Taxation of Mutual Concerns – CA Final DT Question Bank

Taxation of Mutual Concerns – CA Final DT Question Bank is designed strictly as per the latest syllabus and exam pattern.

Taxation of Mutual Concerns – CA Final DT Question Bank

Question 1.
X is an association governed by the provisions of section 44A. The subscription receipts for the year ended 2020-21 were ₹ 60,000. The expenditure in the normal course of its activities was ₹ 85,000. Its other income taxable works out to ₹ 75,000. On these facts, you are consulted as to how X’s taxable income will be determined for assessment year 2021-22. In case the association did not have the other income taxable, will there be any difference in computation of its income. [CA Final May 2001] [4 Marks]
Answer:
Taxation of Mutual Concerns – CA Final DT Question Bank 1

Income From Other Source 75,000
Less: Deheienev as per section 44A [The maximum deficiencv which can be set off as per sec. 44A is 50% of  ₹ 75,000 = ₹ 37,500 restricted to actual deheienev i.e. ₹ 25,000] (25,000)
Total Income 50,000

In case the association did not have other taxable income, then the total income shall have been NIL. The defeiency of ₹ 25,000 will have no tax treatment and shall not be carried forward.

Taxation of Mutual Concerns – CA Final DT Question Bank

Question 2.
Bahubali Co-operative Housing Society is a registered co-operative housing society. It is formed with the objective of maintaining the property owned by it. It effects repairs and maintenance of the common property of the members and confers the usual rights and privileges to its members. During the year ended 31 st March, 2021, Mr. X transferred his membership to Mr. Y for which the society received transfer fees of ₹ 5.50 lakhs each from Mr. X and Mr. Y. Mr. Y was not a member of the society at the time of transfer. In course of assessment of the society under section 143(3) the Assessing Officer charged transfer fees to tax under the head “profits and gains of business or profession”. Is the action of the Assessing Officer correct? [CA Final Nov. 2016, May 2013] [4 Marks]
Answer:
The issue is whether the transfer fee received by Bahubali co-operative housing society from its incoming member Mr. Y and outgoing member Mr. X is taxable or exempt on the principle of mutuality.

The Bombay High Court dealt with similar issue in case of Sind Co-operative Housing Society v. ITO where it was observed that under the bye-laws of the society, charging of transfer fee had no element of trading or commerciality. Both the incoming and outgoing members have to contribute to the common fund of the society which was to be exclusively used for the-benefit of the members.

The High Court, therefore, held that transfer fees received by a co-operative housing society, whether from outgoing or from incoming members, is not liable to tax on the grounds of principle of mutuality since the predominant activity of such co-operative society is maintenance of property of the society and there is no taint of commerciality, trade or business.

Taxation of Mutual Concerns – CA Final DT Question Bank

Applying the above ruling, transfer fees received by a Bahubali co-operative housing society from Mr. X and Mr. Y would not be liable to tax in the hands of the co-operative society.

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