2019 (4) TMI 1780 - AT - Income Tax

Treating the interest income of society as interest income of the assessee - Corpus Fund collection - HELD THAT - As perused the orders of the Authorities below and the decision of the Coordinate Bench in the case of ACIT v. M/s. Evershine Builders Pvt. Ltd 2010 (2) TMI 1276 - ITAT MUMBAI find that the issue is squarely covered in favour of the assessee Corpus Fund collected by the assessee following the provisions of Maharashtra Ownership of Flats Act, 1963, is not the income of the assessee and accordingly we are inclined to uphold the finding of the ld. CIT(A) in deleting the same. The grounds taken by the revenue are therefore rejected. On a perusal of the order of the Tribunal, it can be observed that the corpus fund maintained by the builder in a separate account which belongs to the society cannot be the income of the assessee. Therefore, when the corpus fund itself cannot be treated as income of the assessee, the builder, in my view the interest accrued thereon also cannot be assessed in the hands of the builder. Thus, respectfully following the said decision, direct the Assessing Officer to delete the interest income assessed in the hands of the assessee and belong to Building Society. Grounds raised by the assessee are allowed.

Summary

Issues:
Appeal against treating interest income of society as assessee's income.

Analysis:
1. The appeal was filed against the order treating interest income of society as the assessee's income for the Assessment year 2012-13. The Assessing Officer found that the assessee received interest income from fixed deposits but did not account for it in the return of income. The assessee argued that the interest belonged to the society as part of the corpus fund and was not reflected in their books as it was handed over to the society. The Assessing Officer and Ld. CIT(A) disagreed, treating the interest income as the assessee's.

2. The assessee cited a similar case decided by the Tribunal where it was held that corpus fund belonging to the building society cannot be assessed in the builder's hands. Referring to the Maharashtra Ownership Flats Act, the assessee argued that the corpus fund and society's interest belonged solely to the society, not the assessee. The Ld. DR supported the lower authorities' decisions.

3. After considering the submissions and the Tribunal's previous decision, it was found that the corpus fund collected by the builder for the society cannot be treated as the builder's income. Therefore, the interest accrued on the corpus fund also cannot be assessed in the builder's hands. The Assessing Officer was directed to delete the interest income assessed in the assessee's hands, as it belonged to the Building Society. The appeal of the assessee was allowed based on this analysis.

4. The judgment highlighted the importance of distinguishing between the builder's income and the corpus fund belonging to the society. Following the precedent set by the Tribunal, it was concluded that the interest income accrued on the corpus fund should not be assessed in the builder's hands. The decision was made in favor of the assessee, emphasizing the legal distinction between the builder's income and the society's funds.