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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI G.D. AGRAWAL & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
The Appellant, Arun Vihar Residents Welfare Association (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 06.01.2014, passed by the Commissioner of Income-tax (Appeals), Noida under section 143(3) of the Income-tax Act, 1961 (for short ‘the Act’) qua the assessment year 2010-11 on the grounds inter alia that :- “1. The Ld. CIT(A) has erred in confirming the action of Ld. AO in making an addition of Rs.19,50,000/- on account of Transfer Charges received by the Society from outgoing members, by holding that the same is to be included in the taxable income for the relevant assessment year of the appellant on account of receipts from third party not being exempt from income tax by virtue of principle of mutuality.
2. That the Ld. CIT(A) has erred in confirming the action of Ld. AO in failing to appreciate that the outgoing members shall continue to be the members of the society till their membership are transferred to the incoming members after paying the transfer and other charges and complying all the required formalities.
That the Ld. CIT(A) has failed to appreciate that the membership of Society of a person would be transferred to the new member only when all his dues are cleared. Unless and until, a member clears all his dues, his membership would never be transferred to the new member by the Society. Thus, firstly Transfer charges are received by the society from the outgoing members and then after complying certain formalities and procedure laid down, membership of an outgoing member is transferred to the incoming member.
4. That the Ld CIT(A) has failed to appreciate that an outgoing member is different from an outgone member. Outgoing member literally means a person whose membership is yet to be transferred and has not been transferred yet so far. He still continues to be a member of the Society. An outgone member means a person, whose membership has been transferred. An outgoing member would first clear his dues and then apply to the society for the transfer of membership to the society and there after his membership would be transferred. The Ld CIT(A) has used in Order issued u/s 250 in Para 5. OBERSAVATIONS Ground 0.2 on page 7, "In case of transfer charges so collected from the outgoing members, who left the Society by selling his house, ..... ". Correctly, it should be who would leave the society. If an outgoing has left the membership of the society, he would become' an OUTGONE member and not an outgoing member. An outgoing member can not leave the membership of the society in the past? If the membership of a person is yet to be transferred in future, the word "left" [ past tense of "leave" ] can not be used at all.
5. That nobody would pay any sum to a resident welfare Society as a donation gratuitously for free-ships unless there is some obligation or compulsion to pay the same. Society has no authority to charge any sum from any person on any account, unless the concerned person is its member. Even, the society cannot charge any sum from the tenants residing in the flats in its area. In fact, being a member, a person gets certain facilities and enjoys several benefits, rights and privileges. Arun Vihar Residents Welfare Society is not a charitable society. It is basically a mutual benefit association. It gets the money from its members and in turn incurs the same for providing the services to them.
6. That the transfer charged received by the Society from its members is not taxable on account of principle of mutuality.
That the appellant craves leave to add, alter, modify or delete any grounds of appeal at or before the time of hearing.”
Briefly stated facts of this case are : assessee filed its return of income for AY 2010-11 declaring income at Rs.20,77,506/-, which was put to scrutiny. Assessing Officer noticed that the assessee has declared net taxable income at Rs.20,77,506/- after excluding miscellaneous receipt of Rs.1,53,923/- and transfer charges receipts of Rs.19,50,000/-. Assessee in response to the explanation sought by the AO submitted that income received from members of the Society on any account is not taxable under the provisions of the Act being mutually beneficial for the society.
Finding the explanation made by the assessee not tenable, AO made an addition of Rs.19,50,000/- and assessed the total income at Rs.41,15,010/-.
3. Assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has dismissed the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
Ld. AR for the assessee contended that transfer fee received by the assessee Society from outgoing members is not subject to tax as it is merely a fee for substitution of the outgoing member with incoming member by virtue of ownership. However, on the other hand, ld. DR for the Revenue repelled the argument by contending that the principle of mutuality is not attracted in this case as the outgoing member is not to get benefit out of the funds available with the Society in any manner whatsoever and relied upon the decision relied upon by ITAT, Mumbai Bench ‘C’ in case of Oval Shiv-Shanti Bhuvan Cooperative Housing Society Ltd. vs. ITO – (2001) 78 ITR 403 (Mum.).
From the argument addressed by the ld. Representatives of the parties, order passed by the Revenue authorities below and the case law relied upon, the sole question arises for determination in this case is :-
“as to whether transfer charges collected by the assessee Society from outgoing members who have left the Society by selling his flat are exempted from tax by virtue of principle of mutuality as contended by ld. Counsel for the assessee?” 7. Undisputedly, the assessee society being registered under the Societies Registration Act has collected amount of Rs.19,50,000/- on account of transfer charges from the outgoing members who have left the Society by selling his plot. It is a matter of common knowledge that the charges collected by the resident welfare society, the assessee in this case is to be incurred for the welfare of the members of the Society to claim exemption by virtue of the principle of mutuality. When outgoing member deposits a particular amount on account of transfer fees by virtue of the sale to some other person, the outgoing member is not to get any benefit from the corpus of the Society to be used for society’s welfare. To our mind, it is not mere substitution of outgoing member with incoming member because incoming member to avail of the benefit of welfare activity of the Society is to incur his own funds by way of membership fees, annual fee or welfare funds. In these circumstances, the status of outgoing member of the assessee Society turns to be a status of a third party. So, in the given circumstances, assessee Society is not entitled for exemption for tax on the amount of Rs.19,50,000/- by virtue of the principles of mutuality.
Coordinate Bench of the Tribunal in the case of Oval Shiv- Shanti Bhuvan Cooperative Housing Society Ltd. (supra) dealt with the identical issue and by relying upon the decisions rendered by Hon’ble Bombay High Court in case of CIT vs. Presidency Cooperative Housing Society Ltd. – (1995) 216 ITR 321, held that the transfer fee collected by assessee Society from outgoing member on sale of his flat to their party is taxable and principle of mutuality does not apply in this case.
So, in view of what has been discussed above and by following the decision rendered by coordinate Bench of the Tribunal in case of Oval Shiv-Shanti Bhuvan Cooperative Housing Society Ltd. (supra), we are of the considered view that the amount collected by the assessee Society was not on account of transfer of any of its capital asset nor the said amount has been received by the assessee for creation of any new rights in the capital asset and as such, is assessable to tax as income of the Society, so finding no illegality or perversity in the findings returned by ld. CIT (A), present appeal filed by the assessee is hereby dismissed. Order pronounced in open court on this 24th day of January, 2017.