Commissioner of Income Tax vs Maruti Employees Co-operative House Building Society Ltd.

J.S. Khehar, J.—The pleadings in the instant appeal as well as the orders passed by the various Revenue authorities reveal that in the assessment order passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the 1961 Act"), dated March 23, 2001, the respondent-assessee was made liable for interest income. The claim of the respondent-assessee for deduction from the aforesaid interest income on account of expenses incurred towards maintenance was, however, not accepted.

Dissatisfied with the order passed by the Assessing Officer dated March 23, 2001, the respondent-assessee preferred an appeal before the Com missioner of Income Tax (Appeals), Faridabad. The aforesaid appeal was, however, dismissed on June 4, 2004.

Aggrieved with the orders passed by the Revenue authorities dated March 23, 2001, and June 4, 2004, the respondent-assessee preferred a second appeal before the Income Tax Appellate Tribunal (Delhi Bench "F"). The Income Tax Appellate Tribunal accepted the appeal preferred by the respondent-assessee and allowed him deduction on account of expenses incurred towards maintenance from out of the interest income.

The order passed by the Income Tax Appellate Tribunal dated August 24, 2007, is the subject-matter of challenge at the hands of the Revenue through the instant appeal.

A perusal of the order passed by the Income Tax Appellate Tribunal reveals that the Revenue did not dispute the fact that the respondent-assessee was accepting deposits from its members for maintenance of their houses. The aforesaid deposits were earning interest which constituted interest income of the respondent-assessee. Out of the interest income, the respondent-assessee was incurring expenses for the maintenance of the houses of the members who had made the said deposits. It was in the aforesaid view of the matter, that the Income Tax Appellate Tribunal accepted the claim of the respondent-assessee for deduction.

The first contention advanced by the learned Counsel for the appellant to assail the order passed by the Income Tax Appellate Tribunal dated August 24, 2007, was that the activity of maintenance was not covered under the objects and reasons of the respondent-assessee, which was a registered cooperative society and as such expenses incurred towards an activity beyond the objects and reasons of the respondent-assessee was per se not permissible.

It is not possible for us to accept the first contention advanced by the learned Counsel for the appellant. The activities carried out by the respondent-assessee are of no concern of the Revenue. The concern of the Revenue is limited to the income earned by the respondent-assessee. In case, the members of the society desire to assail the action of the respondent-assessee carrying out activities beyond the objects and reasons it is for them to do so. As already stated hereinabove, the limited scrutiny at the hands of the Revenue, in so far as the activities of the respondent-assessee are concerned, is to determine the income drawn by the respondent-assessee. Undoubtedly, the respondent-assessee has drawn income on account of interest based on deposits made by the members of the respondent-assessee for maintenance of their houses and as such liability of the respondent-assessee to pay tax on the same cannot be doubted, but since the activity on which the aforesaid interest income was earned by the respondent-assessee had per se some expenses connected therewith as a matter of obligation at the hands of the respondent-assessee to its members who had made deposits, we are satisfied that the deduction ordered by the Income Tax Appellate Tribunal to the respondent-assessee on account of expenses incurred towards maintenance of houses was fully justified.

The second contention advanced by the learned Counsel for the appellant was that the issue of interest income could not be confused with the issue of expenses incurred on account of maintenance of houses and as such expenses on account of maintenance of houses could not in any case be deducted from out of the interest income by the respondent-assessee. We are afraid that it is not possible for us even to accept the instant submission advanced on behalf of the Revenue. As already noticed hereinabove, interest was derived on deposits made by the members of the society requiring the respondent-assessee to discharge the liability of maintaining their houses. As a matter of executing the obligation for the deposits made, the respondent-assessee was incurring expenses. It is those very expenses for which deposits were made. The contractual obligation between the members of the society and the respondent-assessee came to be satisfied only after the deposits were accepted and the reciprocal maintenance arrangements were carried out through the expenses referred to hereinabove. As such, they must be treated as part and parcel of the contractual agreement between the members of the society and the respondent-assessee. Thus viewed, we are satisfied that the Income Tax Appellate Tribunal was fully justified in allowing deduction on account of expenses incurred towards maintenance of houses by the respondent-assessee. At this stage, it would also be necessary to notice that the Revenue is stated to have acknowledged the fact that expenses were incurred by the respondent-assessee towards maintenance in furtherance of the deposits made by the members of the society to the respondent-assessee. The aforesaid acknowledgment has not been disputed even during the course of hearing before us.

For the reasons recorded hereinabove, we find no merit in this appeal and the same is accordingly dismissed.

Since the instant appeal has been dismissed on the merits, it is not necessary for us to pass a formal order condoning either the delay in filing the appeal or refiling the same.