2018 (8) TMI 2043 - HC - Income Tax

Doctrine of mutuality - Transfer charges received from the transferees - whether not covered by the principle of mutuality and is chargeable to tax ? - HELD THAT - It is an agreed position between the parties that the issue arising herein stands concluded by the Apex Court decision in the case of Income Tax Officer v. Venkatesh Premises Cooperative Society Ltd. 2018 (3) TMI 675 - SUPREME COURT as held charges are utilised only for the common benefit of facilities and amenities to the members. Contribution to the common amenity fund taken from a member disposing property is similarly utilised for meeting sudden and regular heavy repairs to ensure continuous and proper hazard free maintenance of the properties of the society which ultimately enures to the enjoyment, benefit and safety of the members. These charges are levied on the basis of resolutions passed by the society and in consonance with its byelaws. The receipts in the present cases have indisputably been used for mutual benefit towards maintenance of the premises, repairs, infrastructure and provision of common amenities. Any difference in the contributions payable by old members and fresh inductees cannot fall foul of the law as sufficient classification exists. Membership forming a class, the identity of the individual member not being relevant, induction into membership automatically attracts the doctrine of mutuality. If the society first inducts new members who are required to contribute to the common fund for availing common facilities, and then grants only occupancy rights to them by draw of lots, the ownership remaining with the society, the receipts cannot be bifurcated into two segments of receipt and costs, so as to hold the former to be outside the purview of mutuality classifying it as income of the society with commerciality. In the exercise of the powers conferred upon the State Government under Section 79A of the Maharashtra Cooperative Societies Act, 1960 following orders are hereby issued in the larger interests of the people in the State - The rate of premium to be charged for the transfer Flat/Premises as well as the rights and share in the share capital/property of the Cooperative Housing Society by a member in favour of another, should be determined at the General Meeting of the Society. No reason to take a view different from that taken by the High Court, that the notification dated 09.08.2001 is applicable only to cooperative housing societies and has no application to a premises society which consists of non-residential premises. - Decided against revenue

Summary

Issues:
1. Whether transfer charges received from the transferees are covered by the principle of mutuality and chargeable to tax?
2. Whether transfer charges received from the transferors in excess of alleged limits are covered by the principle of mutuality and chargeable to tax?
3. Whether non-occupancy charges in excess of alleged limits are covered by the principles of mutuality and chargeable to tax?

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 was admitted based on substantial questions of law. The appellant sought to challenge three main issues related to transfer charges and non-occupancy charges. It was acknowledged by both parties that the matter at hand was settled by the Supreme Court's decision in the case of Income Tax Officer v. Venkatesh Premises Cooperative Society Ltd. The Supreme Court's order in Venkatesh Premises Cooperative Society Ltd. also allowed the appellant's appeal, which had arisen from an earlier judgment of the High Court for a different assessment year.

Considering the precedent set by the Supreme Court in Venkatesh Premises Cooperative Society Ltd., all three questions raised by the appellant were resolved in their favor and against the respondent. The High Court concluded that the transfer charges and non-occupancy charges in question were indeed covered by the principle of mutuality and therefore not chargeable to tax. Consequently, the appeals were allowed in favor of the appellant assessee, as the issues were answered in the negative against the respondent revenue.