Service Tax on Societies, Clubs & Associations

The service tax department started demanding service tax on member’s contributions in 2005. In 2006, a “clarification” was issued confirming such demand. This is applied to member’s contribution towards expenses of a Cooperative Housing Society, membership subscription of associations, and similar collections.

Maharashtra Chamber of Commerce Industry Agriculture, circulated this demand through its Patrika of January 2008. Subsequently, there was a meeting with the finance secretary; where the finance secretary reminded members that contributions below Rs.3000 were exempted. This satisfied most members and the issue was abandoned.

Litigation in Kolkata and Delhi High Courts confirmed that where every member was a share-holder and every share-holder was a member, there was no provision of service from one entity to another and therefore the application of service tax does not arise. However, this stand has not been accepted by the service tax department. A 2014 circular confirms service tax on contributions to Resident Welfare Associations.

At present, several housing societies are collecting and paying service tax. Associations, clubs and chambers of commerce are also collecting tax on membership subscriptions.

A report in Times of India of 2015 Jan.13 states that two societies have secured a favourable decision in the Mumbai High Court. This is good news not only for the two societies; but also for thousands of other societies and associations. It states:

“The CESTAT decision is the first of its kind for the western zone. The tribunal, based on decisions of other jurisdictions, accepted the principle of mutuality – the society provided services to itself which could not be subject to service tax. However, finality will be reached only once the Supreme Court adjudges on a similar matter pending before it”, said Bakul Mody, chartered accountant, who represented Mittal Towers.

We should be thankful to the two societies and Bakul Mody for taking up the fight. Now let us support them by joining in the fight.

M. B. Damania.

2015 Jan.13

Click Here for copy of the order

 

Housing Societies Service Tax

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