2011 (9) TMI 1002 - AT - Income Tax

Principle of mutuality - receipt by an Association from its members - Held that - Taxability of the receipts under the Income Tax Act 1961(Act) will have to be tested on the applicability of the principle of mutuality. Once it is found that principle of mutuality applies then the receipt in question cannot be brought to tax as one cannot make profit out of himself. The restriction on the quantum of receipt by an Association from its members prescribed by any other law regulating the relationship between members and its Association will not be relevant while taxing receipts under the Act. In other words principle of mutuality will not cease to exist in respect of receipts from members by an Association beyond the quantum restricted by any law regulating the relationship between members and its Association. In view of the aforesaid decisions we do not find any merit in this appeal by the revenue and the same is dismissed.

Summary

Issues:
1. Addition on account of transfer charges
2. Addition on account of non-occupancy charges

Analysis:

Issue 1 - Addition on account of transfer charges:
The appeal by the revenue concerns the deletion of an addition on account of transfer charges of Rs. 15,00,000. The CIT(A) ruled in favor of the assessee society, stating that the transfer charges are exempt under the principle of mutuality, citing precedents like the case of M/s. Shyam CHS and Suprabhat CHS. The revenue contested this decision, arguing that the issue is subjudice as the department has not accepted the decision of the Hon'ble High Court of Bombay. The Tribunal examined the facts and legal principles, emphasizing that under the principle of mutuality, amounts received by a cooperative housing society for transfer charges cannot be taxed. The Tribunal referred to previous judgments and reiterated that the principle of mutuality applies, and receipts under the Income Tax Act must be tested against this principle. It was concluded that the revenue's appeal lacked merit, and thus, it was dismissed.

Issue 2 - Addition on account of non-occupancy charges:
The second issue pertains to the deletion of an addition on account of non-occupancy charges amounting to Rs. 1,30,764. The CIT(A) based the decision on various judgments, including those of the Hon'ble Mumbai ITAT and Hon'ble High Court of Bombay in the case of Mittal Court CHS, which held that non-occupancy charges collected from members who have let out their flats are exempt under the principle of mutuality. The revenue challenged this decision before the Tribunal. The Tribunal examined the legal principles surrounding non-occupancy charges and reiterated that the principle of mutuality applies to such charges as well. Referring to the judgment in Mittal Court Premises Co-op Society vs. ITO, the Tribunal emphasized that even if charges exceeded limits imposed by government notifications, the principle of mutuality would still apply. Therefore, the Tribunal found no merit in the revenue's appeal regarding non-occupancy charges and dismissed it.

In conclusion, the Tribunal upheld the CIT(A)'s decision in both issues, emphasizing the application of the principle of mutuality in determining the taxability of receipts by cooperative housing societies. The judgments cited established that under this principle, receipts like transfer charges and non-occupancy charges cannot be taxed, as one cannot make a profit out of oneself. The Tribunal dismissed the revenue's appeal, affirming that the principle of mutuality prevails over other laws regulating the relationship between members and their association.