ITAT allows deduction of repairs, maintenance, salary and telephone expenses from Interest Income

The assessee before Income Tax Appellate Tribunal (ITAT) is a non-trading association. During the scrutiny proceedings, the assessing officer observed that assessee had earned interest income of Rs.6,29,914/- which comprises of interest of Rs.4,35,837/- and Rs.1,46,183/- from fixed deposit with Canara Bank and Vijaya Bank respectively. The assessee also earned Savings Bank Interest to the tune of Rs.47,894/-. The assessing officer noted that interest income earned on Fixed Deposits with Canara Bank and Vijaya Bank and saving bank interest income were in the nature of income from other sources and the assessee has shown the same as income in the computation of income filed along with the return of income.

Further, assessing officer noted that assessee had claimed various expenses against these interest income and contribution/charges received from Members. The assessee had claimed expenses incurred on account of salary, security expenses, electricity expenses, repair and maintenance etc. The assessing officer was of the view that interest income earned by the assessee is shown under the head income from Other Sources u/s 56 of the Act, and against this income, as per the provisions of section 57 of the Act, deduction of only those expenses are allowable which are directly linked to the earning of the said income. Therefore, the assessing officer disallowed expenses to the extent of Rs.6,29,214/- and added to the total income of the assessee.

Argument of assessee

Shri A. P. Nanavaty, Learned Counsel for the assessee, pleads that assessee is a non-trading association and running its activities on mutuality concept. The assessee-association receives the contribution from its members. The unutilized contribution is parked in fixed deposits in bank accounts and earns interest income. The said interest income is also applied for various expenses for attainment of its objectives. The members of this association do not take any personal benefit from the interest income and other funds of the association. Therefore, whatever income earned by the association, is being applied for its objectives, hence association is working on mutuality concept, therefore addition made by the assessing officer may be deleted.

Argument of Assessing Officer

The assessing officer was of the view that interest income earned by the assessee is shown under the head income from Other Sources u/s 56 of the Act, and against this income, as per the provisions of section 57 of the Act, deduction of only those expenses are allowable which are directly linked to the earning of the said income.

ITAT Order

9. We have heard both the parties and carefully gone through the submissions put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the facts of the case including the findings of the ld. CIT(A) and other material brought on record. We note that assessee is registered as a non-trading organization, and the registration certificate is placed at page nos. 1, 2 and 3 of the assessee`s paper book. The assessee submitted before us, memorandum of association of the trust, which is placed at page no.4 to 20 of the paper book, wherein we find that objectives of the association are to look after the member’s common property and to organize social and cultural activities. The Learned Counsel for the assessee submitted before us, Income and Expenditure Account, Balance Sheet along with schedules, of the association for assessment years 2015- 16 and 2017-18. We have gone through the Profit and Loss Account and Balance Sheet submitted by the Ld. Counsel and noticed that assessee has sources of income by various ways like, maintenance, contribution from members, interest on Fixed Deposits, Interest on savings bank account, Rental income, lift charges etc. These incomes are being utilized for the purpose of common welfare of the association and as per the objectives of the association for payment of water expenses, consultancy fee, repairs and maintenance, generator repairs, foundation expenses, general meeting expenses, telephone expenses, security expenses, salary expenses, printing and stationary expenses.Therefore, all these expenses are done by the assessee- association out of its income, as per the objectives mentioned in the memorandum of association. Nobody is taking personal benefit out of association income. Therefore, based on this factual position, we note that assessee-association is a non-trading in nature and running on mutual concept.

10. We note that assessing officer has misinterpreted the facts of the assessee- association. It is settled principle of law that no man can make a profit out of himself. We observe that assessee- association did not claim any expenditure for earning interest income from fixed deposits and saving bank account rather the assessee-association applied its interest income for the purposes which were mentioned in object clause of its Memorandum of Association. Thus, the assessee has utilized the interest income for payment of water expenses, repairs, maintenance, salary and telephone expenses etc. Therefore, we note that interest income received by assessee-association, were utilized for various expenses, which were within the objectives of the assessee. We note that since it is a non-trading association and running on mutual concept, hence assessee is entitled to claim the expenses against the interest income, therefore based on the facts and circumstances, as narrated above, we delete the addition for both the assessment years.

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