A two-judge bench of the Supreme Court, on Tuesday, held that the transfer charges, non-occupancy charges and common amenity fund charges and certain other charges, collected by Co-operative Societies from Its members are not subject to income tax since the principle of mutuality applies to all these cases.
A bench of Justices R F Nariman and Navin Sinha was hearing a bunch of cases wherein the sole issue for consideration was that whether the above receipts by cooperative societies, from its members, are exempt from income tax based on the doctrine of mutuality.
Earlier, the ITAT held that the transfer fee paid by the transferee member was exigible to tax as the transferee did not have the status of a member at the time of such payment and, therefore, the principles of mutuality did not apply. The said order was quashed by the High Court on appeal. aggrieved by the order, the Revenue approached the Top Court.
The bench observed that the doctrine of mutuality, based on common law principles, is premised on the theory that a person cannot make a profit from himself. An amount received from oneself, therefore, cannot be regarded as income and taxable.
The bench noted that the receipts in the present cases have indisputably been used for mutual benefit towards the maintenance of the premises, repairs, infrastructure and provision of common amenities.
“Transfer charges are payable by the outgoing member. If for convenience, part of it is paid by the transferee, it would not partake the nature of profit or commerciality as the amount is appropriated only after the transferee is inducted as a member. In the event of non-admission, the amount is returned. The moment the transferee is inducted as a member the principles of mutuality apply. Likewise, non-occupancy charges are levied by the society and are payable by a member who does not himself occupy the premises but lets it out to a third person. The charges are again utilised only for the common benefit of facilities and amenities to the members. Contribution to the common amenity fund taken from a member disposing of the 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 bye-laws,” the bench said.Subscribe Taxscan AdFree to view the Judgment