ITAT Rules Maintenance Charges and Property Tax Recoveries Collected from Members Are Not Taxable

The ITAT Mumbai allowed the appeal filed by Nain Krupa Premises Co-operative Society Ltd. for Assessment Year 2018-19 and held that the surplus arising from member contributions could not be taxed in view of the doctrine of mutuality. The appeal was directed against the order dated January 20, 2026 which had upheld the adjustments made by the CPC while processing the return under Section 143(1) of the Income Tax Act. Nain Krupa Premises Co-operative Society Ltd, registered under the Maharashtra Co-operative Societies Act.

It had collected maintenance charges, property tax recoveries and other incidental charges from its members aggregating to Rs.2,166,208. After meeting all these expenses, there was a surplus. In the return of income filed on 31 October 2018, the assessee contended that the said surplus was not liable to tax, as it was utilized only for the collective benefit of the member. While processing the return under Section 143(1) of the Income Tax Act, the Central Processing Centre (CPC) treated the surplus as taxable income and made an adjustment accordingly. The CPC also levied a fee under Section 234F on the basis that the return had been filed after the prescribed due date. Aggrieved by the said adjustment and levy of fee, the assessee filed an appeal before the CIT(A).

However, the CIT(A) confirmed the action of the CPC. According to him, the assessee had failed to establish applicability of the doctrine of mutuality by furnishing adequate supporting material. The CIT(A) further observed that the society had not obtained an audit of its accounts under the Maharashtra Co-operative Societies Act and, therefore, the due date applicable for filing the return was 31.08.2018. Consequently, the levy of fee under section 234F was also upheld.

Before the Tribunal, the assessee submitted that the impugned order was based on an incorrect understanding of the facts. Referring to the audit report and audited financial statements, the assessee submitted that its accounts had been duly audited under the Maharashtra Co-operative Societies Act on July 18, 2018. Accordingly, the due date for filing the return was October 31, 2018, and since the return was filed on that very date, no fee under Section 234F could be levied.

The assessee further submitted that the receipts in question represented maintenance charges, property tax recoveries and other contributions received from members of the society for meeting common obligations and common expenditure and were utilised exclusively for maintenance, repairs, administration and upkeep of the premises occupied by the members. Any surplus remaining after meeting such expenses merely formed part of the common fund of the members and could not be treated as taxable income. In support of its claim, the assessee relied on the Supreme Court’s decision in ITO v. Venkatesh Premises Co-operative Society Ltd (402 ITR 670).

The Departmental Representative supported the orders passed by the lower authorities, contending that the assessee had failed to demonstrate that the essential conditions for invoking the doctrine of mutuality were satisfied. Accordingly, it was argued that the adjustment made by the CPC while processing the return under Section 143(1) was justified and should be upheld.

After examining the record and considering the submissions of both parties, the tribunal held that the levy of fee under Section 234F was based on an incorrect factual premise. It noted that the assessee, being a co-operative society governed by the Maharashtra Co-operative Societies Act, was required to get its accounts audited and had duly obtained the audit report on July 18, 2018. Accordingly, the applicable due date for filing the return was October 31, 2018. Since the assessee had filed its return on October 31, 2018, there was no delay in filing the return. The Tribunal therefore held that the fee levied under Section 234F was unsustainable and directed its deletion.

The Tribunal accepted the assessee’s contentions and observed that the receipts had been collected exclusively from members and utilised for maintenance, repairs, administration, and other common purposes connected with the functioning of the society. It further noted that the Revenue had neither alleged any commercial dealings with non-members nor shown that the funds were used for any purpose other than the collective benefit of members.

Relying on the Supreme Court’s ruling in ITO v. Venkatesh Premises Co-operative Society Ltd. (402 ITR 670), the ITAT held that the doctrine of mutuality squarely applied to the facts of the case. The Tribunal emphasised that a surplus generated from member contributions does not become taxable merely because receipts exceed expenditure and that such surplus remains part of the common fund available for the benefit of members.

Accordingly, the ITAT held that the surplus arising from the collections of Rs 21,66,208 received from members was exempt from tax under the doctrine of mutuality and directed deletion of the adjustment made under Section 143(1). The Tribunal also held that, since the audit had been completed on July 18, 2018, and the return was filed on October 31, 2018, there was no delay in filing the return. Consequently, the fee levied under Section 234F was also deleted. The appeal was allowed in favour of the assessee.