Transfer Fee collected by Society is Taxable?

No. The Transfer Fee collected by the Association/Society when a Sale of Apartment/Villa happens, is not taxable. This is irrespective of the fact, if the Fee is paid by the Transferor (Seller) or the Transferee (Buyer).

What is Transfer Fee? During the Sale or Re-Sale of an Apartment or a Villa, the Association / Society may collect a Fee from the Owner, which can be a specified Fixed Amount, or a specified percentage of the Sale Price of the Property. This is called Transfer Fee.

In  a judgment of Bombay High Court in 2009, it was confirmed that Transfer Fees recd by Co-operative Housing Society from incoming & outgoing members upto limits <as mentioned in its By-Laws> is exempt on the ground of mutuality.

This judgment was passed in the case of “Sind Co-Op Housing Society vs. ITO”. Details follow.

In Walkeshwar Triveni Co-op Hsg Society 88 ITD 159 (Mum) (SB), the Special Bench held that while transfer fees received from the transferor member was exempt from tax on the ground of mutuality, transfer fees received from the transferee member was not exempt from tax on the ground that at the time of payment, he was not a member of the society. In deciding cross appeals, HELD, partly reversing the judgement that:

(i) A Co-op housing society is a mutual association and satisfies all the tests of mutuality. There is no commerciality involved in it because its only activities are maintenance of its property and the subscription and or contributions received from its members can only be extended for this purpose. Further, the participants and contributors are identifiable and belong to the same class. The fact that only some members out of those who contributed may participate in the surplus is irrelevant as long as the class is identifiable.

(ii) Even transfer fees received from transferee members is exempt on the ground of mutuality because the fee can be appropriated only if the transferee is admitted to membership. If the transferee is not admitted, the moneys will have to be refunded.

(iii) However, if an amount is received more than what is chargeable under the Bye-laws or Government directions, the society is bound to repay the same and if it retains the same it will be in the nature of profit-making and that amount will be chargeable to tax.