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Facts
The assessee, a flat residents welfare association, filed a Nil income return. The AO brought the interest income of Rs. 7,88,673/- to tax under 'Income from other Sources' by rejecting claimed expenditure, citing the concept of mutuality, despite the association incurring an overall net loss of Rs. 3,48,510/- for the year.
Held
The Tribunal found that the lower authorities erred in separately taxing the interest income when the assessee had not earned any surplus and incurred a net loss even after considering the interest income. The Tribunal set aside the CIT(A)'s order and directed the AO to delete the additions and recompute the income as per the return filed by the assessee.
Key Issues
Whether the interest income of a welfare association can be separately taxed under 'Income from other Sources' by disallowing expenditures based on the mutuality concept, even when the association incurs an overall net loss for the assessment year.
Sections Cited
70(1), 143(1), 143(3), 57(iii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S. R. RAGHUNATHA
अपीलाथ� की ओर से/Appellant by : Mr. B.Ramakrishnan, F.C.A. ��थ� की ओर से/Respondent by : Ms. Anitha, Addl. CIT सुनवाई की तारीख/Date of Hearing : 22.04.2025 घोषणा की तारीख/Date of Pronouncement : 28.04.2025 आदेश /O R D E R PER S. R. RAGHUNATHA, ACCOUNTANT MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeal), Addl/JCIT(A), Agra dated 30.12.2024 for the assessment year 2017-18.
The assessee has raised the following grounds of appeal:- (a) The Order of the Learned Addl. /Joint Commissioner of Income Tax (Appeals) is contrary to the law, facts and circumstances of the case. (b) For that the Learned Additional/Joint commissioner of Income Tax (Appeals) has erred in law and on facts by failing to apply
:-2-: ITA. No:480/Chny/2025 the provisions of Section 70(1) of the Income Tax Act, 1961, which explicitly permits the set-off of losses from one source against income from another source under the same head of income. (c) For that the Learned Additional/Joint Commissioner of Income Tax (Appeals) erred in not allowing to set off of losses from one source under the head income from other sources amounting to Rs.11,37,183/- against another source under the same head of income being the interest income of Rs.7,88,673/-.
The brief facts of the case are that the assessee is a flat residents welfare association. The assessee filed its return of Income for the A.Y. 2017- 18 on 03.11.2017 admitting Nil Total Income. The return of income was processed u/s. 143(1) of the Act. Subsequently the case was selected for limited scrutiny under CASS for verification of issue (i) Deduction against income from other sources and statutory notices were issued. The assessee filed the Income and Expenditure account for the financial year 2016-17 of the association showing the net loss of Rs.3,48,510/-, comprising of income of Rs.7,88,673/- on account of interest earned. However, the AO passed an order u/s.143(3) of the Act dated 17.10.2019 by bringing interest income of Rs.7,88,673/- to tax under ‘Income from other Sources’ by rejecting the expenditure claimed against such receipts u/s.57(iii) of the Act as the concept of mutuality.
Aggrieved by the order of the AO, the assessee preferred an appeal before the ld.CIT(A), NFAC.
The ld.AR for the assessee submitted that assessee has not claimed any deductions on account of concept of mutuality and the total collections of the association during the year was Rs.22,95,973/- against a total expenditure
:-3-: ITA. No:480/Chny/2025 of Rs.26,44,483/- and thereby incurring net loss of Rs.3,48,510/-. In support of the above the assessee filed audited financials as on 31.03.2016 as well as 31.03.2017 along with the entire set of Form ITR-5 (Return of Income) for the A.Y.2017-18, which were produced before the lower authorities. Hence, the ld.CIT(A) has erred by treating the interest income of Rs.7,88,673/- included in the total collections of Rs.22,95,973/- which is not the surplus earned by the association, to tax it under the head income from other sources. Therefore, the ld.AR prayed for deleting the same by setting aside the order of the CIT(A).
Per contra the ld.DR supported the orders of the lower authorities.
We have heard both the parties perused the material available on record, gone through the orders of the lower authorities. Admittedly the assessee is a Flat Owners Association registered under Tamil Nadu Societies Registration Act 1975. The assessee has filed its return of income regularly since its inception. We find that the assessee has incurred net loss during the year to tune of Rs.3,48,510/- after considering the interest receipt from the bank to the tune of Rs.7,88,673/-. Further, the association has collected the contributions from the members to the tune of Rs.15,07,300/- along with the interest income of Rs.7,88,673/- totaling to Rs.22,95,973/- and incurred total expenditure of Rs.26,44,483/- resulting in net loss of Rs.3,48,510/- during the assessment year 2017-18. Since the assessee has not earned any surplus during the impugned assessment year even after considering the interest receipt of Rs.7,88,673/-, we are of the view that the lower authorities have erred considering the interest income separately as income from other
:-4-: ITA. No:480/Chny/2025 sources. Therefore, in the present facts and circumstances of the case, we set aside the order of the ld.CIT(A) and direct the AO to delete the additions made and recompute the income as per return of income filed by the assessee by allowing the grounds of appeal raised by the assessee.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 28th April, 2025 at Chennai.