2022 (12) TMI 1165 - AT - Income Tax

Addition of interest from banks on the deposits made by it out of the maintenance deposit/ fund received from its members - obligation on the income earned by the Appellant out of the deployment of the maintenance deposit - assessee as a Trust or Co-operative Society - concept of mutuality - as submitted that the Appellant is required to maintain the society and incur common expense of the society out of the income received from the maintenance deposits, and thus, there is an overriding charge - HELD THAT - As noted from the Balance Sheet the maintenance deposit is excessively used for maintenance of the residential premises and therefore, the collection of maintenance deposits are kept as fixed deposits in Axis Bank and HDFC Bank. From the sale deed also the said element of maintenance deposits has been collected from the owners of the flat. The decision of the Ahmedabad Tribunal in case of Manekbuag Co-op. Housing Society Ltd. 2010 (3) TMI 1083 - ITAT AHMEDABAD has clearly given the guidelines that when the main object of the society is to manage, administer, operate, supervise and make available the common facilities and maintains of its members to meet the expense on account of maintenance the housing society collected deposits from its members made deposits and earned interest thereon from banks which is squarely covered by the decision Adarsh Co-operative Housing Society Ltd. 1994 (10) TMI 32 - GUJARAT HIGH COURT which was cited by the Ld. A.R. at the time of hearing. The decision of Hon ble Bombay High Court in case of Sind Co-op. Hsg. Society 2009 (7) TMI 15 - BOMBAY HIGH COURT is squarely applicable in the present case as the income earned by the society on account of interest on Fixed Deposits from its members for the purpose of maintenance will attract the concept of mutuality and accordingly the income will be subject to exemption if any surplus is there. Thus, Ground No. 1 2 are allowed.

Summary

Issues:
1. Taxability of interest income received by the appellant from bank deposits made out of maintenance funds.
2. Classification of the appellant as a Trust instead of a Co-operative Society.
3. Applicability of the principle of mutuality to the interest income received.
4. Allowance of appropriate expenditure as deduction.
5. Grant of deduction under Section 80P(2)(c) to the appellant.

Analysis:

1. The appellant, a Co-operative Housing Society, challenged the addition of Rs.8,32,052 as interest income from bank deposits funded by maintenance deposits. The appellant argued that the income should not be taxed due to an overriding charge and obligation on such income. The tribunal noted that the society primarily managed and maintained residential premises using funds from members. Citing relevant case law, the tribunal held that the interest income falls under the principle of mutuality, exempting it from taxation. Consequently, the addition was deleted, and Grounds 1 & 2 were allowed.

2. The appellant contested being assessed as a Trust instead of a Co-operative Society. The tribunal acknowledged the nature of the society's activities and ruled in favor of the appellant, recognizing it as a Co-operative Housing Maintenance Society. This issue was resolved in favor of the appellant.

3. Regarding the application of the principle of mutuality to the interest income, the tribunal upheld the appellant's argument, emphasizing the utilization of maintenance deposits for common facilities. Citing precedents, the tribunal concluded that the income earned on deposits from members for maintenance purposes is exempt under the principle of mutuality. Grounds 3, 4, and 5 were considered alternative arguments and were not sustained due to the allowance of the main grounds.

4. The tribunal addressed the claim for deduction under Section 80P(2)(c) and granted relief to the appellant, recognizing it as a cooperative society eligible for the deduction. The appellant's right to amend the grounds of appeal was acknowledged.

5. In conclusion, the tribunal partially allowed the appeal, emphasizing the non-taxability of interest income under the principle of mutuality and recognizing the appellant's status as a Co-operative Housing Maintenance Society. The judgment was pronounced in open court on 23/12/2022, with the appellant's contentions upheld in significant aspects.