Co-operative housing society and the

concept of mutuality
One of the most complex concepts
in income tax act over the years
has been the understanding of
doctrine of mutuality. Diferent
people and organizations decipher
the doctrine as per their
understanding, which often lead to
confusion and possible law suits.
Let us try and take a look at the
core principles behind the doctrine
of mutuality. he working
mechanism of the principle of
mutuality rests on the basics that when a group of individuals pool in their
surplus income in a common fund of the underlying association, the amount
gets tax exemption as it is not regarded as personal income anymore.
Understanding Mutuality in Income Tax
!or example, if a group of people form an association and pool in funds which
are referred to as common fund for the working of the association, the
amount generated is no longer regarded as income of any one individual and
therefore not sub"ect to any income tax. here is however a set of three
basic conditions that each association needs to satisfy before they can claim
tax exemption using doctrine of mutuality.
!irstly all members of the group or association must be completely identi#ed
amid each other. $ny action of the contributing members of the association
needs to be in furtherance of the same and lastly no contributions must be
used for personal pro#teering or individual returns. %ence all associations
satisfying the above three criteria can be considered as exempted from tax
under the doctrine of mutuality.
What is a Concept of Mutuality for housing societies?
&oncept of mutuality is based on the fact that one cannot trade with oneself
and cannot make pro#t out of oneself. $ co'operative society is a mutual
association and surplus from the contributions from members is not an
income chargeable to tax. hus, surplus from the contribution after
deducting the housing society(s expenses are covered by the concept of
mutuality. )ometimes a housing society carries on some activities which are
mutual and some may not be mutual. hen, the &oncept of *utuality can be
considered only for those activities which are mutual. he contribution
collected from non'members are income chargeable to tax.
Overview if Taxation of Co-operative ousing !ocieties "C!#
)ince co'operative housing societies usually come under the umbrella of
doctrine of mutuality+ they are usually exempted from any income tax
liability. $ large number of co'operative housing societies therefore do not
bother to get a ,$- number. .hile there is no denying to the fact that vast
ma"ority of housing societies are exempted for income tax, there can be
various chargeable incomes for which the co'operative housing societies
need to pay tax and #le their / returns.
The income chargea$le to tax
/f the co'operative housing society earns interest on other income, the
interest income earned is fully taxable.
/f the rentals received are from non members of the society, the earnings
shall be fully taxable under the head income from house property.
%on occupancy charges& /n case a housing society charges non
occupancy charges from members, the earnings would come under the
income tax prerogative as the amount is received from members not staying
in the society premises. /n this case the contributor to the society fund does
not en"oy the amenities of the society as hence liable for income tax as per
law.
'ar(ing charges for non-mem$ers& $ny funds earned from parking
charges applicable to non members however would 0ualify as business
income of the co'operative housing society. he income is however open for
general deduction under section 12 p3453c5 up to 6s. 72,222 as per
the /ncome ax $ct of 89:8.
Tax exemption on the concept of mutuality
Contri$ution from mem$ers& *ost co'operative housing societies dwell
on earnings contributed by society members. he society in this case acts as
a collection agent collecting funds on behalf of its members and paying out
on various expenses of the society. %ence any surplus funds generated for
such co'operative housing societies fall under the de#nition of doctrine of
mutuality and exempted from income tax.
Interest charged $y society on outstanding dues& /n case the
co'operative housing society has earnings from interest made in any
co'operative banks, it is eligible for 822; tax deduction under )ection 12 ,
3d5 of the /ncome ax $ct.
)entals from use of open spaces * terrace received from
mem$ers& /n case the co'operative housing society earns rentals from use
of open spaces and terrace, the concluding point is if it receives the same
from members or non members. /n case the rentals received are from
members then there is no tax obligation under the doctrine of mutuality.
'ar(ing charges& !or parking charges earnings of co'operative housing
societies, any charges from members of the society are exempted from
income tax as they come under the principle of mutuality.
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