2015 (10) TMI 2251 - AT - Income Tax

Voluntary contributions received from Members - whether be treated as transfer fees ignoring the principle of mutuality as held by CIT(A) - Held that - The assessee society has received contribution from incoming members who have purchased the flats in the society after they have become the members of the society and the said fund is credited to the common amenity fund which is stated by the society to be used for the purpose of heavy repairs and maintenance of the society as well for use of common passage. The said amount, as stated by the assessee-society, will be used for carrying out repairs and maintenance in the society which will benefit all the members including the incoming members. The authorities below are not able to show or bring on record any cogent material/ evidence that these amounts are being received as transfer fee in violation of notification of Government of Maharashtra. The concept of cooperative society is for benefit and development of housing society whereby the members contribute the funds which are used by the society for the maintenance and development of society which ultimately benefit the society and its members. It is for the Revenue to being on record concrete and cogent evidence on record to prove that these amounts have been received under any compulsion or coercion or involuntary so as to violate the notification of Government of Maharashtra. The Revenue has not brought on record any document or any cogent material to prove that these are involuntary payments, which have been extorted by way of force, coercion or compulsion. The same is the ratio of decision of the Hon ble Bombay High Court in the case of Sind Cooperative housing society (2009 (7) TMI 15 - BOMBAY HIGH COURT), whereby, the Hon ble High Court held that there is no evidence brought on record by the Revenue that these are compulsive contributions. Therefore, in the facts and circumstances of the case, in the absence of any cogent adverse material brought on record by the Revenue to prove that these contributions are received under coercion and involuntary in nature so as to be in violation of the notification of Government of Maharashtra, the impugned addition made on the basis of surmises, conjectures and assumptions is not sustainable. Hence, delete the addition made by the Assessing Officer and as confirmed by the CIT(A). - Decided in favour of assessee.

Summary

Issues Involved:
1. Treatment of voluntary contributions as transfer fees by the CIT(A).
2. Application of the principle of mutuality to the income received by the cooperative society.
3. Dismissal of the appeal by the CIT(A) based on the nature of income as transfer fee.
4. Analysis of the Tribunal's decision in a similar case regarding the principle of mutuality.

Issue 1: Treatment of Voluntary Contributions as Transfer Fees
The appellant, a cooperative society, received voluntary contributions from members, which the Assessing Officer considered as transfer fees. The Assessing Officer rejected the appellant's claim, citing various reasons such as the nature of payments for transfer of flats, exceeding the prescribed limit, and the absence of uniformity in collections. Consequently, the Assessing Officer brought the amount received to tax as income of the society.

Issue 2: Application of Principle of Mutuality
The appellant contended that the amounts received were voluntary contributions towards a common amenity fund and were meant for the benefit of all members. The appellant argued that there was no profit element involved, and the principle of mutuality should apply. The CIT(A), however, held that the income was in the form of transfer fees and not covered by the principle of mutuality due to the nature of the housing society.

Issue 3: Dismissal of Appeal by CIT(A)
The CIT(A) dismissed the appeal, emphasizing that the amounts were taken by the society under compulsion for transfers, indicating a profit element. The CIT(A) concluded that the income was taxable, as the housing society was not a mutual concern by design. The appellant challenged this decision before the Tribunal.

Issue 4: Analysis of Tribunal's Decision in a Similar Case
The Tribunal analyzed a previous case involving a cooperative housing society to determine the applicability of the principle of mutuality. The Tribunal found that in the current case, the contributions were voluntary, used for the benefit of all members, and did not involve commercial activities or profit motives. Therefore, the Tribunal allowed the appeal, emphasizing the absence of evidence showing coercion or compulsion in the contributions, thus deleting the addition made by the Assessing Officer.

This judgment highlights the conflict between treating voluntary contributions as transfer fees and applying the principle of mutuality in a cooperative society's income assessment. The Tribunal's decision underscores the importance of evidence in establishing the nature of contributions and the absence of compulsion or profit motive in determining tax liability.