferee it is the nature of admission fee which could be appropriated, only on the transferee being admitted. Merely because the amount may be appropriated earlier, it will not loose the character of the amount being paid by a member. In these circumstances, the identity of the contributor and beneficiary being satisfied and considering the provisions of Maharashtra Co-operative Societies Act and Rules framed there under, surplus can be disposed off in favor of the members only or for the objects for which they may specify. As held by us in Income Tax Appeal No. 931 of 2004 the same reasoning will apply to the appellants/petitioners before us. In these circumstances, question (a) as framed has to be answered in the negative in favor of the assessee and against the Revenue.
8 That brings us to the issue in so far as non occupation charges are concerned. Let us, therefore, examine as to whether non occupation charges are assessable to tax. Non occupation charges are again payable by the member on account of the fact that member is not occupying charges. Bye-laws themselves provide for non occupation charges. Contribution, therefore, is by the member. Object of the contribution is for the purpose of increasing the society’s funds, which could be used for the object of the society. Object of the society as noted earlier is to provide service, amenities and facilities to its members. In these circumstances, in our opinion, the principle of mutuality as discussed in Income Tax Appeal No.931 of 2004 must also apply. There is no element of profiteering. The bye-laws there under provides for the same. We may here point out that the matter had been remanded by the Tribunal. The Tribunal had observed that the assessing officer to treat non occupancy charges received by the assessee society which is a premises society over and above the 10% of the maintenance charges as non-taxable in its hands as the same is governed by the principles of mutuality.
9 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, the learned counsel for the Revenue therein Shri Gupta had contested the findings in so far as non occupancy charges, though they were not issues in those appeals and he contended that amount over 10% in the alternative is asses sable to the tax. In our opinion, firstly, the 10% 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 a Revenue. However, considering the order of remand, question (b) also will have to be answered in negative against the Revenue and in favor of the assessee. Apart from that even assuming that these Government Notifications were applicable if the society could not have charged excess amount it will have to be refunded to the members. A member is not prohibited from gifting any amount to the society for the objects of the society. The principle of mutuality would not cease on account of these aspect. At the highest, authorities under the Co-operative Societies Act and Rules if any action is taken may direct an additional amount to be refunded. In our opinion, therefore, contribution by way of non occupancy charges, principle of mutuality would apply and consequently,
