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Issues involved:
The judgment involves the application of the principle of mutuality to determine the taxability of interest earned on fixed deposits by a mutual association registered under the Maharashtra Co-op. Housing Society Act, 1960. The main issue is whether the interest income received from banks by the association is eligible for deduction under section 80P(2)(d) of the Income Tax Act. Details of the Judgment: Issue 1: Application of Principle of Mutuality The appellant association, a mutual organization, collected life membership contributions from its members for infrastructure development. The AO added back the interest income received from banks to the total income, stating that since the interest was not received from Co-op. Societies, the appellant was not eligible for deduction under section 80P(2)(d). The CIT(A) upheld this view, leading to the appeal before the ITAT. Issue 2: Arguments and Rulings The appellant argued that the interest earned on fixed deposits should be covered under the principle of mutuality, citing cases such as CIT v/s. Bankipur Club Ltd. and CIT v/s. Cawnpore Club Ltd. The ITAT considered the decision in the case of ITO v/s. Hill Properties Ltd., where the principle of mutuality was accepted even for an incorporated company. Relying on various precedents, the ITAT held that the interest earned on fixed deposits with banks falls within the parameters of mutuality. Issue 3: Decision The ITAT concluded that the principle of mutuality is fully applicable to the case, emphasizing that the interest income on fixed deposits is covered within this principle. Referring to previous decisions and the case of Hill Properties Ltd., the ITAT allowed the appeals for both assessment years, overturning the decisions of the AO and CIT(A). In conclusion, the ITAT ruled in favor of the appellant, allowing the appeals and holding that the interest income earned on fixed deposits by the mutual association is not taxable, as it falls under the principle of mutuality.
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