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TMI Blog2021 (7) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessee-society is to acquire land and develop the same into sites and allot them to its members at a reasonable price. The underlying idea being that collective buying in large scale would enable better price negotiations and also do away with intermediaries in purchasing the land and developing them into sites. 4. The assessee for the assessment year 2010-2011, filed the return of income on 13.10.2010 declaring excess of income over expenditure at Rs. 21,57,631. The assessee's case was selected for scrutiny by issuance of notice u/s 143(2) of the I.T.Act. The Assessing Officer during the course of assessment proceedings, noted that the assessee was in receipt of interest income from bank of Rs. 5,78,37,690 and also the assessee had claimed expenditure of interest paid on sites deposits of Rs. 4,75,00,000. The assessee was asked to explain the above transactions. The assessee submitted submissions on 30.11.2012 and also on 23.02.2013. The relevant portion of the submissions of the assessee are extracted in the assessment order. The assessee submitted that the interest income was shown as income in the books of account of the assessee-society and substantial interest was credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n if the interest income is considered as Income from Other Sources, interest paid is ought to be allowed under section 57(ii) of the I.T.Act as expenses laid out or expended wholly and exclusively for the making or earning of the said interest income. 5.2 The CIT(A) rejected the objections raised by the assessee and passed an order by enhancing the assessed income to Rs. 5,79,75,310. The reasoning of the CIT(A) are summarised as follows :- (i) The Commissioner (A) has the jurisdiction to examine all matters including those which are not subject matter of appeal by placing reliance on M.Loganathan v. ITO 350 ITR 373 (Mad. HC) and CIT v. K.S.Dattatreya 344 ITR 127 (Kar HC). (ii) The assessee-co-operative society is essentially a mutual benefit society with close identity of contributors and beneficiaries. It could not do business with itself. It could not profit from the activities which are only for benefit of the members. Therefore, the income of the assessee is not taxable under the head `Income from profits and gains of business' but under the head of `income from other sources'. Further, entire interest income is taxable without any deduction. (iii) The interest paid to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010 and 2011-2012 to 2014-2015 (supra). The relevant finding of the Tribunal in asessee's own case reads as follow:- "12. We have heard rival submissions and perused the material on record. To understand the dispute raised, it is necessary to elaborate the facts a little more. As mentioned earlier, the assessee is a housing co-operative society, incorporated in the year 1974 for the purpose of meeting housing needs of the employees of Vijaya Bank. All the members of the society are either present or ex-employees of Vijay Bank. The activities of the assessee-society is to acquire land, convert it into residential sites by developing infrastructure such as roads, streetlights, providing water supply, drainage and allot the same to its members on a no profit no loss basis. The assessee had undertaken a project for creation of layouts at Bangalore-Mysore High Court in the year 2005. At the time of starting of the project, the members of the assessee-society were informed that the site shall be handed over to them within a period of 12 months. As there was delay in implementation of the project, the unutilized funds or idle funds from out of advances collected towards allotment of si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al background, the order of the A.O. and CIT(A), following issue arises for our adjudication, namely, (i) whether the assessee can be thrust upon a status of a mutual society, (ii) whether the interest expenditure can be allowed as a deduction u/s 37 or u/s 36(1)(iii) of the I.T.Act, and (iii) even assuming that interest income is to be assessed as income from other sources, whether the interest expenditure can be allowed as deduction u/s 57(3) of the I.T.Act. (i) Whether the assessee can be thrust upon the status of a mutual society: 12.3 It is an undisputed fact that the assessee did not claim any exemption under the concept of mutuality for any of its income. The returns of income have been filed for all the relevant assessment years, like any other commercial undertaking. The Assessing Officer was of the view that the assessee is a mutually benefit society and surplus, if any, from its activities with its members is exempt from tax. Further, the Assessing Officer held that non-mutual income arising from sources other than members is liable to be taxed. Thereby the A.O. held that surplus as reflected in the income and expenditure account is to be ignored and gross income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensatory to offset cost overrun to the members of the assessee-society. Therefore, based on the principle of matching concept, the expenditure attributable to income ought to be allowed. In this regard reliance is placed on the judgment of the Hon'ble Apex Court in the case of J.K.Industries v. UOI reported on 297 ITR 176 (SC), wherein the Hon'ble Supreme Court had held as follows:- "The object of incurring expenses is to produce revenue. In measuring the income for a period, revenue is to be adjusted against expenses incurred for producing that revenue. This concept of adjusting / offsetting the expenses against revenue is the matching principle." 12.6 The above proposition further draws strength from the judgment of the Hon'ble Apex Court in the case of CIT v. Lakshmi Machine Works reported in 290 ITR 667 (SC), wherein the Hon'ble Supreme Court had held as follows:- "The tax under the Act is upon income, profits and gains. It is not a tax on gross receipts. Under section 2(24) the word `income' includes profits and gains. The charge is not on gross receipts but on profits and gains properly so-called. Gross receipts or sale proceeds, however, include profits. However, subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith banks by the assessee because had there been no advances from members, there would not have arisen the interest income to the assessee-society. This being the situation, it necessarily follows that the interest paid / credited to the members on account of the advances is an expenditure laid out or expended wholly and exclusively for the earning of the interest income. The Hon'ble Delhi High Court in the case of CIT v. Sasan Power Limited reported in 18 taxmann.com 182 (Delhi) had held that when interest income and interest expenditure are inextricably linked and there was commonality in nature and purpose, the expenditure is allowable as deduction u/s 57(iii) of the I.T.Act. In the case of Taj International Jewellers reported in 335 ITR 144, the Hon'ble Delhi High Court had held that when there is no dispute that money obtained on loan was converted and made into fixed deposit receipts, the interest on loan was an allowable deduction against the interest income earned from fixed deposit. 12.9 The Assessing Officer has taken a view that there is no obligation on the assessee-society to pay interest to its members when advance was received. Therefore, the A.O. concluded that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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