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2025 Supreme(Online)(ITAT) 3243
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
SHRI SATBEER SINGH GODARA, SHRI AMITABH SHUKLA, JJ
ASSISTANT COMMISSIONER OF INCOME TAX GURGAON – Appellant
Versus
PARK PLACE CONDOMINIUM ASSOCIATION GURGAON – Respondent
ITA 2709/DEL/2024
Shri Vaibhav Jain , CA, Ms. Harpreet Kaur Hansra, Sr.DR
Interest income earned by a resident welfare association from members' deposits is exempt from taxation under the principle of mutuality.
Headnote:(A) Income Tax Act, 1961 - Section 57(iii) - Addition of interest income - The assessing officer added Rs. 2,47,54,352/- to the income of the resident welfare association, asserting it was taxable under Section 56 as income from other sources, contrary to the principle of mutuality - The tribunal ruled that interest income earned on deposits from security deposits is not taxable, aligning with the precedent set in Bangalore Club vs CIT, 350 ITR 509 - The tribunal directed the assessing officer to delete the addition made. (Paras 2, 10, 11)
(B) Principle of Mutuality - The tribunal reaffirmed that interest income earned by a resident welfare association from deposits made by its members is exempt from taxation under the principle of mutuality, provided the income is distributed among members. (Paras 10, 11)
Facts of the case:
The appeal was filed by a resident welfare association against the addition of interest income made by the assessing officer, who claimed it was taxable under Section 56. The association argued that the income was distributed among members and should not be taxed.
Findings of Court:
The tribunal found that the interest income was directly linked to the security deposits from members and ruled that the addition made by the assessing officer was incorrect.
Issues: The main issue was whether the interest income earned by the association was taxable under Section 56 or exempt under the principle of mutuality.
Ratio Decidendi: The tribunal concluded that the interest income earned from security deposits is not taxable as it falls under the principle of mutuality, and the assessing officer's addition was unjustified.
Result: Appeal of the assessee allowed, and the addition of Rs. 2,47,54,352/- was deleted.
ORDER
PER BENCH
This appeal filed by the revenue is directed against the order dated 28.03.224 passed by NFAC, Delhi is directed against the order dated 23.09.2022 passed by Assessing Officer for A.Y. 2020-21.
2. The only issue raised through its ground of appeal, in the present case by the assessee is the addition of Rs. 2,47,54,352/- made by the Ld. AO invoking provisions of section 57(iii) of the Act. The Ld. Council for the assessee submitted that it is a resident welfare association registered as society under the laws of Haryana. During the year assessee had earned interest income of Rs. 2,47,54,352/- on FD’s with banks, which, as per its by- laws, was distributed amongst the members. The Ld. AO, analyzing,the principles of mutuality, premised that the impugned address was liable to be taxed as income of the assessee as under section 56 as income from other sources of Act. While doing so the Ld. AO relied upon the decision of Bangalore Club vs CIT of the Hon’ble apex court, 350 ITR 509 . The Ld. First Appellate Authority relying upon the decision of Bangalore Club supraand past history of assessee case, affirmed the order of the Ld. AO, though allowing the claim of TDS u/s 194A qua the said interest income. The Ld. Council for the assessee submitted that this tribunal in the case of Belaire Condominium Association in ITA No. 655/Del/2018 for A.Y. 2014-15 have after considering the decision of Bangalore club supra, ruled that the interest income is not to be taxed in case of similarly placed resident welfare association. The Ld. DR would like to rely upon order of lower authorities.
3. We have heard rival submission on the matter in the light of material available on records. We have noted that this tribunal in the case of Belaire Condominium Association supra have analyzed the facts of the case in the light of the decision of Bangalore Club supra to conclude non availability of provision of section 56. The Ld. Council for the assessee submitted that as its facts are identical to those of Belaire Condominium Association , the decision taken there is squarely applies in its case. The revenue could not establish that the facts of the present case are distinguished when compared with those of Belaire Condominium Association supra. We have noted the following decision of the tribunal.
“….5. During the year under consideration the society earned interest from banks and such interest was paid to the flat owners after deduction tax at source. The details of interest received as under :- 4 ITA No. 655/Del./2018 Belaire Condominium Association IBMS interest received from bank for F.Y. 2013-14 Interest Received during the F.Y. 2013- 14 From ICICI Bank on FD 61,15,418/- From Kotak Mah. Bank on FD 99,83,136/- From ICICI Bank on Saving A/c 1,27,869/- From Kotak Mah. Bank on Saving A/c 2,15,710/- Total interest Received for the F.Y. 2013-14 1,64,42,133/-.
6. The assessing officer during the course of the assessment raised the issue that the interest received by the assessed, society is not exempt as the same is not covered by the Principle of mutuality in view of the judgment of the Supreme Court in the case of Bangalore Club vs. CIT (2013) 350 ITR 509 (SC). In this explanation, it was contended by the assessee that the interest income is otherwise not taxable as deduction of interest paid to flat owners and their security deposit is to be allowed in view of provisions of section 57(iii) of the Income Tax Act, 1961 . The ld. AO was not satisfied from the explanations submitted by the assessee and added to the income of the assessee by Rs. 1,63,77,013/-
10. We have considered the rival submission and perused the order passed by the lower authorities. There is no dispute to the fact that assessee is a registered society form with the basic object to provide for maintenance and repair of common arrears and facilities of the building to its members. There is no dispute about the maintenance charges being collected and utilised towards m
