No service tax on maintenance charges for Mumbai Housing Societies
After a long period of uncertainty, a tax tribunal has ruled that all housing societies located in Mumbai do not need to pay service tax on any maintenance charges. Housing societies have been arguing in the past that since they provided services to itself (Concept of mutuality) which could not be subject to service tax due to the principle of mutuality, they must be excused from the service tax bracket. Now with the tribunal ruling in their favor, residents and housing societies can finally feel a sigh of relief.
This ruling made by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) means that RWA’s will not require payment of any service tax from the charges they collect from their members each year.
Principal of Mutuality to the Rescue: In Mumbai as per the tradition, the residents welfare association or RWA forms the underlying housing society comprises of members having residential or commercial property in the society. The society collects charges from each member depending on their owner of property and uses the funds for payment of various maintenance expenses like lifts maintenance, security, repairs and other reimbursements. The tax tribunal ruling now makes it clear that since RWAs are essentially providing taxable “club or association services”, they are not required to pay up any service tax on the maintenance charge.
The Positive Fallout of Tax Tribunal Ruling: For the property owners in some of the expensive and elite housing societies, the ruling can mean substantial savings they were earlier paying in the name of service tax. From some posh societies the figure runs in several Lakhs of Rupees for both commercial and residential property owners. Even from the societies located in not to elite areas, the savings each individual society member makes can be useful to fight the inflation menace instead or invested as per the personal needs of the society member.
The Road Ahead: The CESTAT decision is being hailed by various residential housing societies as it is the first of its kind for the western zone. The judgment based on the principle of mutuality where society provided services to itself which could not be subject to service tax will however need a nod of supreme court bench before RWA’s can finally sense a closure to this long drawn battle.
