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2019 (12) TMI 970 - AT - Income TaxBenefit of deduction u/s 80P(2) - interest income received - basis of declining claim of deduction u/ s 80P(2) is that the surplus funds deposited in bank account would partake character of 'income from other sources' but not 'income from business' - HELD THAT:- In the present case, the undisputed fact is that the assessee society is required to deposit 25% of its profit as mandated by section 43(2) of the M.P./ Chattisgarh Societies Act, 1960. Hence, the assessee is under legal obligation to keep 25% of its profits as reserves. Any interest accrued there on would certainly, in our considered view partake character of business income of the assessee. Hence, it would be eligible for deduction. Therefore, the A.O. is directed to allow deduction on the interest earned out of amount so reserved by the assessee i.e. 25% of profit transferred to reserves. A.O. ought to have allowed the expenditure incurred for the earning of the interest income, when he treated the same as 'income from other sources' - We find merit into the contention of the assessee that the set off of expenditure incurred ought to have been allowed by the A.O. When the interest income is charged to tax, the expenditure incurred for earning of such income would certainly be deductible. We direct accordingly. The A.O. would allow the deduction of expenditure incurred for earning of the interest income. We would like to clarify that the allowance of expenditure is restricted to the interest income, which has not been treated as a business income, in view of the discussion herein above. Both the grounds of the assessee are allowed in terms indicated herein above. Appeal of the assessee is allowed.
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