2013 (9) TMI 411 - AT - Income Tax

Concept of Mutuality - residential housing co-operative society - receipt of transfer charges - Held that - contributors, by virtue of their membership, obtain a valuable capital asset in their own hands, i.e., the leasehold right in the plots allotted to them, as well as the interest in the super structure. No doubt, the said structure has only been funded by them, but then it is only on the land leased to them by the society, so that independent of the rights in land, leased to them on a 998 year lease, the same is of no value. It is this that they may encash or capitalize on or even trade on, as say by letting the property. Such valuable rights that inure to the members, i.e., separate and distinct from the rights that vest in them as a part of the class of contributors, militates against the very notion of mutuality, which in its concept and operation cannot yield any income to them in their individual capacity. In fact, they have practically all the rights, and at a cost, and which they may leverage to generate income for themselves. To exemplify, consider this a member, to whom a plot is allotted, lets out the house built thereon, earning a monthly rent. Of course, the rent he receives is his income, and has nothing to do with the society or its income. So however, it is only by virtue and on account of he being a member of the housing society that he could generate the rental income. This, thus, is our basic objection, inasmuch as a mutual concern, by its very nature and concept, cannot lead to any profit, on the basis of contribution to and participation therein, to the contributor/participant. We have deliberately taken an everyday example of letting, and independent of the transfer and TDR premium issues which dog such cases, and is the bone of contention between the parties, only to clarify our objection, which goes to the root of the matter, though is at heart, very simple. There is no creation of any Fund at this stage, i.e., when the society is formed and the members are enrolled; the society charging the members for granting lease what stands charged to it (on getting 999 years lease from the Government). The arrangement, thus, in its design and concept, is not a mutual arrangement, even as independent and apart from the said rights, the plot owners or members may organize themselves for any mutual activity, even if it arises or is consequential to their holding the said rights, as the maintenance activity referred to earlier. As such, any income, be it in the form of transfer fees or TDR premium, that arises to the society/association on account of the said arrangement would, by definition, be ineligible for mutuality. The assessee's alternate plea for all the years is for being allowed expenditure in case 'transfer fees' and/or 'TDR premium' is considered as income subject to tax. The same has been denied by the Revenue in the absence of any relation between the expenses with the impugned receipts. Before us no improvement in its case could be made by the assessee. Without doubt, only the net income (on any activity or source or account) is to be taxed, so that the expenditure incurred in its respect would in principle warrant deduction. However, it is incumbent on the assessee to show as to how the expenditure being claimed against the stated receipts is related thereto or is in its respect, and which it has completely failed to. The expenditure has apparently no correlation therewith, viz. for AY 1996-97, being in the main on Navratra expenses, get together expenses and magazine expenses. Even if such expenditure, which may also include for other years general and administration expenses, or for maintenance expenses, is shown to be funded from the said receipts, the same would only be application of income, and not expenditure thereagainst. The ld. AR before us was at loss to explain as to how the said expenditure could be claimed as a deduction. The assessee's claim is wholly without basis and, thus, stands rightly rejected by the Revenue - Decided against assessee.

Issues Involved:
1. Taxability of Transfer Fees
2. Taxability of TDR Premium
3. Allowance of Expenses against Transfer Fees and TDR Premium

Issue-Wise Detailed Analysis:

1. Taxability of Transfer Fees:
The primary issue revolves around the taxability of sums received by the assessee, a residential housing co-operative society, by way of transfer fees. The assessee claimed these fees as tax-exempt on the ground of mutuality, citing decisions by the Tribunal and the jurisdictional High Court. However, the Revenue argued based on factual findings and similar judicial decisions. The Tribunal in the first round had set aside the matter to be decided per law in accordance with the decision by the Special Bench in Walkeshwar Triveni Co-op. Housing Society Ltd. vs. ITO.

The Tribunal noted that the principle of mutuality implies that a person cannot make a profit from themselves. However, in this case, the arrangement led to the creation of substantial rights in the hands of individual members, which they could exploit for profit, thus violating the principle of mutuality. The Tribunal observed that the arrangement was inherently commercial, as it allowed members to trade their membership rights for profit. Consequently, the Tribunal held that the transfer fees were taxable as income.

2. Taxability of TDR Premium:
The issue of TDR premium arose for the assessment years 2006-07 and 2007-08. The assessee argued that the TDR premium was covered by the principle of mutuality, citing the decision in CIT vs. Jai Hind CHS Ltd. However, the Tribunal found that the assessee's charter and operations were imbued with commerciality, and there was a breakdown of identity between contributors and participants, which is essential for mutuality. The Tribunal noted that the TDR premium was collected to provide infrastructure support for additional FSI, which contradicted the claim of mutuality. Therefore, the Tribunal held that the TDR premium was taxable as income.

3. Allowance of Expenses against Transfer Fees and TDR Premium:
The assessee's alternate plea was for the allowance of expenses incurred against the transfer fees and TDR premium if they were considered taxable. The Revenue denied this claim, stating that the expenses had no relation to the impugned receipts. The Tribunal agreed with the Revenue, noting that the assessee failed to show any correlation between the expenses and the receipts. The expenses were mainly for general and administrative purposes, which could not be directly linked to the transfer fees or TDR premium. Hence, the Tribunal rejected the assessee's claim for the allowance of expenses.

Conclusion:
The Tribunal dismissed the assessee's appeals for all the years, holding that the transfer fees and TDR premium were taxable as income and that the expenses claimed by the assessee could not be allowed against these receipts. The Tribunal's decision was based on the principles of mutuality, the commercial nature of the transactions, and the lack of correlation between the expenses and the receipts.

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