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By Legal Bureau

In the case of M/s. Walkeshwar Triveni Co-op. Housing Society Ltd., Mumbai versus Income Tax appellate Tribunal, Mumbai Bench (Special Bench) held that amount received by the society from the transferor is not eligible to tax, Whereas the amount received from the Transferee is eligible to tax.

The transfer fee of Rs. 25,000/- was paid by transferor and transferee equally in the case considered. Hence if the society receives any amount as premium on transfer according to the rules for the time being in force from transferor is totally not eligible to tax.

The tribunal held that “It is just to ensure an income to the Society which is to be utilised for the common good. However, if the excess amount is charged – be it donation or payment under any other nomenclature – profit motive will pervade and mutuality will cease to exist. Ex consequenti, the profit will be eligible to tax.

The identity of the recipient with the contributor is a condition precedent to enable the benefit of mutuality. In the present case we find that both the parties to the transaction are the contributors towards the premium. As per law, it is the obligation of the transferor to pay the premium. We find that with the common it to the Society. The Society issued separate receipts to the transferor and transferee. At the time of making payment he transferee was not the Member of the Society. As such, the amount paid by the transferee  is not covered by the principle of mutuality. The transferor made the payment in the capacity of a Member. The cardinal requirement for mutuality is that a contributor to the common fund must be entitled to participate in the surplus and that all the participators in the surplus must be contributors to the common fund. For this doctrine to apply, it is sine qua non that there should be complete identity between the contributors and  participators. This means identity as a class, so that at any given moment of time the persons who are contributing are identical with the persons entitled to participate. It does not matter that the class may be diminished by persons going out of the this scheme or increase by others coming in. We find that the transferor satisfied the test of mutuality. When the premium was paid, he was the Member of the Society. He received the consideration for alienating his right in favour of the transferee. Legally speaking the transferee stepped into the shoes of the transferor and became eligible for all the benefits which were hereto before available to the transferor. But at the time of effecting the transfer, the transferee was not the Member. As such, the amount received from the transferee will not satisfy the test of mutuality. Resultantly, the amount received from the transferor is not eligible to tax, whereas the amount received from the transferee is eligible to tax. We decide the issue accordingly.

All the issues were not referred for the consideration of the Special Bench. Therefore, the remaining issues will be decided by the Division Bench for deciding the remaining issues.