TaxTMI 
TaxTMI 
2026 (4) TMI 1626
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....and claimed the same amount of Rs. 1,72,14,082/- as deduction u/s. 57 of the Act. Under the receipts, the appellant disclosed interest receipts of Rs. 72,96,114/- and other receipts such as maintenance receipts from society members and miscellaneous receipts from the members. The interest income receipts included interest receipts of Rs. 42,50,635/-from fixed deposits with Banks, interest income of Rs. 29,26,709/- from M/s. Applewood Estate P Ltd., interest on maintenance charges from members amounting to Rs. 1,18,436 and interest on income tax refund of Rs. 334/-. Since the appellant has not filed its Return of income within prescribed due date u/s 139(1) of the Act, the AO invoked the provision of 80AC of IT Act and assessed the income Rs. 71,77,678/- under the head Income from other sources. 3. Aggrieved against the assessment order, assessee filed an appeal before Ld. CIT(A) who dismissed the appeal on merits of the case by observing as follows: "... ... In the course of the appellate proceedings, the appellant submitted that the operations of the assessee housing society are governed by the concept of mutuality, hence every income earned by it is outside the scope ....
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....s 139(4) of the Act, therefore the appellant is not eligible for deduction u/s. 80P of the Act. Reliance is placed on the judgment of Hon'ble Kerala High Court in the case of Nageshwar Rangekallu Chethu Vyavasaya Thozhilali Sahakarana Sangham v. CIT [2023] 152 taxmann.com 347 (Kerala) wherein the Hon'ble Court held that without a valid return of income, deduction u/s 80P cannot be allowed. ... ... ... ... ... Further reliance is also placed on the judgment of the Hon'ble Apex Court in the case of Dilip Kumar & Co. AIR 2018 SC 3606 wherein the Hon'ble Apex Court held that in taxing statute one has to look merely what is clearly said and that there is no room for intendment or presumption. It has further been observed by the Hon'ble Apex Court that in an exemption clause strict interpretation of the statute should be done to ensure that the exemption squarely falls within the parameter enumerated and satisfies all conditions precedent for availing the exemption. 6.3. Respectfully following the above judgments, it is held that appellant is not eligible for deduction u/s. 80P of the Act as the return was not filed within the time ....
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....in Secunderabad Club vs. CIT (2023) 457 ITR 263 (SC), wherein it has held that income derived from non-members would not fall within the ambit of mutuality. Recording the above submission, Ground No. 1 raised by the assessee is hereby dismissed. 6. Regarding Ground Nos. 2 & 3 namely the interest of Fixed Deposit of Rs. 42,50,635/- and interest income of Rs. 29,26,709/- from M/s. Applewood Estate Pvt. Ltd. not to be taxed, since the same has been diverted by overriding title. 6.1 The assessee claims that the interest income has arisen from the maintenance deposits collected from its members of the society which were deposited in the bank under society maintenance and township development. The deposits were collected specifically for the purpose of meeting maintenance and common expenses of the society and the township. Therefore, the interest earned on such deposits is intrinsically linked with the maintenance activity of the society and township. In this regard, Ld. Counsel drawn our attention to the registered Sale Deed entered between the developer and the Buyer (members of the society) of the land, more particularly Clause 4 of the registered Sale Deed which reads as under....
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....in its name. The obligation to utilize such funds for maintenance purposes is only an application of income after accrual and not a case of diversion at source. 7.2. Therefore, it is necessary to distinguish between Diversion and Application of income. It is a settled proposition of law, as laid down by the Hon'ble Supreme Court in CIT vs. Sitaldas Tirathdas (41 ITR 367), that "the correct test is whether the amount sought to be deducted, in truth, never reached the assessee as his income." In the present case * The interest income is first credited to the assessee * The assessee retains full domain and control over such income * There is no enforceable claim by any third party at the stage of accrual Thus, the case clearly falls within the category of application of income and not diversion of income as claimed by the assessee. 7.3. Further, the issue is squarely covered against the assessee by the judgment of the Hon'ble Supreme Court in Totgars Co-operative Sale Society Ltd. vs. ITO (322 ITR 283), wherein it has been held that "Interest earned on deposits of surplus funds is assessable under the head "Income from Other Sources". In the present....
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....: * Maintenance of property * Common amenities * Administrative functioning of the society These are application of funds and not expenses incurred for earning interest income. Even otherwise, once it is held (as in Ground Nos. 2 & 3) that the interest income is independently taxable under section 56, the corresponding expenditure must satisfy the strict test of section 57, which the assessee has failed to do. In absence of any direct and exclusive nexus between the expenditure claimed and the earning of interest income, the Assessing Officer was justified in disallowing the same. Accordingly, Ground No. 4 raised by the assessee is devoid of merits and liable to be dismissed. 9. Regarding Ground No.5 namely claim of deduction under Section 80P(2)(d) of the Act. The assessee submitted that interested income of Rs. 42,50,635/- earned from Kalupur Commercial Cooperative Bank Ltd. is eligible for deduction under Section 80P(2)(d) of the Act. However, the lower authorities denied the same since the assessee failed to file the Return within the due date prescribed under Section 139(1) of the Act but filed belated return under Section 139(4) of the Act. Ld....