2014 (6) TMI 321 - AT - Income Tax

Taxability of transfer fee receipts Principles of mutuality Held that - Mittal Court Premises Co-operative Society Ltd. Versus Income-tax Officer 2009 (7) TMI 689 - BOMBAY HIGH COURT - the principle of mutuality would not cease on account of charging of excess amount - the clarification issued by Govt. of Maharashtra now also states that for Cooperative societies it was mandatory to adopt the new model bye laws w.e.f 13/3/2009 only - it was not mandatory for appellant to adopt model bye laws nor was any ceiling placed in the original bye laws of the appellant society - Payments were made under the bye laws of the society which constituted a contract between society and its members and if any amount was received more than what was chargeable under the bye laws, then only the principle of mutuality would be lost - it cannot be said that the appellant society violated the model bye laws in the previous year relevant to AY 2004-05 by not adopting the new model bye laws and not amending the bye laws restricting the amount of transfer fee which could be charged by the society. The limit of Rs.25,000/ - as per notification dated 9/8/2001 is applicable to all kinds of cooperative societies including the plot owner society also - the new model bye laws became mandatory w,e.f 13/3/2009 only till 13/3/2009 it will not lead to any violation of principles of mutuality or any law of govt. until the society has amended its bye laws and placed restriction clauses in its bye laws limiting the transfer fee prior to 13/3/2009 - 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 those aspects - authorities under the Co-operative Societies Act and Rules, if any action is taken, may direct an additional amount to be refunded. The principle of mutuality shall apply to Society on facts and circumstances of the case even if the notification was held to be applicable for plot owner s society and accordingly the addition of transfer fees as income from other sources is not sustainable - the FAA has considered the issue in detail thus, there is no reason to interfere in the order Decided against Revenue.

Issues Involved:
1. Whether the learned CIT(A) was justified in holding that the transfer fee receipts are not taxable in the hands of the assessee under the principles of mutuality.

Issue-wise Detailed Analysis:

1. Taxability of Transfer Fee Receipts under the Principles of Mutuality:
The solitary issue in these appeals is whether the transfer fee receipts collected by the assessee, a Co-operative Housing Society, are taxable under the principles of mutuality. The assessee received voluntary contributions in the form of transfer fees from members transferring their plots, which were credited to the "Welfare and Amenities Fund."

The Assessing Officer (AO) took the view, based on the decision of the jurisdictional High Court in the case of Sind Co-operative Society (317 ITR 47), that transfer fees exceeding the limits prescribed by the State Government are taxable as income from other sources. The AO noted that the assessee collected transfer fees exceeding these limits and thus reopened the assessments for the years 2002-03 and 2003-04, assessing the transfer fees as income. For the year 2004-05, the AO assessed the transfer fees as income in the set-aside proceedings.

The learned CIT(A) deleted these additions, relying on the decision of the Hon'ble jurisdictional High Court in Mittal Court Premises CHS Limited (320 ITR 414) and the Mumbai Bench of the Tribunal in Damodar Bhuwan CHS Ltd (ITA No.1610/Mum/2010). The CIT(A) concluded that the principle of mutuality applies to the entire transfer fees received by the assessee society.

2. Arguments by the Revenue:
The Revenue placed heavy reliance on the decision of the High Court in Sind Co-op Housing Society, arguing that the society cannot charge more than the prescribed limit and any excess amount retained is taxable. The AO argued that the notification by the Maharashtra Government restricted the transfer fees to a maximum of Rs. 25,000/- for Municipal Corporation areas, and the assessee's contention that the notification did not apply to plot owner societies was rejected.

3. Arguments by the Assessee:
The assessee argued that the CIT(A) correctly relied on the subsequent decision of the High Court in Mittal Court Premises CHS Ltd, which held that the principle of mutuality applies even to collections exceeding prescribed limits. The assessee maintained that the transfer fees were collected as per its bye-laws, and thus the decision in Sind Co-op Housing Society was not applicable. The assessee further pointed out that the Mumbai Tribunal has consistently followed the decision in Mittal Court Premises CHS Ltd in various cases.

4. Tribunal's Observations and Decision:
The Tribunal observed that the AO assessed the transfer fees as income solely because they exceeded the State Government's prescribed limits, without examining whether they exceeded the limits under the society's bye-laws. The Tribunal noted that the assessee claimed to have collected the fees as per its bye-laws.

The Tribunal considered the decision in Kumbakonam Mutual Benefit Fund Ltd (53 ITR 241), where the Supreme Court held that mutuality principles do not apply to dividends distributed to shareholders. However, the Tribunal found this decision inapplicable as the assessee did not carry on any business activity, and there was complete identity between contributors and participators of the common fund.

The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) followed the jurisdictional High Court's decision in Mittal Court Premises CHS Ltd and other Tribunal decisions, which supported the view that mutuality principles apply even if the society charges transfer fees exceeding the prescribed limits.

Conclusion:
The Tribunal concluded that the principle of mutuality applies to the transfer fees received by the assessee society, even if they exceeded the limits prescribed by the State Government. The appeals filed by the Revenue were dismissed, and the order pronounced on May 23, 2014, upheld the CIT(A)'s deletion of the additions.

← Previous Next →