Taxability of transfer fees:

 

1. A co-operative housing society (hereinafter also referred to as ‘Society’) here, includes all Societies – residential, commercial and industrial.

2. Transfer fee is one of the mode of collecting contribution towards common expenses by a Society on the occasion or the event of the transfer of a flat / office / unit by themember of the Society.

3. By its very nature, transfer fee is only a form of contribution from the members which is utilised for the common benefit of all the members only.

4. The principle of mutuality is a foundational concept in income tax law that applies to clubs, societies, and associations where there is a mutual relationship between the contributors and beneficiaries. The essence of the principle is that no one can profit by dealing with themselves.

5. Hon. Supreme Court in ITO vs. Venkatesh Premises Co-operative Society Ltd. [2018] 402 ITR 670 (SC), has settled the principle of mutuality, unequivocally:

‘The doctrine of mutuality, based on common law principles, is premised on the theory that a person cannot make a profit from himself. An amount received from oneself, therefore, cannot be regarded as income and taxable’.

6. Based on the nature of the transfer fee received by a Society and based on the principle of mutuality, discussed above, it can be safely concluded that the transfer fee received by a Society by a member of the Society is completely governed by the principle of mutuality and hence not liable to any tax under the Income Tax Act.