M/S. MARVEL VIVACITY CONDOMINIUM,,PUNE vs. INCOME-TAX OFFICER, WARD - 7(2),, PUNE

The assessee has raised the following grounds of appeal:- 1. On the facts and circumstances prevailing in the case and as per provisions of the law, it be held that the Ld. A.O. and CIT(A) erred in assessing interest income for computation of tax. Just and proper relief be granted to the appellant in that respect. 2. Without prejudice to Ground No.1, on facts and circumstances prevailing in the case and as per provisions of the Act, it be held that the Appellant is eligible to claim deduction of expenses incurred for earning interest income. The disallowance made by the Ld. A.O. and CIT(A) is erroneous and improper and contrary to the provisions of the Act. The income assessed by the Ld. A.O and upheld by CIT(A) to Rs.7,77,330/- be reduced to the returned income of Rs.30,270/-. In the alternative, the Appellant be allowed substantial relief from the disallowance.

The assessee is aggrieved by the order of CIT(A) in bringing interest income to tax.

Briefly, in the facts of the case, the assessee was housing society and overall it had shown loss from its business activity. However, out of deposits received from its members, the assessee had earned interest on FDRs with the banks. The contention of assessee before the Assessing Officer was that since there was overall loss and there was taxable income in the hands of assessee, the interest earned on FDRs be set off against business losses. The Assessing Officer however, did not agree with the claim of assessee and held that interest received from FDRs was not exempt on the basis of principle of mutuality and was added in the hands of assessee.

The CIT(A) held that interest income was not exempt in the hands of assessee and principle of mutuality was not applicable, in turn, relying on the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Common Effluent Treatment Plant (Thane Belapur) Association reported in 328 ITR 362 (Bom).

The assessee is in appeal against the order of CIT(A).

The learned Authorized Representative for the assessee pointed out that the issue raised in the present appeal is squarely covered by the ratio laid down by the Hon’ble High Court of Punjab & Haryana in CIT Vs. Maruti Employees Co-Operative House Building Society Ltd. (2010) 320 ITR 254 (P&H), which is also case of housing society, wherein the Hon’ble High Court had decided the issue in favour of assessee.

The learned Departmental Representative for the Revenue on the other hand, placed reliance on the order of CIT(A) and the order of Hon’ble Bombay High Court in CIT Vs. Common Effluent Treatment Plant (Thane Belapur) Association (supra).

The learned Authorized Representative for the assessee in rejoinder pointed out that the case before the Hon’ble Bombay High Court, where both the incomes of assessee were taxable and hence, the decision. He stressed that the issue stands covered by the ratio laid down by the Hon’ble High Court of Punjab & Haryana in CIT Vs. Maruti Employees Co-Operative House Building Society Ltd. (supra).

We have heard the rival contentions and perused the record. The limited issue which arises in the present appeal is where the assessee has shown overall loss of ₹ 11,22,908/- and in such circumstances, whether interest earned on FDRs of ₹ 7,77,226/- is separately assessable in the hands of

The Hon’ble High Court of Punjab & Haryana in CIT Vs. Maruti Employees Co-Operative House Building Society Ltd. (supra) has held as under:- “Held that, there was no merit in the revenue’s contention that the activity of maintenance was not covered under the objects and reasons of the respondent-assessee, which was a registered co-operative society and as such expenses incurred towards an activity beyond the objects and reasons of the respondent-assessee were per se not permissible. The respondent-assessee had drawn income on account of interest based on deposits made by the members of the respondent-assessee for maintenance of their houses and as such liability of the respondent-assessee to pay tax on the same could not be doubted, but since the activity on which the aforesaid interest income was earned by the respondent-assessee had per se some expenses connected therewith as a matter of obligation at the hands of the respondent-assessee to its members who had made deposits, the deduction to the respondent- assessee on account of expenses incurred towards maintenance of houses was fully justified.”

Since the assessee before us is housing society and the issue before the Hon’ble High Court of Punjab & Haryana in CIT Vs. Maruti Employees Co- Operative House Building Society Ltd. (supra) was in respect of housing society, applying the same parity of reasoning, we hold that interest income is

In the result, appeal of assessee is allowed.