By I C Naik
Taxmen are after the life of cooperative housing societies despite unequivocal judgment by the courts on the issue of tax on the transfer fees. The case in point is a South Mumbai housing society.
It had received hefty transfer fees from two of its members in the cooperative year 2008-09. Greedy CBDT were after these receipts despite the Bombay High Court carving out a principle of mutuality (In High Court of Bomabay Sind Coop. Hsg. Society v. ITO ITA NO. 931 OF 2004 JULY 17, 2009) in these words:
“It was then sought to be contended that the premium charged is a profit. As we have already noted and considering the bylaws, the society is registered with the object principally of looking after the property including building thereon.
There are no trading or business transactions. The members by adopting the bylaws agree amongst themselves that a fee for transfer of flat/tenement when it is sold would be paid to the society. It may be that both incoming and outgoing member has to contribute to the common fund of the society. The amount paid however, is to be exclusively used for the benefits of the members as a class.”
The Bombay High Court had also mentioned various other judgments on mutuality including Apex Court in Bankipur Club.
The under noted tests of Mutuality Principles were analyzed at length in this judgment:
(1) Is there any commercial activity involved.
(2) From the moneys received are the services offered in the nature of profit sharing or privileges, advantages and conveniences.
(3) Are the participants and contributors identifiable and belong to the same class in the case of cooperative housing society.
(4) Do the members have the right to share in the surplus and do they have a right to deal with its surpluses
“Once these tests are satisfied, in our opinion, there can be no doubt that the principle of mutuality will apply to a cooperative Housing Society which has its predominant activity, the maintenance of the property of the society which includes its building or buildings and as long as there is no taint of commerciality, trade or business.” The High Court concluded.
Mumbai income-tax appellate tribunal was approached by Tax Authorities once again. The tribunal held once again held that the transfer fees of nearly half a million Rupees as tax-free in the hands of CCI Chambers Co-operative Housing Society Limited.
And this was despite a favourable order from the tribunal on the same issue in earlier year.
The I-T authorities were trying their luck on the facts that housing societies charge exorbitant transfer fees ranging from 1% to 5% of the value of a flat. Traditionally these payments are born equally by the flat seller and buyer. As the housing society model bylaws in Maharashtra prescribe for a maximum transfer fee of Rs 25,000, such payments are often disguised as payments received towards repair fund, amenities fund or even voluntary donations.
Incidentally housing societies registered prior to 2001 have in their Bye Laws a freedom to accept voluntary donations in relation to transfer transactions. Hence, I-T authorities argued that these extra receipts are in the nature of profits which ought to be taxed.
It is also true the matter is yet to be finally resolved as a special leave petition filed by the I-T department against the mutuality principle is reportedly pending in the Supreme Court.
Views of the Apex Court in Bankipr Club may be revisited and reversed, the CBDT may be hoping against hopes.