The bye-laws of the society determine the eligibility for deduction of expenses against income, and the absence of provisions for deduction influences the court's decision.

( 1 ) BY this reference application under Section 256 (1) of the Income-tax Act, 1961, the Tribunal has referred the following question of law for our opinion : "whether, on the facts and in the circumstances of the case, the Tribunal was justified in reversing the order of the Commissioner of Income-tax (Appeals) and in holding that loss or shortfall on account of administrative or maintenance charges of the society could not be adjusted against the house property income of the society ?"

( 2 ) THE assessee is a co-operative housing society for the assessment year under consideration. It claimed deduction on maintenance and administ rative charges. On an examination of the profit and loss account, the Income-tax Officer has noticed that all the expenses were incurred for maintaining the society's building for the benefit and services to the members. According to the bye-laws of the society, management and maintenance expenses were to be reimbursed by the members themselves. The Income-tax Officer also pointed out that there was no provision for allow- ing maintenance and management expenses of the co-operative society against the income from other sources. The income was taxed under the head "income from house property".

( 3 ) IN appeal from the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has directed the Income-tax Officer to deduct the loss in the administrative heads out of the house property income as well as other sources and recompute the income/loss for three years accordingly.

( 4 ) IN appeal before the Tribunal, the Tribunal has considered Clause 7 (c) of the bye-laws of the society which provides that the members are bound to pay in addition to rent, the contribution for service charges for garage service charges for maintenance, etc. The assessee claimed that if any shortfall is there in the case of reimbursement by the members against the expenses incurred by the society, that should be allowed as deduction from the property income.

( 5 ) THE Tribunal has considered the submission and concluded its decision in paragraph 6 which reads as under :"we have heard both the sides and have gone through the orders of the authorities below for our consideration. We have taken into account also the bye-laws on which the assessee placed reliance. It is seen that the members of the society are expected to reimburse to the society any expenses on account of repairs, etc. , including administration and management expenses incurred by the society on their behalf. In other words, all the expenses incurred by the society would be reimbursed by the members. We find no indication in the bye-laws that if there was any shortfall in this respect, the same could be deducted from the house property income of the society as such. In fact, it has not been shown before us what were the reasons for the shortfall of the reimbursement by the members. As rightly pointed out on behalf of the Revenue, the administrative charges collected by the society from the members did not form income of the assessee from house property or other sources. As indicated earlier, we could not find any provision in the bye-laws that if there is any non-receipt or reimbursement from any member resulting in a loss on account of administration and management charges, such shortfall would be from the house property income of the society. In our opinion, if there was any shortfall of the reimbursement, such amount has to be recovered from the defaulting members, particularly when charges received on account of reimbursement as pointed out earlier, would not make a source of income or profit of the society, for income-tax purpose. As pointed out earlier, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee on the basis of the decision in the case of Progressive Co-operative Society. But it is not shown that the aspect of the matter agitated by the Revenue before us in the present case, has been dealt with in the

Click Here to Read the rest of this document