2000 (6) TMI 800 - AT - Income Tax

Summary

Issues Involved:
1. Assessment of transfer fee as income.
2. Applicability of the principle of mutuality.
3. Voluntariness and profit motive of the transfer fee.
4. Legal precedents and their applicability.

Issue-wise Detailed Analysis:

1. Assessment of Transfer Fee as Income:
The primary dispute in this appeal revolves around the assessment of a Rs. 3,00,000 transfer fee charged by a co-operative housing society. The society demanded this fee from a member, Dr. M.C. Batra, for issuing a No Objection Certificate for the sale of his flat. The society credited this amount to its Common Amenity Fund and did not offer it as taxable income. The Assessing Officer (AO) assessed this sum under the head "Income from other sources," arguing that it was not a voluntary payment and was charged with a profit motive.

2. Applicability of the Principle of Mutuality:
The assessee argued that the transfer fee should not be taxable based on the principle of mutuality, citing various judgments, including CIT v. Merchant Navy Club and CIT v. Shree Jari Merchants Association. The principle of mutuality suggests that contributions from members to a common fund, which are later returned to them, should not be considered income. However, the AO and CIT(A) relied on the decision in CIT v. Presidency Co-operative Housing Society Ltd., which held that such fees are taxable income.

3. Voluntariness and Profit Motive of the Transfer Fee:
The AO emphasized that the transfer fee was not voluntary and was a coercive method to derive income. The society's resolution mandated the fee for effecting the transfer, indicating a profit motive. The assessee countered that the fee was a common decision of the members and was accounted for as a contribution, not income. However, the Tribunal noted that the fee was charged under compulsion and not voluntarily, thus not meeting the criteria for mutuality.

4. Legal Precedents and Their Applicability:
The Tribunal considered various judgments:
- Bankipur Club Ltd.: The Supreme Court held that surplus funds from mutual activities are not taxable. However, the Tribunal found this case distinguishable as it dealt with clubs, not housing societies.
- Jai Hind Co-operative Housing Society Ltd.: The Special Bench of the Tribunal held that transfer fees charged by housing societies are taxable income.
- Presidency Co-operative Housing Society Ltd.: The Bombay High Court held that transfer fees are income, emphasizing the commercial intent behind such clauses.
- Adarsh Co-op. Housing Society Ltd. and Apsara Co-op. Housing Society Ltd.: These cases supported the non-taxability of transfer fees, but the Tribunal found them less applicable due to differences in facts and context.

Conclusion:
The Tribunal concluded that the transfer fee of Rs. 3,00,000 was rightly treated as revenue receipt chargeable to income-tax. The principle of mutuality did not apply because the fee was not voluntary and was charged with a profit motive. The appeal was dismissed, upholding the assessment order.