HOUSING SOCIETIES in the city that disputed the applicability of income tax on transfer fees - collected by a society when a flat is sold by a member - may have to pay up.
The Income-Tax (I-T) Department has begun issuing notices to such housing societies after it won a case against Pancharatna Cooperative Housing Society, the diamond trade hub at Opera House.
"First we are sending notices to the big societies," said an officer, requesting anonymity as he is not authorised to speak to the media.
Pancharatna, which has 680 members, lost the case in the income-tax tribunal last week.
The case concerned a demand for refund of Rs 22 lakh collected by the I-T department from the society for the period 2000-2001. The tax was collected on fees charged by the society for transfer of flats and offices in the building. The building has about 20 residential premises while the rest of the 680 are offices.
The tribunal ruled that the transfer fees collected by the society were income and hence taxable. Cooperative society rules state that a society may charge up to Rs 25,000 in transfer fees. But, like Pancharatna, many societies question income tax on transfer fees.
Vinod Sampat, president of Cooperative Societies Residents, Users and Welfare Association, said about 50 per cent of registered housing societies in the city, especially the smaller ones, were not paying tax on such fees.
"It is still a big dispute. Unfortunately, the I-T department is not taking action," said Sampat.
Tax authorities said rulings by the Bombay High Court and the income-tax tribunal a few years ago that transfer fees were taxable had not made much difference to the attitude of societies.
Similar cases in the Madras and Calcutta high courts had resulted in rulings in favour of housing societies. This may have also kept hopes alive for societies in the city.
Now, with the tribunal again ruling in favour of the department, I-T officials have decided to move fast to recover tax from other housing societies. Notices have already been sent to some prominent housing societies in Powai, collectively demanding about Rs 1.5 crore.
Pancharatna, meanwhile, has decided to move the high court.
"We will go to the Supreme Court, if need be," said Naresh Mehta, secretary of the society .
He added that the tribunal order would force the society to increase the maintenance charge from Rs 4.5 per sq ft, which was much less than in other city societies as it operated on a no-profit, no-loss basis.
Mehta said that it was transfer fees that greatly contributed to the running of the society and allowed it to keep maintenance charges low, but the income tax on it would now upset the balance.
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