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Facts
The assessee, a co-operative housing society, filed its return for AY 2020-21. The Assessing Officer made an addition of Rs. 25,36,210/- for interest income on Fixed Deposits, rejecting the applicability of the mutuality principle and the set-off of maintenance expenses. The Ld. CIT(A) partly allowed the appeal but upheld the addition. The assessee filed an appeal to the ITAT with a delay of 541 days, which was condoned.
Held
The Tribunal, following its own precedent for AY 2018-19 in the assessee's case, held that interest income from Fixed Deposits was eligible for set-off against maintenance expenses under the principle of mutuality. The surplus amount, after set-off, was already offered for tax. Therefore, the addition made by the Assessing Officer was deleted.
Key Issues
Whether the mutuality principle applies to interest income earned from fixed deposits by a co-operative housing society and whether such income can be set-off against maintenance expenses.
Sections Cited
143(3), 144A, 144B, 2(24), 2(24)(vii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA PRASAD SINHA
O R D E R PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER:
This appeal is filed by the assessee against the order of National Faceless Appeal Centre (NFAC) [hereinafter referred as ‘CIT(A)’] dated 13.10.2023 for the Assessment Year (A.Y.) 2020-21 in the proceedings under Section 143(3) r.w.s. 144A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
2. There was a delay of 541 days in filing of this appeal. The assessee has filed an affidavit signed by Sh. Pathik Mehta, Secretary of the Assessment Year: 2020-21 The Venus Parkland Co-operative Housing Service Society Ltd. vs ITO Page 2 of 7 assessee society. It has been explained that the assessee had filed appeal for the A.Y. 2018-19 and A.Y. 2020-21 with the Ld. CIT(A), NFAC, the orders for which were passed on the same day i.e. 13.10.2023. However, the assessee had received only one appellate order for A.Y. 2018-19 through e-mail and no order for A.Y. 2020-21 was received. As a result, the assessee was not aware of the order of the Ld. CIT(A) for the A.Y. 2020-21. It was only through the adjustment of refund by the Department with the demand for A.Y. 2020-21 that the disposal of the case by the Ld. CIT(A) for A.Y. 2020-21 was subsequently noticed. As a result, the present appeal was filed with a delay of 541 days. It has further been explained that the assessee had filed the appeal for A.Y. 2018-19, the order of the Ld. CIT(A) for which was received, with ITAT vide in time. The assessee had submitted that the delay in filing the present appeal was not intentional and solely due to non- receipt of the order of the Ld. CIT(A). On verification, it transpired that the assessee had filed the appeal for the A.Y. 2018-19 which was adjudicated by this Tribunal vide order in dated 07.08.2024. Considering this fact as well as the explanation of the assessee, the delay in filing the present appeal is condoned.
The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2020-21 on 31.12.2020 at a total income of Rs.14,58,480/-. The assessee is a Co-operative Society formed for the purpose of maintenance and upkeep of the residential apartment Venus Parkland. In the course of assessment, the Assessing Officer had made addition of Rs.25,36,210/- in respect of interest received on Fixed Deposit (FD) for the reason that this income was not within the ambit of mutuality principle and the assessee had wrongly set-off the maintenance expense against this income. The assessment was completed under Section 143(3) r.w.s. 144B of the Act on 16.09.2022 at total income of Rs.39,94,690/-.
Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was partly allowed.
Now the assessee is in second appeal before us. The following grounds have been taken in this appeal: -
“1. The Ld. CIT (A)-NFAC erred on facts and in law in dismissing appeal of the appellant without appreciating that income of the appellant in the year under consideration was Rs.14,58,480/- only against which Assessing Officer determined income at Rs.39,94,690/- by ignoring the 'real income’ which alone is liable to be taxed, even if such income is not considered to be exempt/deductible under mutuality.
The Ld. CIT (A)-NFAC erred on facts and in law in not appreciating that share of each member of co-operative Society is specific and identifiable and, therefore, contributions received from the members and consequential income thereon is admissible for exemption under the concept of mutuality.
3. The Ld. CIT(A)-NFAC erred on facts and in law in not appreciating the fact that major part of interest earned on FDRs has been utilized to incur repairs and maintenance in the year under consideration itself.
4. The Ld. CIT(A)-NFAC erred on facts and in law in confirming addition of Rs. 25,36,210/- being interest earned on fixed deposits made with banks by treating the same separate from the repairs and maintenance activity of appellant Society for which it has been formed by its members and without appreciating that income returned was computed after taking into account the interest earned on FDRs.”
Assessment Year: 2020-21 The Venus Parkland Co-operative Housing Service Society Ltd. vs ITO Page 4 of 7 6. Shri Sakar Sharma, Ld. AR of the assessee, submitted that the Assessing Officer had wrongly made addition for interest income on FD by ignoring the real income which alone was liable to be taxed. He submitted that the share of each member of the Society is specific and identifiable in the property of the Society and, therefore, income earned by the Society is entitled to exemption applying the principles of mutuality. He explained that the interest on FDRs was not refundable to members and cannot be claimed by its members under any circumstances. According to the Ld. Counsel, the basic purpose of the assessee Co- operative Society is to maintain the property of the members of the Society for which the assessee Society derived funds from various sources. He explained that the income earned by way of interest on bank FDRs was applied to maintain the property of Venus Parkland and the surplus of Rs.14,58,480/- as per Profit & Loss account was already offered for tax. Under the circumstances, there was no justice for disallowing the interest on Bank FDRs separately. He further submitted that the issue of set-off of maintenance expenses of the Society with interest on FDR was already adjudicated by this Tribunal in A.Y. 2018-19 and was decided in favour of the assessee as reported in 166 taxmann.com 673 (Ahmedabad Tribunal).
Per contra, Shri Suresh Chand Meena, the Ld. Sr. DR supported the order of the Ld. CIT(A). He explained that the Ld. CIT(A) had already given relief to the extent of Rs.14,58,478/- i.e. income declared by the assessee and directed to tax only the balance amount of Rs.10,77,732/-.
We have considered the rival submissions. The issue of set-off of interest on Fixed Deposits with maintenance account of the Society was adjudicated by the Co-ordinate bench of this tribunal in assessee’s own case in A.Y. 2018-19 and the following finding was given in this regard: -
“7. We have given our thoughtful consideration and perused the materials available on record. It is seen from Page No. 7 of the Paper Book namely Profit and Loss account for the year under consideration, income earned by way of interest on bank Fixed Deposits as well as Rent Receipt charges on Community Hall Charges, Festival Charges Income, Other Misc. Income have been applied for the maintenance of the property namely Electrical Expenses, House Keeping Charges, Repair & Maintenance of Bore well, Lift Maintenance, Road Repairing Expenses, Repairing and Maintenance of Plumbing works, Security Charges, Water Tank Cleaning expenses, etc. for the residential property of 'Venus Parkland'. Thus the net surplus shown by the assessee is Rs.4,64,486/-. Thus the income earned from various sources have been spent for the maintenance and up-keepment of the residential premises of 'Venus Parkland'. Thus the interest income earned from fixed deposits is directly linked with the activity of maintenance of the Society. Further this interest income certainly reducing the burden of contribution for maintenance by the Member of the Society. Therefore, we do not find any justification by the Lower Authorities denying the benefit to the assessee simply on the ground that the assessee shown the Bank interest income under "other sources". Therefore the assessee Society has rightly set off the interest income against the income of the assessee Society. Thus the addition made on this account is liable to be deleted. This view of ours is supported by the judgment of the Apex Court in the case of Venkatesh Premises Co-operative Society Ltd. (cited supra) wherein it was held as follows: "...14. The doctrine of mutuality, based on common law principles, is premised on the theory that a person cannot make a profit from himself. An amount received from oneself, therefore, cannot be regarded as income and taxable. Section 2(24) of the Income Tax Act defines taxable income. The income of a co-operative society from business is taxable under Section 2(24)(vii) and will stand excluded from the principle of mutuality. The essence of the principle of mutuality lies in the commonality of the contributors and the participants who are also the beneficiaries. The contributors to the common fund must be entitled to participate in the surplus and the participators in the surplus are contributors to the common fund. The law envisages a complete identity between the contributors and the participants in this sense. The principle postulates that what is returned is contributed by a member. Any surplus in the common fund shall therefore not constitute income but will only be an increase in the common fund meant to meet sudden eventualities. A common feature of mutual organizations in general can be stated to be that the participants usually do not have property rights to their share in the common fund, nor can they sell their share. Cessation from membership would result in the loss of right to participate without receiving a financial benefit from the cessation of the membership."
Assessment Year: 2020-21 The Venus Parkland Co-operative Housing Service Society Ltd. vs ITO Page 6 of 7 7.1. Respectfully following the judicial precedents, the Ground Nos. 1,2,4,5 and 6 raised by the assessee are allowed in favour of the assessee. Therefore the addition on account of interest income earned on fixed deposits from Banks and rental income earned by the Society are eligible to set off of maintenance expenses.”
8.1 It was categorically held in that year that the interest income earned on FD was eligible for set-off with maintenance expenses incurred by the assessee. Further, the surplus amount remaining with the assessee after set-off of the expenses was already offered for tax by the assessee in its return of income. Therefore, no addition for interest on FDR as made by the Assessing Officer or for the surplus amount as upheld by the Ld. CIT(A), was called for. Accordingly, the entire addition of Rs.25,36,210/- as made by the Assessing Officer in respect of interest income on FD is deleted. The grounds as taken by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on this 10th September, 2025.