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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH
Before: Shri T.R. Senthil Kumar & Shri Narendra Prasad Sinha
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH Before: Shri T.R. Senthil Kumar, Judicial Member And Shri Narendra Prasad Sinha, Accountant Member
ITA No. 1039/Ahd/2023 Assessment Year 2018-19 The Venus Parkland Co-Op. The Income Tax Housing Service Society Ltd., Officer, Office of Society Near Vejalpur Vs Ward-3(3)(5), Police Chowky, Vejalpur Road, Ahmedabad Ahmedabad-380051 Gujarat, India PAN: AACAT5859K (Appellant) (Respondent)
Assessee Represented: Shri Sakar Sharma, A.R. Revenue Represented: Smt. Trupti Patel, Sr.D.R. Date of hearing : 08-05-2024 Date of pronouncement : 07-08-2024 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:-
This appeal is filed by the Assessee as against appellate order dated 13.10.2023 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “CIT(A)”), arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2018-19.
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The brief facts of the case are that the assessee is Co-operative Housing Service Society formed for the purpose of maintenance and upkeepment of the residential apartment ‘Venus Parkland’. For the Asst. Year 2018-19, assessee filed its Return of Income on 23.07.2018 declaring Nil Income. The return was taken up for scrutiny assessment and made addition of Rs.24,71,127/- namely fixed deposit interest income of Rs.24,31,919/-, Rental Income of Rs.35,041/- and Interest on Income Tax refund of Rs.4,167/-.
Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A). The Ld. CIT(A) held that the assessee utilizes its surplus fund for investment in Fixed Deposits with bank. The interest that is generated on the investment of such fund is not an income, which is received from the Members of the assessee society but from third party such as banks with whom funds are invested. Thus the above transaction is covered by Supreme Court Judgment in the case of Secundrabad Club and thereby confirmed the addition made by the Assessing Officer and dismissed the assessee’s appeal. Further the assessee is receiving income in the form of Maintenance Income through Cash Receipt and Bank Receipt which was utilized to serve the various common services such as lift services, cleaning service, to the members of society. The surplus fund left is invested in commercial banks in the form of fixed deposit for earning interest income. The same is evident from the ITR, wherein assessee has declared INTEREST ON FD WITH SAVING BANK A/C of Rs.24,31,919/- and shown as income from other sources. It is seen that the same amount of income was utilized in claiming expenses amounting to Rs.1,36,99,099/- under
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section 57 of the Income Tax Act. The interest income earned by the assessee society has been shown under the head “Income from Other Sources” under Section 56 of the Act, and against this income, as per the provisions of section 57 of the Act, deduction of only those expenses are allowable, which are directly linked to the earning of the said income. In the instant case of the assessee society, no expenditure was spent wholly and exclusively for purpose of earning such interest income, hence, expenses/deduction claimed by the assessee are not allowable to the extent of the above heads of income.
3.1. Regarding assessee’s submission on not given deduction u/s 80P of Rs.50,000/-, the Ld. CIT(A) held that considering the facts of the case and position of law as contained in section 80P(2)(c), since the assessee had shown income under the head 'income from other source' is not entitled to claim deduction amounting to Rs.50,000/- u/s.80P(2)(c)(ii) and the ground of appeal is dismissed. Thus the disallowance of expenditure claimed by the assessee as per the provisions of section 57 of the Act, against interest income earned from FD as made in the assessment order was confirmed by the Ld. CIT(A).
Aggrieved against the same, the assessee is in appeal before us raising the following Grounds of Appeal:
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.4,64,486/- only against which Assessing Officer determined income at Rs.24,71,130/- by ignoring the 'real income'
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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.
The Ld. CIT (A)-NFAC erred on facts and in law in not granting deduction u/s. 80P(2)(c)(ii) of Rs.50,000/- even though appellant is a registered co-operative society citing technicalities.
The Ld. CIT(A)-NFAC erred on facts and in law in confirming addition of Rs.24,31,919/- 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.
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.
The Ld. CIT(A)-NFAC erred on facts and in law in confirming addition of Rs.35,041/- being rent received from the members without appreciating that said rent is not assessable to tax applying principles of mutuality and the same forms part of net income of Rs.4,64,486/-.
The Ld. CIT(A)-NFAC erred on facts and in law in confirming addition of Rs.4,167/- being interest on income-tax refund without justifiable reasons.
During the course of hearing, Ld. Counsel Shri Sakar Sharma appearing for the assessee explained as to why it has raised multiple grounds despite addition being made under the three heads. The Ld. Counsel for the assessee referred to the Page No. 7 of Paper Book with reference to Ground No. 1 and submitted that the income earned by the assessee in the year under consideration stands at Rs. 4,64,486/- only and therefore, income assessed at Rs. 24,71,130/- vide para 4.10 & 5 of the assessment order is not justified. According to the assessee, the A.O. ought to have
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assessed income applying principles of real income theory. The income under any circumstances ought not to have assessed on and above Rs.4,64,486/- in the hands of the assessee qua assessment year under reference. In relation to Ground No. 2 Ld. Counsel submitted that share of the 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 Principles of Mutuality. Ld. Counsel further submitted that the surplus earned on account of interest on FDRs would not be entitle to exemption under the concept of mutuality, as this amount is not refundable to the member under any circumstances and cannot be claimed by its members. By referring to Section 80P (2)(c)(ii), assessee contended that while assessing income of the assessee, the A.O. ought to have granted standard deduction of Rs. 50,000/- in terms of provisions of section 80P(2) (c) (ii) of the Act which the Ld. A.O. has not allowed and for this purpose, assessee referred to the Ground No. 3 under which said relief is sought. Ld. Counsel by referring to Page 7 of Paper Book contended that the basic purpose of assessee co-op society is to maintain the property of the members of the Society, for which assessee Society derives funds from various sources. Even income earned by way of interest on bank FDRs, as well as rent received has been applied to maintain the property of 'Venus Parkland' which is evident from the profit and loss account and only net surplus of Rs.4,64,486/- remained and rest of the amounts earned have been spent to meet maintenance expenses. Thus the Ld. Counsel submitted that there is no justification in taxing entire amount of interest earned on Bank FDRs, since the earning of interest on bank FDRs is directly
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linked with the activity of maintenance and cannot be considered separate activity of the Society and funds from which FDRs have been made by the Society which were contributed by the members, so that maintenance could be done from the interest income and there will be lessor recurring burden of contribution for maintenance by the members of the Society.
5.1. In support of the contention that interest earned on Bank FDRs is entitled to be set off against the maintenance expenses of the society, reliance was placed on the following decisions:
(A) Gumarg Association & Anr vs ITO [2004] 090 TTJ 0184 (Ahd) (B) CIT vs Manekbaug Co-op Housing Society Ltd [2012] 22 taxmann.com 220 (Guj) 5.2. Regarding Ground No. 6 submitted that rental income earned of Rs. 35,041/- is eligible for set off against maintenance expenses. For this purpose reference was made to the ruling of Hon'ble Supreme Court in the case of ITO vs Venkatesh Premises Co- operative Society Ltd [2018] 402 ITR 670 (SC). Regarding Ground No. 7 namely the addition made of Rs. 4,167/- on account of interest earned on income-tax refund, the same was NOT PRESSED as said interest income was not recorded in the books of the society.
Per contra, the Ld. Sr. D.R. Smt. Trupti Patel appearing for the Revenue supported the order passed by the Lower Authorities and requested to uphold the same.
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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:
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“…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.”
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.
Regarding Ground No. 3 namely not granting standard deduction of Rs.50,000/- u/s. 80P(2)(c)(ii) of the Act. Since the assessee being a housing co-operative society shown net surplus of Rs.4,64,486/- in its Profit and Loss account after netting out all the maintenance expenses, the assessee is eligible for deduction u/s. 80P(2)(c)(ii) of the Act and the Ld. A.O. is directed to allow the same. Thus this Ground No. 3 is allowed in favour of the assessee.
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Regarding Ground No. 7 namely Income Tax Refund, the same is not pressed, therefore this ground is dismissed.
In the result, the appeal filed by the Assessee is partly allowed.
Order pronounced in the open court on 07-08-2024
Sd/- Sd/- (NARENDRA PRASAD SINHA) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 07/08/2024 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद