2014 (12) TMI 1112 - HC - Income Tax

Principle of mutuality - Contribution paid towards heavy repair fund chargeable to tax or not - contribution paid or made by the members to the co-operative society was occasioned by transfer of the flat Revenue argued that - If the amount is received on account of transfer of a flat and which is not restricted to ₹ 25,000/- but much more, then different consideration may apply - what has been argued and vehemently is the amount was received by the Society when the flat and the garage were transferred it must be presumed to be nothing but transfer fees - It may have been credited to the fund and with a view to demonstrate that it is nothing but a voluntarily contribution or donation to the Society, but still it constitutes its income. Held that - for rendering such a conclusive finding there has to be material brought by the Revenue on record. Beyond urging that it has been received at the time of a transfer of the flat and credited to such a fund will not be enough to displace the principle laid down in the decision of Sind Cooperative Housing Society 2009 (7) TMI 15 - BOMBAY HIGH COURT . The attempt of the Revenue therefore is nothing but overcoming the binding judgment of this Court. It is a typical relationship between the member of the Co-operative Society and particularly a Housing Society and the Society which is a body Corporate and a legal entity by itself that is forming the basis of the principle laid down by the Division Bench - Co-operative movement is a socio economic and a moral movement - It has now been recognized by Article 43A of the Constitution of India - It is to foster and encourage the spirit of brotherhood and co-operation that the Government encourages formation of Co-operative Societies - The members may be owning individually the flats or immovable properties but enjoying, in common, the amenities, advantages and benefits. The Society as a legal entity owns the building but the amenities are provided and that is how the terms flat and the housing society are defined in the statute in question - following the decision in Sind Coop. Hsg. Society Versus Income Tax Officer 2009 (7) TMI 15 - BOMBAY HIGH COURT - there is substance in the argument that the AO had before him the material in the form of the bye-laws of the Society - The bye- laws also are in consonance with the Government Resolution and stipulate a sum of ₹ 25,000/- towards transfer fees thus, the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
1. Interpretation of tax exemption on contribution to heavy repair fund by a Co-operative Housing Society under the principle of mutuality.
2. Application of previous judgments in similar cases to determine tax liability.
3. Assessment of whether the contribution made by members to a repair fund qualifies as transfer fees and is taxable.

Issue 1 - Interpretation of Tax Exemption:
The appeal challenged the Income Tax Appellate Tribunal's decision upholding the CIT(A)'s order exempting a contribution of Rs. 39,68,000 towards a 'heavy repair fund' from tax under the principle of mutuality. The Revenue argued that the Tribunal failed to distinguish the case from a previous judgment and that the contribution should be taxable as it was related to the transfer of a flat. The Revenue contended that the principle of mutuality should not apply due to a Government Resolution capping transfer fees at Rs. 25,000. However, the Tribunal and Commissioner found that the contribution was in line with the co-operative movement's principles and dismissed the Revenue's appeal.

Issue 2 - Application of Previous Judgments:
The Revenue relied on past judgments involving the same Society to argue that the Tribunal should follow precedent and dismiss the appeal. The Revenue pointed out that previous decisions favored the Society, emphasizing that the principle of mutuality should prevail in determining tax liability. The Tribunal and Commissioner consistently ruled in favor of the Society, citing the co-operative movement's socio-economic objectives and the legal entity of the Society as reasons to uphold the tax exemption on the contribution.

Issue 3 - Assessment of Contribution as Transfer Fees:
The Revenue contended that the contribution to the repair fund should be considered transfer fees and taxable, especially since the Society's bye-laws limited transfer fees to Rs. 25,000. However, the Tribunal and Commissioner found that the contribution was not commercial in nature but aligned with the principles of mutuality within a co-operative housing society. They emphasized that the Society's functioning and the members' relationship justified the tax exemption on the contribution. The Tribunal's decision was supported by the legal entity status of the Society and the socio-economic objectives of the co-operative movement.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the Revenue's appeal and confirming the tax exemption on the contribution to the heavy repair fund by the Co-operative Housing Society. The judgment highlighted the importance of the principle of mutuality and the socio-economic objectives of co-operative movements in determining tax liability for such contributions.