2022 (12) TMI 1316 - AT - Income Tax

Interest earned on deposit - principle of mutuality - assessee being an association for the residents of Sunny Park Apartment had to make deposit with CESC Ltd. for the purpose of power connection - Assessee contended that it was mandatory for the association to deposit with CESC Ltd. for supply of power and therefore, principle of mutuality should be applied. On the other hand, we notice that CIT(A) did not accept this contention holding that on the alleged sum, principle of mutuality will not apply and it is taxable under the head income from other sources - HELD THAT - On going through the submissions made by assessee as well as the decision of Manipal Centre Apartment Owners Association 2013 (9) TMI 1293 - ITAT BANGALORE . We are inclined to hold that as the assessee, an association of owners of Sunny Park Apartment is required to provide facilities and other amenities to the owners/occupants of the apartments and therefore, is required to make deposit with CESC Ltd. for availing electricity service connection. The interest earned on such deposit has a clear and direct nexus to the expenditure incurred in the form of electricity consumption charges and therefore, the same is allowable for set off against the expenditure and the principle of mutuality does apply on the alleged sum of interest earned on deposit with CESC Ltd. Thus, the finding of ld. CIT(A) is reversed and the alleged addition is deleted. Hence, grounds of appeal raised by the assessee are allowed.

Summary

Issues:
- Appeal against orders passed by CIT(A) for AYs 2014-15 & 2015-16
- Delay in filing appeals
- Application of principle of mutuality on interest earned from security deposit with CESC Ltd.

Analysis:
1. Delay in filing appeals: The appeals filed by the assessee were informed to be time-barred by 4 days. The counsel for the assessee provided reasons for the delay, which were found reasonable by the Accountant Member. The delay was condoned, and the appeals were admitted for adjudication.

2. Application of principle of mutuality: The main issue raised in the appeals was whether the principle of mutuality applies to the interest earned on deposits made with CESC Ltd. for power connection. The assessee argued that since the deposit was necessary to carry out the association's objectives, the principle of mutuality should apply. The CIT(A) had held that the interest was taxable under "income from other sources."

3. Decision and reasoning: After hearing both sides and reviewing the case records, the Accountant Member found merit in the assessee's argument. Referring to a decision of the Coordinate Bench of Bangalore ITAT, it was held that the interest earned on the deposit with CESC Ltd. had a direct nexus to the expenditure incurred on electricity consumption charges. Therefore, the principle of mutuality applied, and the interest earned was allowed to be set off against the expenditure. Consequently, the alleged additions for both AYs 2014-15 & 2015-16 were deleted, and the appeals were allowed in favor of the assessee.

4. Conclusion: Based on the application of the principle of mutuality and considering the facts of the case, the Accountant Member reversed the CIT(A)'s finding and allowed the appeals filed by the assessee for both AYs. The judgment was delivered on 19th December 2022 by the Appellate Tribunal ITAT Kolkata.