12.04.2023: Receipt of ‘Voluntary and gratuitous’ payment from an outgoing member of housing society is taxable under GST law: Maharashtra AAAR

The Maharashtra Appellant Authority of Advance Ruling (AAAR) in the case of M/S. Monalisa Co-operative Housing Society Limited vide Order No. MAH/AAAR/DS-RM/18/2022-23 dated 23.03.2023, has upheld the decision of Maharashtra Authority of Advance Rulings (AAR) that ‘voluntary and gratuitous’ payment received from the outgoing member of a housing cooperative society is nothing but Advance amounts paid to the society for services carried out or to be carried out for the members of the Society and is therefore taxable as per the GST Laws.

In this case, the appellant is a co-operative housing society registered under the Maharashtra Co-operative Housing Society Act (MCHS Act)  having 48 Flats which provides services to its members and charges GST on maintenance charges recovered from its Members.

The Appellant submitted that when there is a transfer of a flat, the outgoing member makes a gratuitous & voluntary payment to the society. The contribution  made is entirely voluntary and is not at all a consideration received in lieu of services provided by the Appellant. For this, the appellant contended that as per Sec 7 of the CGST Act, 2017, supply should be made in the course of furtherance of business. A gratuitous payment by an outgoing member cannot be regarded as a consideration but rather in substance is a gift to the society as the member is paying on his own volition. Also, such payment cannot be treated as consideration as there is no business transacted and the person acts on his own volition in its entirety.

The appellant sought ruling on “Whether the receipt of a gratuitous payment from an outgoing member for the time he has resided in the society be taxable under the CGST Act, 2017 as there is no corresponding service being provided separately by the tax payer society”.

The Maharashtra AAR, referred the bye-laws of the ‘Cooperative Housing Societies’ in Maharashtra and observed that no additional amount towards donation or contribution to any other funds or under any other pretext shall be recovered from transferor or transferee by the housing society. Also, funds can be raised by voluntary donations but not from Transferor or Transferee. Therefore, the amounts received by the society from the Transferor cannot be considered as voluntary donations.

Further, the MAAR observed that the contributions are received from the outgoing members who have been members of the society in the past and, have received services from the society as envisaged under the GST Act. Thus, it can be said that, Payment from an outgoing member to a society is a payment made for the services rendered by society to the outgoing member during his stay as a member in society. As outgoing member is satisfied with the quality of services received by him and provided by society during his stay as a member in society. Hence, it is a consideration received to the society against satisfaction of the said member on supply of services received from the society. This is akin to the service charges levied by restaurants on which GST is collected. 

The MAAR held that the appellant is trying to give a colour of ‘voluntary and gratuitous’ payment for the amount received from a Transferor/Outgoing member which is collected and will be used for carrying out Major Repairs in future as is evident from the Affidavits submitted by the outgoing member.  Accounting entries in the books of accounts also supports the view taken by MAAR.

The Maharashtra AAAR agreed upon the observations of MAAR, and upheld the decision of Maharashtra AAR.

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