Interest income paid on Interest Bearing Maintenance Security by RWA allowable

Interest Income paid on Interest Bearing Maintenance Security by Resident Welfare Association held to be allowable expenditure u/s 57(iii)

ABCAUS Case Law Citation:
ABCAUS 2964 (2019) (05) ITAT

Important Case Laws Cited/relied upon by the parties:
Belaire Condominium Association vs. ITO
Bangalore Club vs. CIT 350 ITR 509.  

In this case, the appeal by the assessee was directed against the order passed by the CIT(A).

The Assessee was a Resident Welfare Association (RWA). The Assessing Officer, in the order passed u/s 143(3) disallowed the amount of interest paid to members from the interest received on the ground that the deduction is not allowed as per section 57(iii) of the Income Tax Act, 1961  (the Act).

In appeal, the CIT(A) upheld the action of the Assessing Officer by relying on the decision of the Hon’ble Supreme Court.

Before the Tribunal, the assessee contened that the Assessing Officer had disregarded the fact that the Interest paid to Members is out of Maintenance Security held separately for each member by RWA. It was also contended that the said Interest paid to each members had been made after deduction of Tax at Source and was offered for Taxation in the hands of members. Therefore, addition made amounted to to Double Taxation which was against the principles of Taxation.

It was submitted that the assessee had received interest on account of interest bearing maintenance security kept with banks and had also paid interest to members being on interest bearing maintenance security. The net interest income was offered in the income-tax return as ‘Interest income.’

It was further submitted that in the case of sister concern of the assessee, the Tribunal under identical circumstances had deleted the addition made by the Assessing Officer and upheld by the CIT(A).

The Tribunal observed that in the case of the sister RWA of the assessee, the Coordinate Bench had rejected the contention of the Revenue that the interest expenditure had not been incurred to earn interest income. The Bench held that it was not a case of exemption on the principle of mutuality.

Following the said decision , the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to delete the addition.

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