According to the bye-law no. 40 (read with circular dated August 9, 2001, issued by the government of Maharashtra) the Society can collect transfer charges up to Rs. 25,000/-, The Society can collect transfer charges at 2.5% of the difference between the book value of the flat and the price realised by the transferor on the transfer of the flat, or a maximum of Rs 25,000, whichever is lesser. Section 79 of the Cooperative Societies Act says that the premium amount of transfer charge should not exceed Rs 25,000. The Bombay High Court held that a Society can collect funds, only by legally permissible charges or fees and is not expected to indulge in profiteering from the members. While transfer charges cannot be more than Rs 25,000, it can be reduced if the general body so decides. The Society can raise fund only for achieving the objects of the Society and not for any other purpose. So long the Society is charging the amount of premium within the framework of law there are no issues as a cooperative Society is the legal owner of the building.
Maximum premium rates for transfer charges Zone Rate of premium to be charged
Municipal corporation and authority area Rs 25,000
A class municipality Rs 20,000
B class municipality Rs 15,000
C class municipality Rs 10,000
Village panchayat (rural area) Rs 5,000
Co-operative housing societies in our country are playing a very special and prominent role in catering to the housing needs of our people. If the Society is a voluntary association, created for mutual help without profit motive, no tax is being charged on the income of such Society. This profile of taxation at times tempts the human ingenuity to defile the law. Consequently the spirit of mutuality is abused with impunity. To hoodwink the law premium is worded under different names, viz., donation, welfare fund, common amenities fund, etc.
Is GST applicable to Housing Society on Transfer Fees charged?
Objects of Housing Society under MCS Act is to provide its members common amenities and services; to manage, maintain and administer the property of the Society; to raise funds for achieving the objects of the Society, to undertake and provide for, on its own account or joint with a co-operative institution, social, cultural or recreation activities, and to do all things necessary or expedient for the attainment of the objects of the Society, specified in the bye-laws.
‘Supply’ of Services by Housing Society
The activities of CHS in as much as they are………… managing, maintaining and administering the property of the Society, raising fund for achieving the objects of the Society, undertaking and providing any social, cultural or recreation activities can clearly be considered as rendering of “supply” of service being provided by CHS to its members.
Housing Society considered as a ‘person’
The word “person” mentioned in Section 7 of CGST Act is defined in Section 2(84) (i) of the CGST Act, 2017 and amongst others, specifically includes ‘a co-operative Society registered under any law relating to co-operative societies’. Thus a registered co-operative Society is a person within the meaning of the term in the CGST Act. Thus there is a supply made by a person i.e. Housing Society.
Activities (supply of services) by the Society i.e. ‘a person’ for a consideration
As per Section 2(31) of the CGST Act, 2017, consideration, in relation to the supply of goods or services or both, includes any payment made or to be made…….., in respect of, in response to, or for the inducement of, the supply of goods or services or both, …………….. From the definition of the term “consideration”, it can be construed that transfer fees collected by the Housing Society from its members (whether incoming or outgoing or both) is also meant for meeting expenses for activities undertaken by the CHS to achieve the various objects of the Society as mentioned in By-laws of the Society. Thus, transfer fee collected by Housing Society will be treated as “consideration” paid for supply of services.
Activity of the Society i.e. ‘a person’, in the course or furtherance of business
The definition of business as per Section 2(17) of the CGST Act, 2017 includes, provision by a club, association, Society, or any such body (for a subscription or any other consideration) of the facilities or benefits to its members. In the subject case, Housing Society is making supply to its members (whether incoming or outgoing or both) and receiving consideration for the same. Further, as per the definition of “business”, various activities undertaken by the Society is for the benefit of its members and will come under the scope of business. In view of the above all the conditions as stipulated for considering the activities of applicant as “Supply” under the GST Law are fulfilled.
Whether Principle of Mutuality exempts CHS from GST?
Many Consultants & Lawyers argue that Co Operative Housing Society and its members cannot be treated as distinct persons, by citing the “principle of mutuality”. However AAAR had decided that both, the CHS as well as its members are to be considered as separate person. Even Budget 2021 has also confirmed this by amending CGST Act retrospectively from 1-7-2017 to provide that “an association and its members will be deemed to be two separate entities”.
The contention made by the Society with regard to the principle of mutuality to establish their claim that the Society and its member are not distinct entity is not tenable in so far as taxability in the GST regime is concerned. Circular No. 109/28/2019- GST dated 22.07.2019 issued by the Government of India clarifies that Supply of service by Resident Welfare Association (unincorporated body or a non- profit entity registered under any law) to its own members by way of reimbursement of charges or share of contribution up to an amount of Rs. 7,500 per month per member for providing services and goods for the common use of its members in a housing Society or a residential complex are exempt from GST. A reading of the said circular makes it clearly evident that it is the intention of the Government to tax Housing Societies under GST Laws subject to the condition that the reimbursement of charges or share of contribution of the members exceed an amount of Rs. 7,500 per month per member for Supply of service rendered by Society to its own members.
Transfer Fee for transfer of flat is a consideration received for supply of service (transfer of shares along with right, title & interest in the property) and this not a monthly maintenance service (which is exempt only if it is below Rs.7,500/- per month) and the amount is Rs.25,000/- and hence Transfer fees will attract GST @ 18%.
Author’s Take
Yes, Housing Society is covered under the principles of “Mutuality” and Income Tax Department has accepted this principle even though there is no specific mention in the Income Tax Law. Now that AAAR has opined that GST is applicable to CHS and Budget 2021 has amended CGST where in levy of tax on activities or transactions involving ‘supply’ of goods or services by Society to its members for cash has been retrospectively amended WEF 1-7-2017 (date on which GST was introduced). , Budget 2021 provisions also provide that an association and its members will be deemed to be two separate entities and thus argument of “Mutuality” becomes meaningless and SC judgments in the case of Calcutta Club would not be applicable.
In my opinion, this question could be answered by Supreme Court and it takes 10/15 years to get verdict from SC and if Society has not collected GST, then they may have to pay GST with Interest out of Society’s corpus having not collected GST from member. If Society approaches members for collection after 15 years, it may happen that many members have already sold their flat and new member may not be willing to contribute. This may open up further litigation. Hence to be on a safer side, Society should collect GST @ 18% on Transfer Premium, by whatever name it is called such as Donation or Premium or Charges.
If Society decides to collect GST, then they have to deposit the amount collected in the time period specified. Only option is to pay the GST “under protest” and then litigate from Commissioner to Tribunal to High Court and finally Supreme Court. Litigation has its cost (as lawyer’s cost is prohibitive). Whether members of Society would be willing to contribute for the litigation cost?