Supreme court rejects I-T department’s claim, gives relief to 50 non-residential societies in Mumbai
In a major relief to over 50 societies of the non-residential premises in Mumbai, the Supreme Court has struck down the Income Tax Department’s claim of tax which they collect as charges for non-occupancy, transfer, common amenity fund and certain other charges.
The Income Tax Department had appealed against the Bombay High Court dismissing its claim over such receipts as being taxable as business income, generating profit and surplus having an element of commerciality. Societies like Mittal Tower Premises, Mittal Court Prem-ises, Venkatesh Premises, Sea Face Park Society New Maker Chamber had claimed that their receipts were exempt from income tax based on the doctrine of mutuality.
In a judgment delivered on Monday, the bench of Justices Rohinton Fali Nariman and Navin Sinha dismissed the Income Tax Department, upholding the Bombay High Court’s verdict that its claim was based on the notification issued by the state government on 09.08.2001 under the Maharashtra Cooperative Societies Act, 1960 is applicable only to cooperative housing societies and has no application to a premises society which consists of the non-residential premises. It also noted that there was no profit motive or sharing of profits among the members as the surplus was used for providing better facilities to the members.
The Income Tax Department had based its case on the ground that receipt of non-occupancy charges by the society from its members beyond 10% of service/maintenance charges permissible under the notification dated 09.08.2001 stands excluded from the principle of mutuality and was taxable. The order was upheld by the Commissioner of Income Tax (Appeals) but struck down by the Income Tax Appellate Tribunal holding that the said notification did not apply to premises society. The High Court even set aside the finding that payment by the transferee member was taxable. The respondent societies’ case was that the charges collected by them were for general maintenance a the premises and other facilities and general amenities to the members and the fact that the members who were not self-occupying may have to pay at a higher rate was irrelevant so long as the receipts were utilised for the benefit of the members as a class.
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This decision should be applicable even to housing societies also since their functioning is also based on the principle of “mutually benefit” and any excess over income is not earned for commercial benefit.