The Ahmedabad bench of Income Tax Appellate Tribunal (ITAT) recently held in a case that interest income from fixed deposits can be set off against property maintenance expenses.
The assessee/ appellant, Venus Parkland Co-operative Housing Service Society Ltd, is a society formed for maintaining the residential apartment complex named Venus Parkland in Ahmedabad, Gujarat.
For the Assessment Year 2018-19, the assessee filed a return of income declaring a Nil income
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However, during a scrutiny assessment, the Assessing Officer (AO), added an income of ₹24,71,127 to the return, which pertained to interest income of the assessee from fixed deposits (FDs).
The AO observed that the assessee showed the bank interest income under “other sources”.
Plus, a deduction claim made under Section 80P(2)(c)(ii) of ITA, which allows for a deduction of income up to ₹50,000 was also disallowed.
Unhappy with this, the assessee appealed before the Commissioner of Income Tax (Appeals) [CIT ( A )].
The CIT(A), however, upheld the decision to include the interest income from fixed deposits in the taxable income, reasoning that the interest earned from the assessee’s fixed deposits were derived from third-party banks, not from the members of the society.
Consequently, the principle of mutuality, which typically exempts income earned from transactions among members from taxation, was deemed inapplicable.
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Thus, it was concluded that the assessee did not qualify for exemption under the principle of mutuality and should therefore be taxed.
Considering the facts of the case and position of law as contained in section 80P(2)(c) of ITA, the CIT(A) also held that since the assessee showed the interest income under the head ‘income from other source’ it is not entitled to claim deduction amounting to Rs.50,000/- under section 80P(2)(c)(ii) of ITA.
Aggrieved, the assessee brought the case before ITAT.
Before the tribunal, the assessee contested the assessment, arguing that the income from interest on fixed deposits were utilized for the maintenance and upkeep of the society’s premises, and therefore should not be taxed separately.
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The bench of Mr Senthil Kumar and Mr Narendra Prasad Sinha, upon reviewing the facts, observed that the income earned from various sources, including the interest on fixed deposits, was in fact applied towards the maintenance of the residential property.
The Tribunal also noted that the interest income contributed to reducing the maintenance burden on the assessee-society’s members.
In light of these observations, the tribunal allowed the assessee to set off the interest income against its maintenance expenses.
The assessee was also granted the standard deduction of ₹50,000 under Section 80P(2)(c)(ii) of the ITA, noting that
since the assessee being a housing co-operative society showed net surplus of
Rs.4,64,486/- in its Profit and Loss account after netting out all the maintenance expenses, it is eligible for the said deduction.
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In result , the addition made by the AO on account of interest income was deleted and the deduction was also allowed.
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