A. http://itatonline.org/archives/ito-vs-gymkhana-club-itat-chandigarh-principles-of-mutuality-entire-law-on-whether-a-club-whose-membership-is-also-open-to-the-persons-from-the-public-and-whose-management-is-looked-after-by-official/#comment-2800
II Related Judgements
This is one more instance, in the long never ended series, of vexing ‘battle of wits ‘staged in appeal forums/ courts, bringing to surface otherwise avoidable in fructuous litigation. In the larger public interests, it is now left to the Law and Revenue Ministries, being duty bound, to become alive to the resulting hardships flowing from such frivolous disputes being perpetuated. More so, in the light of / taking useful guidance from the serious strictures lately passed by the Bench in HERE
Sind Co-op Housing Society vs. ITO (Bombay
High Court)
https://indiankanoon.org/doc/116134602/
https://www.facebook.com/swaminathanv3/posts/1493041144105500?pnref=story
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I. Related Judgements
C. http://itatonline.org/archives/ito-vs-gymkhana-club-itat-chandigarh-principles-of-mutuality-entire-law-on-whether-a-club-whose-membership-is-also-open-to-the-persons-from-the-public-and-whose-management-is-looked-after-by-official/#comment-2800
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Cross Refer
For a
receipt to be exempt on the principles of Mutuality, three conditions have to
be satisfied. The first is that there must be a complete identity between the
contributors and participators. The second is that the actions of the
participators and contributors must be in furtherance of the…
Under the
general law relating to mutual concerns, the surplus accruing to a mutual
concern cannot be regarded as income, profits or gains for the purpose of the
Act (s.4), and where the contributors are to receive back a part of their own
contributions, the complete identity between the…
The
contributions made by the members to the assessee cannot be a subject matter of
tax merely because the part of its excess of income over expenditure is
invested in mutual funds. It is also not the case of the Revenue that the
dividend received from mutual funds have…
A Co-op
Hsg Society is not a mutual association because its members can earn income
from its property. The transfer fee and TDR premium charged by the Society from
its members is a commercial transaction and not eligible for exemption on
grounds of mutuality
There are
three objections to treating…
The
assessee, a Co-operative Housing Society, received a sum of Rs.39,68,000 on
account of transfer of flat and garage and credited it to ‘general amenities
fund’ as well as ‘repair fund’. The assessee claimed that the said receipt is
exempted…Read more
A Co-op
housing society is a mutual association and even transfer fees received from transferee
members is exempt on the ground of mutuality because the fee can be
appropriated only if the transferee is admitted to membership. If the
transferee is not admitted, the moneys will have to be…
Though the
judgement in Mittal Court Premises Co-op Society vs. ITO is reported in 320 ITR
414, the said last paragraph has been omitted to be printed thereinRead more ›
The
assessee is maintaining separate books of account for the purpose of business.
The tax-free investments are in his personal capacity. As the AO has not
disallowed any expenditure of personal nature out of the business income, the
expenditure claimed in the business of share dealings cannot be correlated…
In Mittal
Court Premises Co-op Society 320 ITR 414 (Bom) it was held in the context of
non-occupancy charges that the principle of mutuality would apply to a co-op
society. The same principle applies to the TDR premium paid by a member to the
Society of which he is…
The clear
legislative intent of s. 36(1)(vii) & 36(1)(viia) together with the
circulars issued by the CBDT demonstrate that the deduction on account of
provision for bad and doubtful debts u/s 36(1)(viia) is distinct and
independent of s. 36(1)(vii) relating to allowance of bad debts. The
legislative intent was…
C. http://itatonline.org/archives/ito-vs-gymkhana-club-itat-chandigarh-principles-of-mutuality-entire-law-on-whether-a-club-whose-membership-is-also-open-to-the-persons-from-the-public-and-whose-management-is-looked-after-by-official/#comment-2800
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Cross Refer
<> A Review, in brief , of the Selected cases from the above :
The
contributions made by the members to the assessee cannot be a subject matter of
tax merely because the part of its excess of income over expenditure is
invested in mutual funds. It is also not the case of the Revenue that the
dividend received from mutual funds have…
Reliance
on Bang. Club SC case vetoed; Read Posted Comment
A Co-op
Hsg Society is not a mutual association because its members can earn income
from its property. The transfer fee and TDR premium charged by the Society from
its members is a commercial transaction and not eligible for exemption on
grounds of mutuality
The assessee, a co-operative housing
society, received transfer fee and TDR premium from its members which it
claimed was exempt on the ground of mutuality. This stand was upheld by the
Tribunal for the earlier years relying on the judgements in Sind Co-op Housing Society 317 ITR 47 (Bom), Mittal Court Premises Co-op Society 320 ITR
414 (Bom) & Jai Hind CHS Ltd 349 ITR 541 (Bom). In the
present year, the Department argued that this view was not correct and that the
transfer fee and TDR premium were not exempt on the ground of mutuality. HELD
by the Tribunal upholding the Department’s plea:
There are
three objections to treating…
READ Comment
The view the itat has handed down , as
summed-up, is that, – “The principle or the notion of mutuality cannot be
extended to a cooperative housing society, be it a flat owner’s society or a
plot owner’s society”. In holding so, the itat has upheld the Revenue’s stance
relying on the SC Judgment in re. (Bangalore Club 350 ITR 509 (SC) & of the
HC in Presidency Co-op Housing Society 216 ITR 321 (Bom) followed).
One has to wait and see whether such a view can or would be followed also in respect of ‘apartments owners’ association’, distinguishable on more than one ground. See comments provided on the referred SC judgment when earlier reported on this wenbsite.
If examined perceptively, having special regard to the distinct nature and characteristics of the property, – apartment, in one’s individual opinion, the view taken could be urged, successfully so, to be not the correct or better view applicable thereto.
May be worthwhile to make an in-depth study.
One has to wait and see whether such a view can or would be followed also in respect of ‘apartments owners’ association’, distinguishable on more than one ground. See comments provided on the referred SC judgment when earlier reported on this wenbsite.
If examined perceptively, having special regard to the distinct nature and characteristics of the property, – apartment, in one’s individual opinion, the view taken could be urged, successfully so, to be not the correct or better view applicable thereto.
May be worthwhile to make an in-depth study.
The
assessee, a Co-operative Housing Society, received a sum of Rs.39,68,000 on
account of transfer of flat and garage and credited it to ‘general amenities
fund’ as well as ‘repair fund’. The assessee claimed that the said receipt is
exempted…Read more
This is one more instance, in the long never ended series, of vexing ‘battle of wits ‘staged in appeal forums/ courts, bringing to surface otherwise avoidable in fructuous litigation. In the larger public interests, it is now left to the Law and Revenue Ministries, being duty bound, to become alive to the resulting hardships flowing from such frivolous disputes being perpetuated. More so, in the light of / taking useful guidance from the serious strictures lately passed by the Bench in HERE
CIT vs. Kishan Ratilal Choksey
(Income Tax Appeal No. 1001 of 2011 decided on 17 April, 2014)
Abuse of process of law –filing of
appeals/revisions by the Tax Authorities in ‘covered’ matters
Court observes:
“It has now been recognized by Article 43A of the Constitution of India….. The members may be owning individually the flats or immovable properties but enjoying, in common, the amenities, advantages and benefits.”
“It has now been recognized by Article 43A of the Constitution of India….. The members may be owning individually the flats or immovable properties but enjoying, in common, the amenities, advantages and benefits.”
As independently viewed, however,
according to the scheme of the State law on “Flats”, and of the separate law on
Apartments as well, if closely read and strictly understood, the purchaser is
entitled to and given an exclusive possession and enjoyment of ONLY the within
‘area’/interiors of the Flat /Apartment. The rest of the building complex /
areas, that is even the exteriors of the building, inclusive of what are
described as “Common areas and Facilities”,- other certain ‘limited areas’ such
as in the basement for car park, – are vested in the members as a body, for
common possession and enjoyment of them all. Be that as it may, if to proceed
on the a fore stated premise, the principle of ‘mutuality’ upheld by the court should
apply with a greater force.
The court has, in support
of/strengthening the view taken, referred to Article 43A of the Indian
Constitution. In fact, the further improvements of the law on housing
co-operatives lately brought in, in the form of, inter alia, the 97th Amendment
of the Constitution, could be regarded to have added all the more credence
/strength to fortify the said view.
d. g. balakrishnan says:
sorry what is happening to revenue!
Are they forgetting what is cooperative movement? common Amenities provided by
the society is attracting Art 43A of the constitution of india.
Revenue need be a meaningful set up
if not it would harm itself and its purpose!
A Co-op
housing society is a mutual association and even transfer fees received from
transferee members is exempt on the ground of mutuality because the fee can be
appropriated only if the transferee is admitted to membership. If the
transferee is not admitted, the moneys will have to be…
Transfer
Fees recd by Co-op Hsg Soc from incoming & outgoing members upto limits
is exempt on the ground of mutuality
In Walkeshwar
Triveni Co-op Hsg Society 88 ITD 159 (Mum) (SB), the Special Bench held
that while transfer fees received from the transferor member was exempt from
tax on the ground of mutuality, transfer fees received from the transferee
member was not exempt from tax on the ground that at the time of payment, he
was not a member of the society. In deciding cross appeals, HELD, partly reversing
the judgement that:
(i) A
Co-op housing society is a mutual association and satisfies all the tests of
mutuality. There is no commerciality involved in it because its only
activities are maintenance of its property and the subscription and or
contributions received from its members can only be extended for this
purpose. Further, the participants and contributors are identifiable and
belong to the same class. The fact that only some members out of those who
contributed may participate in the surplus is irrelevant as long as the class
is identifiable.
(ii) Even
transfer fees received from transferee members is exempt on the ground of
mutuality because the fee can be appropriated only if the transferee is
admitted to membership. If the transferee is not admitted, the moneys will
have to be refunded.
(iii)
However, if an amount is received more than what is chargeable under the
Bye-laws or Government directions, the society is bound to repay the same and
if it retains the same it will be in the nature of profit-making and that
amount will be chargeable to tax.
|
Though the
judgement in Mittal Court Premises Co-op Society vs. ITO is reported in 320 ITR
414, the said last paragraph has been omitted to be printed thereinRead more ›
Non-occupancy charges are exempt on
ground of mutuality even if in excess of limits
In Mittal Court Premises Co-op
Society vs. ITO 320 ITR 414, the Bombay High Court held that non-occupation
charges paid by a member to a commercial co-op society was covered by the
principle of mutuality and so was not chargeable to tax. In the last paragraph
of the judgement, the Court held that even if the charges were in excess of
the limits imposed by the notification issued by the Government, still the
principles of mutuality would apply.
Though the judgement is reported in
320 ITR 414, the said last paragraph has been omitted to be printed
therein. The said last paragraph reads as follows:
“Apart from that even assuming that
these Government Notifications were applicable if the society could not have
charged excess amount it will have to be refunded to the members. A member is
not prohibited from gifting any amount to the society for the objects of the
society. The principle of mutuality would not cease on account of these aspect.
At the highest, authorities under the Co-operative Societies Act and Rules if
any action is taken may direct an additional amount to be refunded. In our
opinion, therefore, contribution by way of non occupancy charges, principle of
mutuality would apply and consequently,”
are
dealings cannot be correlated…
In Mittal
Court Premises Co-op Society 320 ITR 414 (Bom) it was held in the context of
non-occupancy charges that the principle of mutuality would apply to a co-op
society. The same principle applies to the TDR premium paid by a member to the
Society of which he is…
CC (for ready read only)
Q
Three
months have passed since the Goods and Services Tax (GST) was applied to
housing societies/apartment associations, yet protests and confusion prevail.
Resident Welfare Associations (RWAs) collect monthly charges from residents, to
provide goods/services for their common use. Now RWAs have to register
under GST and pay tax on the monthly charges they collect; this tax burden is
passed on to residents.
So,
instead of being the end consumer, the association is seen as a service
provider to the residents. Association has to pay taxes to the vendor
while buying the product, and then collect taxes from residents on maintenance
charges to pay the government.
This law applies only to associations where residents pay a monthly
maintenance above Rs 5000 and their total annual contribution exceeds Rs 20
lakh. In such apartments, members paying monthly charges above Rs 5000 should
pay a flat 18% tax on it. For example, if a member’s maintenance charge is Rs
6000, he will have to pay an additional 18% – Rs 1080 – as tax.
Apartment
associations across the country are sorely disappointed with the new law. They
say it is illogical and ignorant, because associations are not businesses
that make profits, but are bodies formed for residents’ welfare. R
Rajagopalan, a resident of the apartment complex L&T South City in
Bangalore, says, “An RWA works on the principle
of mutuality – it is not an entity separate from its members. It
only collects money from residents for their common use, for convenience. No
commission or fee is collected.”
Rajagopalan
is also a member of the South City Management Committee (SCMC). He says
that unlike in the case of clubs (which are taxed under GST), membership in
RWAs is not optional; it is compulsory under law.
GST
versus Service Tax
This
argument is not new, however. Before GST, associations with a turnover above Rs
12 lakh and monthly maintenance charges above Rs 5000 had to register under
service tax, and pay 15% service tax. Housing
societies like SCMC had paid service tax earlier, even as they questioned this
rule.
Satish
Rao, Associate Member of the Management Committee at Le Papillion
apartment in Mumbai, says that protests have increased now because the tax
burden keeps on increasing. His apartment too had
paid service tax earlier. “The tax might have increased by a
small percentage only now, but in principle we
should not have to pay at all for services that we are providing to ourselves,”
Rao says.
Protests
have increased also because many apartments that were not in the service tax
net will now be covered under GST. So far, most
apartments in Bangalore have never paid service tax, says a practising
chartered accountant from a reputed CA firm in Bangalore, on condition of
anonymity.
“Very few apartments in Bangalore had registered under service
tax earlier, because unlike GST, only services were included under it and not
goods. If only services are considered, monthly maintenance
charges in most apartments would be less than Rs 5000. Also, accounting could
be done in a way that more expenses were categorised under goods than
services,” he says. Since GST considers both goods and services, many
apartments will now come under the tax net anew.
Even associations that are currently exempt under GST worry that
they may get affected in future. V C Kapoor, Chairman of Band Stand Cooperative
Housing Society in Mumbai, says, “We are below GST limit of Rs 5000/20
lakh now, but if sudden repairs are needed, and we collect higher amounts from
residents in a year, we will cross the limit. Also, in a few years, as expenses
increase, we will naturally rise above the limit.” A large number of urban apartments currently cross the
annual turnover limit of Rs 20 lakhs, though not always the monthly limit of Rs
5000.
Government
reply
Amidst
protests by RWAs, the Finance Ministry had issued a notification in July saying that
apartments would not suffer any additional expense, as they will get an input tax credit (ITC). In fact the tax
burden on RWAs would now go down, as they would get ITC on both goods and
services, says the notification.
ITC
is the deduction in tax that a business will get for its final product (output)
based on the tax it has paid on purchases (input). That is, when the RWA is
paying output tax to the government (i.e.,tax collected from residents), it can
deduct from that amount the input tax already paid to the vendors.
But
here too, the notification implies that the RWA is an entity separate from its
members – earlier RWA could not claim ITC, which it now can, thus reducing the
final tax burden. It ignores the fact that in effect, the burden is passed on
to the home owners, who themselves are the RWA members.
The Bangalore-based CA says that many associations are still
confused about the extent of the additional burden. “Some think
that the entire 18% tax burden will come on them. But because of ITC, it will
probably amount to something like 5-10% – including CA fees. One of our
clients, a luxury villa community that was already paying service tax, has
incurred an additional burden of 2% only,” he says.
Selective liability
Residents
are confused on many other counts. In many large apartments, only a section of
members pay maintenance charges above Rs 5000. For example, in South City, only
900 out of the 2000 members do. In such cases, ITC cannot be claimed fully, but
only in proportion to the output tax collected from taxpaying members.
In
addition to the tedious calculations, there is also the question of how the
benefit of ITC will be passed on to residents – whether only taxpayers can
benefit from it, or all residents. To pass on the benefit, some associations
are considering reducing the maintenance charges of tax-paying members alone –
for example, reducing their charge to Rs 2.35 per sq ft while retaining that of
others at Rs 2.40.
SCMC
had given a representation this July to the Principal Commissioner of Central
Excise and Service Tax, Bangalore Zone, about this. “When we claim ITC, we
claim it as an association, and not just on behalf of the members paying taxes.
So if we pass on the benefit of ITC to taxpayers alone, by reducing only their maintenance
amount, it could mean ‘unjust enrichment’ — that we are not collecting as much
tax as we should be,” says Rajagopalan. He says that SCMC has taken a
conservative approach so far, going exactly by the rules.
Tax
on utility charges
Another
major question that SCMC raised in its representation was about common water
and electricity charges. Under GST, neither water nor electricity supply
are supposed to be taxed. But this is only when the RWA acts as a ‘pure agent’
for the member – that is., if the bill is in the name of the flat owner
and is merely collected and paid by the RWA. But
if the bill is in the name of the RWA itself, RWA is considered a service
provider, and should collect tax.
Rajagopalan
says that the common water and electricity charges in South City come to about
Rs 1600 per flat per month. “This is because the city’s water supply utility
BWSSB considers apartments as bulk consumers, and insists on a common water
meter. Electricity charges for common areas are also shared equally among
members. If these charges are deducted from my monthly maintenance amount of Rs
6000, I will be below the GST limit and won’t have to pay taxes,” he says.
But it is unclear if utility charges can be separated from
maintenance charge. Rajagopalan says that the Principal Commissioner did not
respond to these questions, but only forwarded them to the GST Council on
grounds that these are policy matters.
Currently,
some apartments do separate their utility charges,
while some don’t, worrying about any legal action in future. So, in many cases,
residents end up paying taxes on water and electricity that were originally
exempted from GST for being essential commodities.
Paying
up for the government’s failure!
Chennai-based
FOMRRA (Federation of OMR Residents Associations) – an umbrella organisation of
RWAs in the OMR area of the city – has a different take on this. They say
that the maintenance charges of apartments are high in the first place because
of the lack of government services; and it is on these maintenance charges that
the government is levying taxes again.
Ravi
Kumar, resident of Ceebros Boulevard apartment which is part of FOMRRA, says,
“Apartments in OMR do not get municipal water supply, or a facility to let out
treated effluents etc, which causes our maintenance costs to go up. Now if RWA collects tax on this amount too, residents will
not accept it.”
Mounting
paperwork and other concerns
Another
issue that RWAs are grappling with is the sheer number of returns to be filed
from now. In the case of service tax, only two returns had to be filed in a
year. But under GST, it is 37 – three per month, plus an annual return. As per
a recent relaxation, only 13 returns in a year are needed, if the RWA’s annual
turnover is below Rs 1.5 cr. But the Rs 1.5 cr limit is also easily exceeded in
apartments like South City, that have a large number of units.
Umesh Malasane, Chairman of Regency Cosmos Cooperative Society in
Pune, says this burden would be too high since most RWAs are managed by volunteers,
and do not have a full-time accountant. Malasane had started a petition on
change.org two months back, asking the Chief Justice of
India to withdraw GST on maintenance charges. The
petition has received over 37,500 supporters so far. Malasane says that he had
forwarded the petition to the Supreme Court and it has been registered as a PIL
(Public Interest Litigation), with case number 46511/2017.
The
cash flow of apartments too will be affected. This is because returns should be
filed regularly, while residents may delay or default on payments. There is
also confusion on how GST will apply to sinking funds that are collected for
future expenses. Reverse
Charge Mechanism,
which is currently under review, deters RWAs from hiring unregistered vendors
like plumbers. And thus, overall, apartment associations, accountants and tax
authorities themselves lack clarity on many questions.
In
this chaos, many apartments are re looking at their expenses, trying to rework
it in a way so as to avoid or reduce the GST liability. Then again, many are
worried that the changes they make may be considered illegal later. In the
absence of clarifications from the GST Council, apartment owners and
associations continue to be left in the lurch
UQ
ASIDE: -
As selected -
"Rajagopalan is also a member of the South City Management Committee (SCMC). He says that unlike in the case of clubs (which are taxed under GST), membership in RWAs is not optional; it is compulsory under law."
Comment - It makes for a somewhat confusing reading. Perhaps, better put, to reflect the reality /essence of it, : - most of the members' clubs, by whatever name called, and covered by cited case law, are established and existing entities, in which members are being admitted from time to time. And, in fact, that is a floating population, with changes taking place on a continuous basis; but at no point in time none is having any ownership rights in the clubs' properties . On the contrary, 'housing society' is formed by purchasers of flats /apartments, with ownership rights in the property of the housing complex. And, if and when an existing member sells his portion of the said property (comprising the 'FLAT' area and an undivided interest in the appurtenant land / and CA&Fs) , the buyer on second sale, simply steps into the shoes of his seller and gets admitted only as an owner- member. (Pending /subject to EDIT)
(Comments on the specially marked other portions above, are reserved for now)
UQ
ASIDE: -
As selected -
"Rajagopalan is also a member of the South City Management Committee (SCMC). He says that unlike in the case of clubs (which are taxed under GST), membership in RWAs is not optional; it is compulsory under law."
Comment - It makes for a somewhat confusing reading. Perhaps, better put, to reflect the reality /essence of it, : - most of the members' clubs, by whatever name called, and covered by cited case law, are established and existing entities, in which members are being admitted from time to time. And, in fact, that is a floating population, with changes taking place on a continuous basis; but at no point in time none is having any ownership rights in the clubs' properties . On the contrary, 'housing society' is formed by purchasers of flats /apartments, with ownership rights in the property of the housing complex. And, if and when an existing member sells his portion of the said property (comprising the 'FLAT' area and an undivided interest in the appurtenant land / and CA&Fs) , the buyer on second sale, simply steps into the shoes of his seller and gets admitted only as an owner- member. (Pending /subject to EDIT)
(Comments on the specially marked other portions above, are reserved for now)
.......
Bombay Gymkhana Ltd, Mumbai vs Assessee on 13 March, 2015
Bombay Gymkhana Ltd, Mumbai vs Assessee on 13 March, 2015
https://indiankanoon.org/doc/116134602/
https://www.facebook.com/swaminathanv3/posts/1493041144105500?pnref=story
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