Interest Income Earned on FDs to Be Set Off Against Shortfall in Collection of Maintenance Charges by Housing Society

Case Details: Sohamnagar Co-Operative Housing Society Ltd vs. Income Tax Officer - [2024] 165 taxmann.com 508 (Ahmedabad - Trib.)

Judiciary and Counsel Details

• Ramit Kochar, Accountant Member
• Mohit Balani, AR for the Appellant.
• Smt. Trupti Patel, Sr. DR for the Respondent.

Facts of the Case

The assessee was a Co-operative Housing Society. It filed its return of income, declaring income under the head “Income from other sources”. During the relevant assessment year, the assessee received income from interest on FDR, rent from letting out of common terrace, interest from members, etc. and incurred various maintenance expenses for the benefit of its members.

The Assessing Officer (AO) disallowed the deduction for various interest and rental income earned by the assessee, noting that the maintenance expenses incurred for the upkeep of the housing society were not exclusively related to the generation of interest and rental income. The CIT(A) confirmed the additions made by AO and the matter reached before the Ahmedabad Tribunal.

ITAT Held

The Tribunal held that the assessee was a Co-operative Housing Society, engaged in maintaining and upkeep of Residential Housing Society consisting of 80 residential flats constructed by it for its Members. The assessee collected maintenance charges from all the members and spent the said amounts for the meeting of the common expenses of society maintenance. It was not engaged in any business activity, and its income is exempt.

Further, the assessee arranged its affairs in a manner that it kept its regular maintenance charges recoverable from Members towards maintaining the housing society at the lower levels. While the deficit on account of excess of common maintenance expenses for maintaining housing society over maintenance charges recovered from its members are sought to be recovered from interest and rental income, and it could not be said that the assessee so organises this arrangement of affairs as a tax avoidance measure to evade taxes or to defraud revenue.

The income of the assessee was computed under the five different heads, and if there is a loss with respect to one source of income or under one head of income, set-off of the said losses is 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.

Therefore, the assessee was to be allowed to set off the deficit, which is the excess of common maintenance expenses incurred for maintaining the housing society and the collection from members towards maintenance charges, against rental and interest income earned by the assessee, which has a nexus and attributability to the conduct of the assessee’s affairs.

List of Cases Reviewed

• CIT v. Maruti Employees Co-operative Housing Society Building society Ltd. [2010] 320 ITR 254 (P & H) (para 6) followed.

List of Cases Referred to

• Bangalore Club v. CIT [2013] 29 taxmann.com 29/212 Taxman 566/350 ITR 509 (SC) (para 3.2),
• CIT v. Maruti Employees Co-Operative House Building Society Ltd. [2010] 320 ITR 254 (Punjab & Haryana) (para 5)
• Totgars Co-Operative Sale Society Ltd. v. ITO [2015] 58 taxmann.com 35 (para 5).