Employees’ Welfare Society Can Adjust Member Benefits Before Taxation: ITAT Allows Set-Off of Welfare Claims Against Interest Income

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that an employees’ welfare society is entitled to set off payments made to its members—such as death claims, pension, and retirement benefits—against its interest income before determining taxable income. The bench of Anubhav Sharma (Judicial Member) and Manish Agarwal (Accountant Member) ruled that tax department erred in denying the society the right to adjust such welfare outgoings while computing its taxable receipts. The appeal challenged the order of the Commissioner of Income Tax (Appeals), which had upheld the Assessing Officer’s decision to tax the society’s entire interest income without allowing deduction of welfare payments made to members. The assessee society, registered with the Registrar of Societies since 1976, works for the social, cultural, and economic welfare of employees and provides various benefits including relief measures, pensions, retirement benefits, and financial assistance to members and their families. For AY 2015–16, the society filed its return declaring nil income. However, the Assessing Officer assessed the income at ₹2.86 crore, treating interest earned on fixed deposits and savings bank accounts as taxable income. The tax department accepted that subscription receipts from members amounting to ₹2.57 crore were exempt under the principle of mutuality, but held that interest income received from banks—being third parties—was taxable. This view relied on the Supreme Court judgment in Bangalore Club v. CIT, which held that interest income from bank deposits may fall outside the doctrine of mutuality. The society argued that even if the interest income was considered taxable, the authorities failed to consider the substantial welfare payments made to members during the year, which included: Death claims, Voluntary retirement benefits, Pension payments, and Retirement benefits. The total welfare outgoings amounted to ₹3.35 crore, which exceeded the interest income assessed by the department. Therefore, the society contended that these payments should be deducted from the interest income before determining taxable income. The ITAT noted that the subscriptions received from members formed part of the corpus and were governed by the principle of mutuality, making them immune from taxation. The Tribunal also acknowledged that the tax authorities had implicitly accepted this position. While discussing the applicability of the Supreme Court ruling in Bangalore Club, the Tribunal observed that the decision dealt primarily with clubs and similar entities providing services that could have commercial characteristics. In contrast, the present society had the sole objective of creating a common fund for employee welfare, particularly for events such as death, retirement, and pension support. The Bench emphasized that the payments made by the society were consistent with its memorandum of association and were not disputed by the tax department. These payments formed part of the legitimate application of the society’s funds toward its welfare objectives. According to the Tribunal, when a welfare society maintains a common fund consisting of subscriptions and interest income, it has the right to appropriate payments made to members against the receipts of the year. The Bench further held that the society was justified in first applying interest income towards welfare payments and using member subscriptions only if necessary. Such an approach was consistent with the long-term objective of maintaining funds for future liabilities toward members. Allowing the appeal, the ITAT directed the Assessing Officer to set off the welfare payments made to members against the taxable receipts and then recompute the assessment accordingly. The Tribunal concluded that since the ultimate beneficiaries of the society’s funds were its members and their families, and the surplus could not be used for any other purpose, denying such a set-off was erroneous. Case Details Case Title: All India Oriental Bank of Employees Welfare Society Versus ITO Citation: JURISHOUR-253-ITA-2026(DEL) Case No.: ITA No.7645/Del/2018 Date: 06.03.2026 Counsel For Appellant: K. Sampath, Adv. Counsel For Respondent: Ajay Kumar Arora, Sr. DR Click Here To Read Order Read More: Mere Allegation of Cash Loan from Asharam Ashram Can’t Be Treated as Undisclosed Income Without Evidence: ITAT

Employees’ Welfare Society Can Adjust Member Benefits Before Taxation: ITAT Allows Set-Off of Welfare Claims Against Interest Income

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