2019 (10) TMI 648 - AT - Income Tax

Claim of deduction of interest paid on interest bearing maintenance security deposit to the members - HELD THAT - Identical issues had come up before the Tribunal in the case of sister RWA of the assessee, namely, Belaire Condominium Association 2018 (5) TMI 240 - ITAT DELHI the interest expenditure has been incurred wholly and exclusively for earning such interest income on Bank deposit. As per the Apartment buyers agreement there is an obligation on every buyer to make security deposit and there is corresponding obligation on the society to pay interest on such deposit. Thus, the contention of the learned AR that this interest expenditure has not been incurred to earn interest income is incorrect. The assessee society has paid interest each one after deducting tax at source. Thus, it is not a case of exemption on the principle of mutuality. Such interest paid by the assessee society is taxable in the hands of the Apartment owner. Interest expenditure is to be set off against the interest income. As regards the AO s contention that interest paid to member is not eligible deduction in the case of AOP under Section 40 (ba), we have perused the said Section. This clause excludes registered society from its applicability. Accordingly, this clause will not be applicable to the assessee society. Moreover, as rightly contended by the learned AR Section 40 (ba) is applicable while computing business income. This clause is not applicable while computing income from other sources. There is no prohibition in Section 57 (iii) under which deduction of interest is eligible to the assessee society. Accordingly, we direct the AO to delete the addition made on account of the interest. - Decided in favour of assessee

Summary

Issues:
1. Addition of Interest Income paid on Interest Bearing Maintenance Security IBMS
2. Addition on account of depreciation

Analysis:
1. Addition of Interest Income paid on Interest Bearing Maintenance Security IBMS:
- The appeal was against the disallowance of interest paid to members by the Assessing Officer, upheld by the CIT(A), based on section 57(iii) of the IT Act and the decision in Bangalore Club vs. CIT.
- The assessee argued that the interest paid was from maintenance security held for each member, after TDS deduction, and offered for taxation in members' hands. Citing a Tribunal decision in a similar case, the assessee sought deletion of the addition.
- The Tribunal considered the issue and referred to a previous decision in Belaire Condominium Association case where it was held that interest expenditure is directly linked to interest income, and the deduction was allowed. The Tribunal set aside the CIT(A) order and directed deletion of the addition, allowing the appeal.

2. Addition on account of depreciation:
- The ground raised by the assessee regarding depreciation was not pressed due to a small amount, and no objection was raised by the ld. DR. Consequently, the ground was dismissed.

In conclusion, the appeal was partly allowed, with the addition of interest income paid on IBMS being deleted based on the Tribunal's decision in a similar case, and the addition on account of depreciation being dismissed due to the smallness of the amount.