Cooperative Housing Society not entitled to Tax-exempt in transfer fee and TDR premium receipts on the ground of mutuality

Receipt by way of transfer fee and Transfer of development rights (TDR) premium by a Housing Cooperative Society from its members whether can be claimed as tax-exempt on the ground of mutuality or not? To determine whether concept or plea of mutuality would be available or not, there are three tests to be performed: i. Complete identity between contributors and participants; ii. Actions of the participants must be in furtherance of the mandate of the society – which is a matter of fact, to be determined from the memorandum and articles of association, rules of the membership, rules of organization, etc.; and iii. There must be no scope of profiteering by the contributors from the fund made by them, which could only be expended on or returned to them. What is thus important to note is that if there is any commerciality involved, or the transaction is guided by profit motive, the claim of mutuality is not available. The members after they obtain a valuable capital asset in their own hands, i.e., the leasehold right in the plots allotted to them by virtue of their membership, they may get the same encash or capitalize on or even trade on the property. A flat built on the plot might be rented out by the member and the rental income which member will get would be his own income and certainly would not be creating any profit to the society. The society is a 50% stake holder in the individual property, i.e., as build-up in the hands of the members. The society also partakes of the profit arising on the subsequent transfer by a member, to the extent of 50% thereof. Thus there comes in commercial aspect. Then, there is no way to identify between the contributors and participants. Members are allowed to purchase TDRs from outside and load them on to their existing structures. This way member can exploit, even assuming as subject to some reasonable restrictions, their capital assets as permissible under law resulting into commonality of interest in the residential buildings on the society’s land. The members either sell or let out the flats to non-members. The non members who starts residing in the flats as an outcome of rent deed or otherwise, starts enjoying the common facilities like internal roads, parks, drainage, water and electric supply, etc., meant for the members. All the above aspects are violative of basic pre-requisite conditions of mutuality. Accordingly, a Cooperative Housing Society is not a mutual association to its members, as there is a commerciality involved in various form and accordingly amount received towards transfer fee and TDR premium by the Society from its members is a commercial transaction. Hatkesh Co.op. Hsg. Soc. Ltd. vs. Asst. CIT [ITAT, Mumbai, 04.09.2013]