Victory for cooperative societies, as Supreme Court approves the principle of mutuality, for CHS income

The Supreme Court has upheld the principle of mutuality, which states that a person cannot make profit from himself. We look at how this ruling will affect the levy of tax on receipts, such as non-occupancy charges, transfer fees, service charges, common amenity funds, etc

The Supreme Court (SC) of India recently provided a big relief to cooperative societies (societies), by dismissing the claim of the income tax authorities on levy of tax on various receipts (for example, non-occupancy charges, transfer fees, service charges, common amenity funds, etc.) collected by such societies. The dispute of the tax authorities revolved around a notification dated 09.08.2001, issued under section 79A of the Maharashtra Cooperative Societies Act, 1960 and its applicability on such societies.

Based on this notification, the tax department contended that since these societies have received service charges/ maintenance charges in excess of 10 per cent of the non-occupancy charges, it was contrary to the law and hence, the principle of mutuality fails in such cases. The tax department held that such receipts are in the nature of business, having an element of commerciality and hence, principle of mutuality does not apply. The Income Tax Tribunal overruled the decision of the lower tax authorities, on the ground that the said notification was applicable only to cooperative societies and does not apply to commercial societies.

Principle of mutuality and taxation on cooperative societies

In this issue, the Bombay High Court, while dismissing the appeal of the tax department, ruled that the receipts of the societies are not in the nature of business income, generating profits/ surplus and therefore, not taxable. To claim the higher chunk of tax from similar issues, the tax authorities approached the SC. The SC observed that the doctrine of mutuality, is based on the theory that a person cannot make profit from himself. An amount received from a member, therefore, cannot be regarded as income of the society and treated as taxable in nature. The tax department has never challenged that the receipts of such societies have been utilised for purposes other than for the benefit of the members. The essence of the principle of mutuality, lies in the identification of the contributors and the participants, who are also the beneficiaries. Any surplus in the common fund, therefore, does not constitute income but will only be an increase in the common fund, meant to meet sudden/ future events.

Taxation on non-occupancy charges, transfer charges and contributions to the common fund

It was also observed by the SC that transfer charges are generally paid by the outgoing member. If part of it is paid by the transferee, it would not partake the nature of profit or commerciality, as the amount is utilised only after the transferee is admitted as a member. The moment the transferee is included as a member, the principle of mutuality comes into picture. In the event of non-admission of such transferee, the amount is returned. The same applies for non-occupancy charges, which are levied by the society and are payable by a member, who does not occupy the premises but lets it out to a third person. The charges are, again, utilised only for the common facilities and amenities for the members of society. Similarly, any contribution to the common fund, by a member disposing of a property, is utilised for meeting sudden or regular heavy repairs, to ensure continuous and proper maintenance of the society, which ultimately accrues to the enjoyment, benefit and safety of the members.

The SC further ruled that once a member is admitted to the society, the members form a class and accordingly, the identity of such members is irrelevant and the principle of mutuality is attracted automatically. The SC, relying on a plethora of rulings, went on to conclude that there was no profit motive or sharing of profits amongst the members. The surplus, if any, was not shared amongst the members but was available for providing better facilities to the members. There was a clear identity between the participants and the contributors, to the common fund of the society.

Conclusion

By bringing an end to the prolonged war between such societies and the tax department, the decision of the SC would be welcomed by such societies, as going forward, they would be free from tax hassles and will be governed by the principle of mutuality, leading to all receipts from the members being tax-exempt.

Further, the SC has not specifically mentioned anything about the income received by cooperative housing societies. It is interesting to note that although the decision is restricted to non-residential societies, it should also provide shelter to residential societies, as the underlying principle of mutuality remains the same for all types of societies. Further, once the principle of mutuality is established, all the receipts shall be exempt from tax, even though the same are in excess of the quantum as specified under some other law for time being in force.

 

BY ASHOK SHAH AND PRAVEEN KUMAR DARAK

https://housing.com/news/victory-cooperative-societies-supreme-court-approves-principle-mutuality-chs-income/

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Landmark Judgement on Transfer Charges

Please find herewith land mark judgment delivered on 10-4-2018 pertaining to refund of transfer charges by Bombay High Court with interest. Basically Transfer of flat is a contract between outgoing and incoming member. Just to have involvement of the society in the earlier years RS. 1/- was charged as transfer Fee. Now transfer fee is RS. 500/- and maximum amount collected under share premium account is RS. 25,000/-

For Co-operative Societies Residents Users & Welfare Association.

President
Adv Vinod Sampat

⭐😀HC says the demand of admission fees in sum of 5 % of the sale price for purpose of admitting a new member against purchase of a flat, has no legal sanction or propriety under the scheme of MCS Act, Rules and Byelaws to be framed thereunder..⭐

⭐Membership of chs is an open membership. It is not possible to put any restriction on such membership save and except as may b provided undr Act, Rules, Byelaws made consistently with the Act and Rules.. section 23(1) of MCS prohibits any society from refusing membership duly qualified under mcs rules and byelaaws of such society for such membership without sufficient cause.. if any person were to be refused admission on account of certain fee or charge, such fee or charge must be legally justified so as to give rise to sufficient cause. If any person were to be refused payment of such fee or charge, in other words, so as to amt a sufficient cause, must hav a sanction of law.. the particular GBR dated 7th Jan 1993, which autborizes society to charge a sum of 5 % of sale price of flat as admission fee for the purpose of new membership has no legal sanction. There is no such provision in d Act or the Rules or indeed in the byelaws of the society in the present case, which enables the society to pass such GBR..⭐

In law, it.must be shown that the society, which is a creature of statute, has the power to take particular action complained of witjin d framedwork of such statute or otherwise under law..

⭐What is important in law is not the identity of the person, who actually makes payment but d identity of the person on whose behalf the payment is made. It is very clear from resolution of the society that this payment is in the nature of admission fee for the purpose of admitting new members against purchase of flat in the society. In other words, it is a charge to be levied on new member.. it is immaterial who makes this payment.. such payment has no sanction of law and wrongly recoverd frm new member. It is wholly immaterial who made this payment willingly or under protest. As long as it is money wrongly paid, it can be recovered by the payer from the payee within the period of limitation..

There is nothing to suggest that this payment was made voluntary by new member and hav taken the advantage of this payment.. thid is also not a case of voluntary donation..

There is no doubt that the period of limitation in such case is years from the date on which the act or omission with reference to which the dispute arose took place section 92(1)(b) of Limitation Act 1963.. As this dispute is related to an act or omission on the part of the society against the member⭐😀👇👇

 

Click Here for the full judgement

Relief for 50 non-residental societies

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.

http://www.freepressjournal.in/mumbai/supreme-court-rejects-i-t-departments-claim-gives-relief-to-50-non-residential-societies-in-mumbai/1237135

Click Here for the full judgement

CALCULATION OF CONSTRUCTION AREA, CONSIDERING CARPET AREA ACCORDING TO RERA ACT

Outward No: Ka.15/Circular/RERA/
Carpet Area/3.
Office of the Inspector General
of Registration & Stamp Controller,
Maharashtra State, Pune-1.
Date : 02/01/2018.

Circular

Sub: Guidelines No. 5 for Mumbai City and Guidelines No.4 For rest of Maharashtra

1.2 ratio has been mentioned in guidelines no.5  for Mumbai City and No.4 for rest of Maharashtra  in respect of calculating built up area from carpet area in the guidelines with annual valuation rate table.

The Maharashtra Real Estate Regulatory. Authority has issued Circular No.4/2017, Dt. 14/6/2017 regarding calculation of carpet area under Section 2(k) of Real Estate (Regulation & Development). With it they have given illustrative sketches regarding which area to be included in carpet and which not to be included. -Accordingly  it is necessary to include area of inner walls of the flat in carpet area. It is mentioned that area  covered by the external walls, and similarlyareas  under services shafts,  exclusive balcony or verandah area and exclusive open terrace area shall not be included. Incidental to said changes individual memorandums and also memorandums from CREDAI regarding making changes in valuation guidelines were received.  Therefore it is necessary.to make changes in the ratio calculating carpet area from built area. Thus, following changes have been made in guidelines no.5 for Mumbai City and guidelines no.4 for rest of Maharashtra.

CarpetArea/Built up Area :-  

  1. The rate mentioned in annual, valuation rate are of built up area. If documents mentioned Carpet area, then valuation should be made by drawing built up area as follows :

Built up area = 1.1 x Carpet area or Carpet area = Built up area / 1.1

However if there is any other mentioned other than Carpet area and if the said area is more than Carpet area x 1.1 then, valuation should be made by considering the area mentioned in the documents. However in the case of open   parking, terrace and balcony, only mentioned area should be considered.

  1. Valuation of closed balcony adjacent to the flats/offices/shops/industrial properties should be made with sales price of the respective use of concerned annual valuation rate table.
  2.  If open balcony adjacent to the Flats/ Offices/ Shops/Industrial use is shown in documents and plans with it , then its.valuation should be made at the rate of 40% of the sale price of respective use shown in annual valuation rate          according to Instruction No.15 for Mumbai and Instruction No. 14 for rest of Maharashtra.
  3. Hereinbefore since area under all walls in the flats sold was not incorporated in carpet area, for the sale/agreement of such resale flats, earlier 1.2 ratio should be used for calculating built up area according to carpet area with balcony area.  However if there is mention of built up area or saleable area except carpet area in the document, then that area should be considered directly. The ratio 1.2 should not be applied to it.

The said Circular shall be came into force from the date of issue.

The copy of the said Circular is available on the web site www.igrmaharashtra.gov.in

(Anil Kavade)

Inspector General of Registration & Controller of Stamps, Maharashtra State, Pune.

Respite for co-op housing complexes under GST net

The Central Government has given a little relief to the co-op housing societies that have an annual income of over Rs 20 lakhs or those that have been collecting monthly maintenance charges of more than Rs 5,000 by relaxing the norms of GST.

The co-op housing societies, having an annual income of over Rs 20 lakh or those collecting monthly charges of more than Rs. 5,000, are required to pay 18 per cent GST on their income from July 1, 2017 onwards, but now effective January 2, 2018, the societies have been collecting monthly charges up to Rs. 7,500 from their members who have been exempted from paying 18 per cent GST. In other words, the GST will be applicable only to those societies collecting monthly charges of more than Rs. 7,500.

The societies’ income includes the money earned while transferring flats in the name of new owner in case of resale of flats, repairs and maintenance charges, parking charges, sinking fund, non-occupancy charges, or simple interest for late payment of dues, which attracts GST, since these charges are collected for supply of services meant for members.

In many instances, transfer fees, that are charged by the societies and paid by incoming and outgoing members when a flat in the society is sold, contribute significantly towards a society’s annual collection. While the model bylaws under the Maharashtra Co-operative Societies Act have placed a limit of Rs 25,000 on transfer fees, in reality the fees run into a lakh or more per transfer. Thus, collections from transfer fees may mean that even societies housing the middle classes also find themselves having a turnover of over the threshold of Rs 20 lakh.

Maintenance charges are collected by co-op housing societies for purposes like providing security, lift upkeep, maintenance of common areas and are typically a reimbursement for expenses incurred.

If total collections of the societies are less than Rs 20 lakh a year, then they are not required to be registered under GST. Consequently, they are not liable to impose GST on taxable services. Smaller societies with lower annual collection (revenue) are out of the GST ambit.

However, in luxury societies having facilities like a club house, gym or swimming pool, monthly maintenance charges are steep, running up to over a lakh. The annual collection of such societies are typically far higher than the Rs 20 lakh threshold. So, GST is levied by such societies.

There are over 90,000 registered cooperative housing societies in Maharashtra, out of which nearly 50,000 cooperative housing societies are in Mumbai, Navi Mumbai, Thane and Mumbai Metropolitan areas alone. Roughly there are 29,000 societies in Mumbai, 6,000 societies in Thane and 5,500 societies in Navi Mumbai and over 2,800 societies in MMR including Panvel.

Some of the societies located in Malabar Hill, Napean Sea Road, Pedder Road in South Mumbai and some of the housing complexes located in suburbs, have a limited member strength, but their maintenance charges per flat are heavy.

Speaking to The Afternoon D&C, Mahendra Mhaske DD-III said that it is mandatory for all such societies to register themselves under GST. Maharashtra Societies Welfare Association (MSWA ) Chairman, Ramesh Prabhu said that earlier the societies were required to pay different type of taxes. But now under this system, the tax structure is expected to be rationalised.

Services provided by government or local authorities to persons other than business entities are exempted from GST. Thus, if property tax or water tax is collected by the CHS on behalf of the BMC from individual flat owners, then GST is not chargeable. Similarly, GST is not chargeable on non-agricultural tax or electricity charges collected under other statutes from individual owners.

By Raju Vernekar

http://www.afternoondc.in/epaper/EpaperPost.aspx?id=214694

Bhagtani – Jaycee Court Proceedings

DO U AGREE WITH BELOW MENTIONED SUBMISSIONS IS IT NOT SHAMEFUL FOR MCHI TO HAVE SUCH PERSONS AS OFFICE BEARERS/MANAGING COMMITTEE MEMBERS? Mumbai, 29th September, 2017: The hopes of hundreds of victims of Bhagtani builders ill-fated Riyo project in Mira Road today when Justice Revati Mohite Dere of Bombay High Court gave a strict order requiring Dipesh, Mukesh and Lakshman Bhagtani to pay back Rs 22 crore to the victims within 6 months, as a pre-condition for their anticipatory bail.

Click here to read today’s order in Criminal Anticipatory Bail Application no. 1553 of 2017, wherein there were roughly 175 interveners in four Criminal Applications (CA no. 862, 882, 901 and 910 of 2017).

 

MAIN POINTS IN TODAY’S ORDER:

1) Counsel for Bhagtani builders was forced to undertake that (a) the builders will deposit Rs.22 crores (as per the judge’s directions on 15th Sept), in 6 equal installments, within six months from today (b) that the first installment will be deposited on or before 12th October, 2017 and (c) the balance 5 installments, thereafter, within one month each and (d) if there is a single default, the protection can be vacated. (e) An affidavit-cum-undertaking of the Bhagtanis stating the above is to be submitted on Tuesday, 3rd October.

2) One of the counsels for interveners pointed out that in addition to the above-mentioned list given by the police Investigating Officer, there were other 18 investors, and that he was in the process of filing an intervention application. Their amount would be an additional Rs.3-4 crores.

3) Mr Mundargi (counsel for Bhagtani builders) stated that the builders were ready to deposit the additional amount of the additional investors who are not included in the list tendered by him today, after the list and the amounts are verified.

4) The matter is now “stood over” to 3rd October, 2017 at 3.00 p.m, for tendering the affidavit-cum-undertaking of the applicants.

5) Interim protection (i.e. protection from arrest) granted earlier to continue till the next date i.e. 13th October.

 

IMPORTANT POINTS MENTIONED ORALLY IN TODAY’S PROCEEDINGS:

a) The Investigating Officer said in response to a question that Dipesh and Mukesh Bhagtani are in India. (Dipesh was on the court premises, it seems, though not in the courtroom. The whereabouts of Lakshman Bhagtani were not discussed.)

b) With reference to another another anticipatory bail application (ABA no. 1725 of 2017) filed yesterday by Bhagtani builders for protection in the case of an FIR u/s IPC sections 420, 120(B) and 34, and MOFA sections 3, 4, 5, 6, 13 and 14, Justice Mohite Dere asked why multiple agencies (i.e. Santa Cruz police station and EOW) were involved in filing FIRs on the same topic. Hence, EOW is directed to take all cases in this matter (i.e. Riyo in particular, and Bhagtani builders in general).Aggrieved Bhagtani investors, in future, please go to EOW and Santa Cruz and register FIRs.

c) It is felt that allottees should not deposit any Post Dated Cheques (PDCs) that may be in their possession. Otherwise, it will be seen as trying to take double payment from Bhagtanis.

 

THE BIG MESSAGE FROM TODAY’S PROCEEDINGS:Many FIRs have been registered by Bhagtani’s victims, and they will come up before Bombay High Court soon. The Bhagtani scam will now make headlines, and the tide will turn against them and in favour of their victims. Bhagtani victims from Sapphire, Savannah, Serenity and other projects should now gather courage to go and file FIR immediately with EOW. Join the tidal wave of Bhagtani victims fighting for their rights!

SHARED IN PUBLIC INTEREST BY
Adv Vinod Sampat

To WITHDRAW the GST applied on the co-operative housing soc. maintenance payments

As we know that 18% GST is made applicable on the maintenance payment made by very own members of the cooperative housing society to the same co-operative housing society managed by the same members themselves. I feel that this decision of the Government is not in line with the basic concept and principles of co-operative housing societies in India.

Hence, through this PIL, I appeal to Honorable Supreme Court of India to withdraw the GST (Goods and Service Tax ) applied by the Government of India on the Maintenance Payment made by very own members of the cooperative housing society to the same co-operative housing society managed by the same members of the housing society themselves. There are following valid questions to be considered before making GST applicable to the maintenance payment of the flats / house in Co-operative Housing societies:

1.   The Co-Operative Housing / Residential societies in India are maintained by the very own members of these co-operative societies. These members of the societies come forward voluntarily to serve themselves through their own services to their own flats / houses in the society. These members are neither paid any salary nor monitory benefits for their services provided by them to themselves in the co-operative societies. Meaning, members are providing their own services to themselves. So, if I am providing the service to me and that service is also consumed by me only, then why should I pay the GST tax on it to the Government for the same?

 

2.   The concept of co-operative for the housing societies is to manage the society by its members themselves, meaning there are no two distinct bodies i.e. Separate giver of services and separate receiver of the services do not exist in co-operative housing societies. It’s a one body like left leg supporting right leg and vice-versa to lift the entire load of the one body. Where is the concept of delivery of services within one body fit into this mechanism?

 

3.   Why the maintenance of the houses / flats in the co-operative societies is considered as a Business? Any logic behind it?

 

4.   We, as a resident members of the co-operative Housing society are already paying the Property Taxes on our house / flat to the Municipal Corporations, which is almost in the range of 20% to 100% of our annual maintenance. Then why are these property taxes levied on the flats if GST is also levied? Then withdraw property tax on flats.

 

5.   Co-operative societies being the end point of consumption of the material or services from the outside vendors, the materials and the services used by the co-operative societies from the outside agencies / vendors are already charged with GST and are paid by the co-operative societies and these vendors in tern pay these taxes to the Government. The final amount with GST is charged to the maintenance of the members flat within the society for such services obtained from outside. Where is the question of charging of GST to members’ come into this picture? Do the government expect us   again to charge GST of 18% on the same services to the members??

 

6.   When the members purchase the house / flat in the co-operative society, then they already pay or paid the following taxes/ duties to the State Government on the Agreement Purchase value of the flat/house in Pre-GST era.

1.   Stamp duty (6% in Maharashtra)

2.    Registration charges (Rs.30,000/-)

3.   Service tax (4 % in Maharashtra)

4.   VAT (1%).

The above taxes are almost amounting 12% of the Agreement Value. Means, State and Central Government has already earned their taxes through the purchase of the house.

The same is applicable for the purchase of the house after GST and the total taxes would be increased to huge amount of 18% GST on the Agreement / Purchase Value. We, as an individual members are paying 18% GST for the purchase of the house and we cannot claim any refund of the same.

Meaning, the State and Central Government has already earned their taxes, then why do Government want to put the GST (18%) on the maintenance of these property? What is the Government Role in maintaining these properties which are fully maintained and by the members themselves? Is government giving any insurance to these co-operative societies in return?

7.   GST is being charged on the Sinking Fund and Repair fund as well, it means more and more we save in the sinking fund for our own security of the house to re-build it in future in case of any calamities or in case of fire or in case of earthquake, we need to pay more and more taxes to government. Is government taking the responsibilities of the re-building of our houses / flats in the co-operative societies in case they are damaged, gutted in fire, or in earthquake or need to re-develop in future due to lack of original construction quality through the GST paid on these amounts??

 

 

 

8.   Moreover, most of the members of these co-operative societies are the tax payers i.e. they file their own returns on their taxable income every year. The net amount leftover after paying the direct tax on the income is used to take care of household expenses one of which is the payment of the maintenance of the house/flat in the society. Is government giving refund claims to the members for the GST paid on the house maintenance into their direct taxes??

 

 

9.   Why is the limit of GST applicability fixed to the maintenance amount of Rs.5000/- and above. What is the logic behind it?

 

10.       Why the limit of collection below 20 lacs per annum is fixed for this? Is maintaining the Co-operative societies considered as a Business?? We are not running the business of maintaining the houses / flats, we are maintaining the houses / flats on our own to live in the better condition same as we maintain our body to live in the good health condition with the co-operations of our own body parts. Why is the business approach forced on the working or maintaining of the co-operative societies by putting the collection limits of 20 lacs?

 

 

 

11.       By applying GST on co-operative societies, is government just  trying to make more money through the hard earned money of the citizens maintaining their own houses by their own in cooperative housing societies?

 

To my notice, the government has not considered most of the points listed above before applying the GST on maintenance payment made by members to co-operative housing societies managed by themselves. There is no valid logic to apply GST on maintenance payment by the members to the cooperative housing society.

Hence, I request and appeal to Honorable Supreme Court of India through this PUBLIC INTEREST LITIGATION (PIL) to consider to WITHDRAW the GST applied on the maintenance payment made by the very own members of the cooperative society to the same co-operative society managed by the  members of the same cooperative housing society themselves.

I request to provide the  stay on the applicability of GST on the Maintenance Payment of the Cooperative Housing societies till the final verdict from Supreme Court of India is given on this PIL.

 

This petition will be delivered to:

  • Chief Justice of India

Click Here to Support and sign the petition