2024 (9) TMI 82 - AT - Income Tax

Assessment of income applying principles of real income theory - treatment to interest income earned from fixed deposits as assessee shown the Bank interest income under other sources - denial of set off interest income earned on fixed deposits from Banks and rental income earned by the Society against maintenance expenses HELD THAT - As per 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, no 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. Thus 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. Ground allowed in favour of assessee. Non granting standard deduction u/s. 80P(2)(c)(ii) - 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.

Summary

Issues:
1. Assessment of income from various sources by the Assessee.
2. Disallowance of deduction under section 80P.
3. Treatment of interest income earned on fixed deposits.
4. Treatment of rental income received.
5. Treatment of interest on income-tax refund.

Analysis:

Issue 1: Assessment of income from various sources by the Assessee
The appellant, a Co-operative Housing Service Society, filed its Return of Income for the Assessment Year 2018-19 declaring Nil Income. However, during scrutiny assessment, additions were made by the Assessing Officer, including fixed deposit interest income, rental income, and interest on income tax refund. The Commissioner of Income Tax (Appeals) upheld the additions, stating that the interest income earned by the society was not directly linked to the expenses claimed, thus disallowing the deductions under section 57 of the Income Tax Act.

Issue 2: Disallowance of deduction under section 80P
The Assessee contended that it should be entitled to a deduction under section 80P(2)(c)(ii) of Rs. 50,000, despite showing income under the head 'income from other sources.' The Commissioner of Income Tax (Appeals) dismissed the appeal, stating that the Assessee is not entitled to claim the deduction under section 80P(2)(c)(ii) since income was shown under a different head.

Issue 3: Treatment of interest income earned on fixed deposits
The Assessee argued that the interest income earned on fixed deposits was utilized for maintenance expenses of the society, and thus should be set off against such expenses. The Appellate Tribunal allowed this contention, stating that the interest income earned from fixed deposits was directly linked to the maintenance activities of the society, reducing the burden of contributions by the members.

Issue 4: Treatment of rental income received
The Assessee claimed that the rental income received should be eligible for set off against maintenance expenses. Citing a Supreme Court ruling, the Appellate Tribunal allowed this contention, stating that the rental income was part of the net income and could be set off against maintenance expenses.

Issue 5: Treatment of interest on income-tax refund
The Assessee did not press the issue regarding the addition made on account of interest earned on income-tax refund, as this income was not recorded in the books of the society. Therefore, this ground was dismissed.

In conclusion, the Appellate Tribunal partly allowed the appeal filed by the Assessee, allowing deductions under section 80P(2)(c)(ii) and setting off interest income earned on fixed deposits and rental income against maintenance expenses. The appeal was dismissed regarding the interest on income-tax refund.