09.06.2022: GST payable on receipt of gratuitous payment from the outgoing member: Maharashtra AAR

The Maharashtra Authority of Advance Ruling (AAR) in the case Monalisa Co-Operative Housing Society Limited vide Order No. GST-ARA-30/2020-21/B-71 dated 31.05.2022, ruled that GST is payable on receipt of gratuitous payment from outgoing members.

The applicant is a co-operative housing society registered under the Maharashtra Co-operative Housing Society Act (MCHS Act) having 48 flats which charges its members maintenance charges as per flat towards maintenance and upkeep of its premises.

When there is a transfer of a flat, the outgoing member makes a gratuitous and voluntary payment to the society. It does not have any implications on the outgoing formalities to be completed as per the MCHS Act. The applicant stated that the contribution made is entirely voluntary and is not at all a consideration received in lieu of services provided by the applicant.

The applicant collected funds from its members for future major repairs and renovation of the premises. The funds will not be used right away. The amount will only be utilized once the applicant finalizes the bids received for the repairs to be carried out.

The applicant has sought an advance ruling on the issue of whether the receipt of a gratuitous payment from an outgoing member for the time he has resided in the society is taxable under the CGST Act, 2017. 

The applicant has submitted that whenever there is a transfer of a flat, the outgoing member makes a gratuitous payment to the applicant society, which does not have any implications or bearing on the outgoing formalities to be completed. The gratuitous contribution is voluntarily made by the outgoing member and is not at all a consideration received in lieu of services provided by the applicant, therefore the amount received is not liable to GST.

The AAR ruled that “consideration” includes any payment made in money, since the payment was made towards the major repair funds of the society. It was clear that the payment was for the inducement of the supply of goods or services or both, either by the recipient if he continues to be a member, or by any other person.

The AAR relied on the decision of the High Court in the case of M/s MP Finance Group CC (In Liquidation) v. C SARS, in which one important legal proposition was explained. It was ruled that income received by a taxpayer from illegal gains would be taxable in the hands of the taxpayer. Thus, though the collection of charges by society might be illegal under some other law, since it is covered by the scope of supply and other ingredients of the GST levy, it is taxable.

 

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