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2024 (8) TMI 108 - AT - Income TaxAddition in relation to the expenses claimed by the Appellant against the income that it earned u/s 57 - set off of deficit arising from shortfall in collection from its members towards maintenance of society - whether interest income earned from FD, rent income, interest from member, Saving Interest and Torrent interest income should not be treated as income from other sources and should not be brought to tax, without allowing any expenditure, since no expenditure claimed was incurred wholly and exclusively for earning the interest income? - assessee has now filed second appeal with the Tribunal, and the Ld. Counsel for the assessee submitted that the assessee is a Co-operative Housing Society - HELD THAT - Deduction u/s 80P is listed as one of the deductions allowed under Chapter VI-A for co-operative societies. The income is to be computed under the five different heads, and if there is a loss w.r.t. one source of income or under one head of income, set off of the said losses are allowed as provided under Chapter VI for Set off or Set off and carried forward of losses in the manner so provided under the said chapter. The assessee has declared income with respect to its activities as Housing Society for maintaining the residential society under the head Income from other sources , and there is a deficit from the said source of income to the tune of Rs. 13,86,671/- (if rental income as well interest income are not considered). The said rental income and interest income are also offered to tax by the assessee and sought to be taxed by Revenue, under the head income from other sources . We not find any bar in Section 70 and 71 as also other sections under Chapter VI dealing with Set off or Set off and carried forward for set off of the said loss against income from rent as well interest income earned by the assessee. Assessee income from collection of maintenance charges from its members is not chargeable to tax keeping in view the concept of mutuality as no body can make profits by dealing with itself and hence on the same analogy losses are to be ignored, as the said collection of maintenance charges are applied towards the incurring of maintenance expenses for the upkeep/maintenance of the housing society which is for the benefit of the members of the housing society and there is a direct correlation between participant and the contributors. So far its collection from members of maintenance charges falling short of incurring of expenses for maintaining the housing society is concerned, there is a deficit w.r.t. this source of income In the instant case, the interest income as well rental income has a nexus and attributability with the conduct of affairs of the housing society, as the interest income has mainly arisen from the interest free deposit raised from its members which stood invested in FDR with banks as well rental income is also from letting of common terrace area of the housing society itself, and further that the proceeds of interest income as well rental income are also utilized for furtherance of the main objects of the society i.e. the maintaining the housing society for the benefit of the Members, as could be seen that there is only net surplus of Rs. 73,520/-, of which Rs. 73,520/- has been offered to taxation after claiming deduction u/s 80P(2)(c)(ii). Thus, in the instant case based on peculiar factual matrix as is emerging from the records, find no bar of set off of deficit arising from shortfall in collection from its members towards maintenance of society vis- -vis expenses incurred for maintaining housing society, against rental and interest income earned by the assessee which has nexus and attributability to the conduct of the affairs of the assessee. There are no allegations by authorities below that the assessee s claim of expenses towards maintenance of the housing society in its Audited Income and Expenditure account to the tune of Rs. 27,34,671/- is bogus or inflated or not genuine. It is also not the case of the Revenue that the assessee has adopted an illegitimate device by seeking aforesaid set off as an tax avoidance measure or to evade taxes or to defraud revenue. It is also not the case of the Revenue that the surplus earned by the assessee to the tune of Rs. 23,520/- (after claiming deduction of Rs. 50,000/- u/s 80P(2)(c)(ii) ) was not offered for taxation. Thus, we find merit in the appeal filed by the assessee, which stood allowed., more so keeping in view judgment and order in the case of Maruti Employees 2009 (5) TMI 504 - PUNJAB HARYANA HIGH COURT which supports the stand of the assessee.
Issues Involved:
1. Addition of Rs. 14,60,191/- related to expenses claimed under Section 57 of the Income-tax Act, 1961. 2. Alternative claim for expenses under Section 37 of the Income-tax Act, 1961. 3. Consideration of various evidences and submissions by the assessee. 4. Charging of interest under Section 234/B/C/D of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Addition of Rs. 14,60,191/- related to expenses claimed under Section 57 of the Income-tax Act, 1961: The assessee, a Co-operative Housing Society, filed its return of income declaring a total income of Rs. 23,520/-. The AO observed that the assessee's primary activity was collecting maintenance charges and spending them on common expenses without carrying out any business activity. The assessee earned interest income from FDRs, rent from letting out common terrace space, and other minor interest incomes. The AO noted that the assessee claimed deductions/expenses of Rs. 27,34,560/- under Section 57 of the Act. However, the AO disallowed Rs. 14,60,191/- of these expenses, asserting that they were not incurred wholly and exclusively for earning the interest income, as required by Section 57(iii). The AO relied on the Supreme Court decision in Bangalore Club v. CIT, determining that the interest income did not fulfill the mutuality principle and was chargeable to tax. 2. Alternative claim for expenses under Section 37 of the Income-tax Act, 1961: The assessee argued that if the expenses were not allowable under Section 57, they should be allowed under Section 37. The CIT(A) dismissed this claim, emphasizing that each assessment year is separate and the assessee must establish a direct link between the expenses and the income earned. The CIT(A) cited the Supreme Court decision in CIT v. Rajendra Prasad Moody, which stated that the purpose of the expenditure must be making or earning income. The CIT(A) also referred to the ITAT Pune Bench decision in Poona Club Ltd. v. ACIT, which rejected a similar claim due to the lack of a demonstrated nexus between the expenditure and the income. 3. Consideration of various evidences and submissions by the assessee: The assessee contended that it incurred maintenance expenses for the benefit of its members and collected deposits to keep maintenance charges low. The interest from these deposits was used to cover maintenance costs. The CIT(A) dismissed the appeal, stating that the assessee failed to establish a direct link between the expenses and the income. The Tribunal, however, observed that the assessee's arrangement was not a tax avoidance measure. The Tribunal noted that the assessee had a deficit in maintenance expenses when excluding rental and interest income, supporting the view that these incomes were used to cover the deficit. The Tribunal found merit in the assessee's claim, referencing the Punjab and Haryana High Court decision in CIT v. Maruti Employees Co-Operative Housing Society Building Society Ltd., which supported the assessee's position. 4. Charging of interest under Section 234/B/C/D of the Income-tax Act, 1961: The Tribunal did not specifically address the issue of charging interest under Section 234/B/C/D, as the primary focus was on the allowability of the expenses claimed by the assessee. Conclusion: The Tribunal allowed the appeal filed by the assessee, finding that the deficit in maintenance expenses could be set off against the rental and interest income. The Tribunal emphasized that the decision was based on the specific facts of the case and should not be considered as having precedential value. The appeal was allowed, and the order was pronounced on 30.07.2024.
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