Interest earned by a co-operative society on investments with other societies is entitled to be deducted

The Income Tax Tribunal at Mumbai in the case of Lands End Co-operative Housing Society Ltd (having PAN/GIR No. AAAAL 0060C) vs. I.T.O. ward-16(1)(3), Mumbai 400007, being Income Tax Appeal No. 3566/Mum/2014 in connection with the Assessment Year 2009-10 has held that interest earned by a co-op society on investments with other societies is entitled to be deducted. It has been further held that the issue whether the co-operative society is engaged in the business of banking for providing credit and the head under which the income is assessed is not to be considered.

Pleaders engaged:

The Appellant was represented by Shri Satish Mody and the Respondent was represented by Shri Darsi Suman Ratnam.

Date of Hearing:

The appeal was taken up for hearing on 17.11.2015

Date of Pronouncement:

The judgment was pronounced on 15.01.201. The bench comprising of Shri Shailendra Kumar Yadav, Judicial Member and Shri Rajesh Kumar, Accounts Member passed the aforesaid judgment.

Backgrounds of the appeal:

This appeal by the assessee was filed against the order dated 25.03.2014 passed by the Commissioner of Income Tax (Appeals), Mumbai relating to the assessment year 2009-10.

The grounds of appeal:

1. That the learned CIT (Appeals) was absolutely wrong in confirming the addition made by the assessing officer towards Transfer Fees amounting to Rs.11, 00,000/- received by the Appellant.
2. The learned CIT (Appeals) was wrong in holding Rs.11, 00,000/- received by the co-operative society towards contribution from members of the society as income of the society in utter disregards to the principals of mutuality.
3. The learned CIT (Appeals) has erred in confirming the addition made by the assessing officer amounting to Rs.6, 04,500/- received by the co-operative society as  Non-Occupancy Charges from the members of the society violating the principles of mutuality.
4. The learned CIT (Appeals) was wrong in not considering the order of the Tribunal in the case wherein the transfer fees received are receipts from members of the society as per the principles of mutuality.
5. The learned CIT (Appeals) was also wrong in disallowing the claim for deduction made by the appellant co-operative society under section 80P (2) (d) of the Act for the interest earned from a co-operative bank. The learned CIT (Appeals) enhanced the assessment and made an addition amounting to Rs.14, 88,107/-
6. the learned CIT (Appeals) was absolutely wrong in applying the judgment delivered by the Hon’ble Apex Court in the case of Totagar Co-operative Sale Society Limited (322 ITR283) relating to Bank interest.
7. The learned CIT (Appeals) was wrong in enhancing the assessment by making an addition of Rs.2,06,400/- as the recovered amount gained from the members as car parking charges, etc. on the ground that the receipts were not covered under the principle of mutuality.

The appellant prayed that the amounts received by the co-operative society for transfer fees, Non-Occupancy Charges, Car parking Charges and Temporary Car Parking, etc. shall not be treated as Taxable Income in the hands of the Appellant Society.

The Appellant further prayed to allow deduction under section 80P (2)(d) of the Act on  interest received from Co-operative banks .

Brief facts of the case:

The assessee society was established to look after the maintenance of the flats owned by the members. The society had its own byelaws wherein many kinds of charges and fees were provided.

In the year under consideration, the assessee received Rs.11 lakhs from a member Shri Ashok M. Bajaj on 10.04.2008 for Flat No.3-D through transfer fee which was credited to the Common Amenities Fund.

During the scrutiny proceedings the Assessing Officer added the amount to the income of the society as the same was not covered by the principle of mutuality.

The assessee moved before the first appellate authority which confirmed the addition on the ground that the transfer fee received was more than the amount prescribed under Government notification.

Arguments of the parties:

The ld.  Representative for the assessee contended that issue raised in the ground no. 1 & 2 was covered in favour of assessee by its own order passed in the case of in I.T.A. No.6866/Mum/2007 relating to the Assessment Year 2004-05 by an order dated 27-09-2013 and also by that of the Jurisdictional High Court in C.I.T. vs. Darbhanga Mansion C.H.S. Ltd. in I.T.A. No.1474 of 2012 dated 18-12-2014, as such, the ground nos.1 and 2 should be allowed.

The ld. DR relied on the judgments of the lower authorities.

The judgment:

After considering the submissions of the parties and upon perusal of the documents on record it was observed that same issue was decided in favour of assessee in it the case of ITA No.6866/Mum/2007 in connection with the assessment year 2004-05 by an order dated 27.09.2013.

Therein it was held that the amount received as contribution to common amenities fund is exempt from income tax as the principles of mutuality applied to the impugned receipts.

Under the aforesaid circumstances, the appeal filed by the assessee was allowed and the order was pronounced in the open court on 10.1.2011.

In view of the order of this Tribunal the amount of Rs.16,50,000/- for  common amenities fund was not taxable due to the principle of mutuality as was held by the Tribunal in the own case of the assessee.

Regarding the receipt towards entrance fee from new members if it is received for using towards common amenities of the society, it falls under the category of the contribution of common amenities fund for which the principle of mutuality will be applicable.

In view of the above it was held that the assessee was entitled to the deduction of Rs. 14, 88,107/- for interest received by it on deposits with cooperative banks.

Accordingly the appeal of the assessee was allowed and the Assessing Officer was directed accordingly. The judgment was pronounced in the open court.

Also read:

Whether interest earned on margin received can be adjusted against interest paid on borrowings-Yes