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2022 (1) TMI 292 - ITAT BANGALOREDeduction u/s 80P - claim for deduction on interest income - AO denied the deduction u/s.80P(2)(a)(i) for the reason that as per the decision rendered in the case of Totagars Co-operative Sale Society [2017 (7) TMI 1049 - KARNATAKA HIGH COURT] Interest income is taxable under the head income from other sources and will not be entitled to deduction under section 80P(2)(a)(i) - HELD THAT:- Supreme Court in Totgars Co-operative Sale Society [2010 (2) TMI 3 - SUPREME COURT] held that interest on such investments, cannot fall within the meaning of the expression "profits and gains of business" and that such interest income cannot be said to be attributable to the activities of the society, namely, carrying on the business of providing credit facilities to its members or marketing of agricultural produce of its members. The court has held that when the assessee society provides credit facilities to its members, it earns interest income. The interest which accrues on funds not immediately required by the assessee for its business purposes and which has been invested in specified securities as "investment" are ineligible for deduction under section 80P(2)(a)(i) It can thus be seen that the ratio laid down by the Hon’ble Karnataka High Court in the case of Totalgars Cooperative Sales Society [2017 (7) TMI 1049 - KARNATAKA HIGH COURT] is that in the light of the principles enunciated by the Supreme Court in Totgars Co-operative Sale Society (supra), in case of a society engaged in providing credit facilities to its members, income from investments made in banks does not fall within any of the categories mentioned in section 80P(2)(a) of the Act. However, section 80P(2)(d) of the Act specifically exempts interest earned from funds invested in co-operative societies. Therefore, to the extent of the interest earned from investments made by it with any co-operative society, a co-operative society is entitled to deduction of the whole of such income under section 80P(2)(d) of the Act. However, interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d). Allowance of corresponding expenditures proportionately on income earned by the appellant from investments which was claimed as deduction, alternatively under section 80 P [2][d] - HELD THAT:- Hon’ble ITAT, Bengaluru Bench in the case of Puttur Primary Co-operative Agriculture and Rural Development Bank Ltd.,[2021 (6) TMI 460 - ITAT BANGALORE] for Assessment Year 2016-17, held that the Assessee should be allowed expenses and the entire gross interest cannot be taxed. We remit the question of quantum of disallowance of interest income to be decided by the AO afresh in the light of the directions by the Tribunal in the decision referred to above. The AO will afford opportunity of being heard to the Assessee and filing appropriate evidence, if desired, by the Assessee to substantiate its case, before deciding the issue in the set aside proceedings.
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