ITAT Grants Major Relief to Oriental Bank Employees Welfare Society, allows Adjustment Of ₹3.35 Cr Welfare Payments against Interest on Bank Deposits [Read Order]

The Income Tax Appellate Tribunal [ITAT] Delhi Bench has granted significant relief by holding that the payment can be set off against the interest income earned from the bank fixed deposits while determining the income to be taxed.

The assessee All India Oriental Bank ofCommerce Employees Welfare Society being a welfare society was formed with the objective of providing social and financial benefits to the employees of the Oriental Bank of Commerce. The assessee filed its return of income for the Assessment Year 2015-16 declaring nil income.

However, during the course of assessment the Assessing Officer [AO] observed that the income received from the subscription of the members totaling ₹2.57 crores was exempted under the principle of mutuality whereas the interest income received by the society on fixed deposits and savings bank accounts totaling ₹2.86 crores was liable to tax as it was received from third parties.

Accordingly, the Assessing Officer has taxed the entire income without allowing any deduction of the amounts paid to its members and has computed the income at ₹2.86 crores. The Commissioner of Income Tax has upheld the addition as a result the assessee has filed the appeal before the tribunal.

It was contended on behalf of the assessee that substantial expenditure was incurred on welfare expenditure which included death claims, voluntary retirement benefits and pension payments retirement benefits to the members as well as their dependents aggregating to ₹3.35 crore.

However, the case of the Revenue was that the interest received on bank deposits was received as income from other sources and only expenditure incurred to earn such income was admissible as a deduction.

Further, the Tribunal held that the subscriptions received by the society were part of its corpus and the same was exempt under the principle of mutuality. In addition the interest that is received on bank deposits was liable to tax and the welfare payments made to the members were legitimate expenditure incurred in pursuance of the objective of the society.

However,citing the principles laid down by the Supreme Court of India in the case of Bangalore Club vs. CIT, the Tribunal held that the society was entitled to appropriate the payments made for the welfare of the members against the interest income received during the year.

Accordingly, the Tribunal comprising Anubhav Sharma [Judicial Member] and Manish Agarwal [Accountant Member]directed the Assessing Officer to allow the set-off of the payments received for the welfare of the members against the taxable income.

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