2003 (4) TMI 506 - AT - Income Tax

Summary

Issues Involved:
1. Whether the transfer fee received by the co-operative housing society is exempt from income-tax by the principle of mutuality.

Summary:

Issue 1: Exemption of Transfer Fee by Principle of Mutuality

M. K. Chaturvedi (Vice-President).-Under section 254(3) of the Income tax Act, 1961 (hereinafter called "the Act"�); the President of the Income-tax Appellate Tribunal (hereinafter called "the Tribunal"�) has constituted this Special Bench to consider the question "Whether the transfer fee received by the co-operative housing society is exempt from income-tax by the principle of mutuality?"�

The dispute in the present appeal was in regard to the premium on transfer of occupancy as described under clause 7(h) of the bye-laws of the co-operative society. The ground taken before the Commissioner of Income-tax (Appeals) was a propos the addition of Rs. 25,000 as income from transfer fees. It was clarified that this receipt was not by way of transfer fees but, in reality, receipt of premium on transfer of occupancy rights over the flat.

Shri V. H. Patil, learned counsel for the assessee, argued that the premium on transfer of flat is fixed by the Government and the amount received was within permissible limits. He contended that the principle of mutuality would be applicable if the transactions are with the members to provide certain facilities or collect funds for achieving the society's objectives. The contributions, including transfer fees or premium, were received from the members without profit motive, thus satisfying the principle of mutuality.

The Revenue, represented by Shri Girish Dave and Shri Ajit Korde, argued that the issue is covered by the decision of the jurisdictional High Court in CIT v. Presidency Co-operative Housing Society Ltd. [1995] 216 ITR 321 (Bom), which did not consider the principle of mutuality. They contended that the payment was not voluntary and the contributors and participators were not the same, thus failing the mutuality test.

The Tribunal noted that the principle of mutuality requires complete identity between contributors and participators. The transferor was the owner and member at the time of payment, satisfying the mutuality test. However, the transferee was not a member at the time of payment, thus failing the mutuality test. Consequently, the amount received from the transferor is not exigible to tax, whereas the amount received from the transferee is exigible to tax.

All the issues were not referred for the consideration of the Special Bench. Therefore, the remaining issues will be decided by the Division Bench. We direct the Registry to place this appeal before the Division Bench for deciding the remaining issues.