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2023 (8) TMI 1110 - AT - Income TaxDeduction u/s 80P - Interest on deposits were made under the provisions of Karnataka Souharda Sahakari Act, 1997 - HELD THAT:- The assessee has received interest on deposits from DCCB but not the interest from credit facilities provided to members during the ordinary course of business. However the ld. AR submitted that the assessee is required to maintain certain funds as per the relevant Act/Rules but he has not shown under which Act/rules and how much funds are required to deposited. Since the assessee is registered under the Karnataka Souharda Sahakari Act, 1997 therefore the issue is remitted back to the file of the AO and assessee is directed to demonstrate the mandatory requirement for following the mandatory maintaining of funds as per Karnataka Souharda Sahakari Act, 1997. If it is found in order, then the amount of deposits which are required to be maintained as per statutory requirement and interest earned to such extent will qualify for deduction u/s. 80P(2)(a)(i) of the Act. However, interest earned on deposits exceeding the statutory requirement will not be considered for allowing deduction u/s. 80P(2)(a)(i) - This issue is partly allowed. Further, the assessee has also raised issue in regard to deduction u/s. 80P(2)(d) on such interest received is also not sustainable because the assessee has not received the interest from cooperative society. Accordingly this issue raised by the assessee is also dismissed. Alternative ground that the expenditure should be allowed towards earning of such income - We are in agreement that the necessary expenditure should be allowed towards earning of such income. As relying on M/S THE TOTGARS' CO-OPERATIVE SALE SOCIETY LTD. VERSUS THE INCOME TAX OFFICER, WARD-1, SIRSI [2015 (4) TMI 829 - KARNATAKA HIGH COURT] we hold that the assessee is entitled for cost of funds and only the net interest income is taxable u/s. 56 of the Act. Considering the alternative submissions this issue is remitted to the file of AO for determination of net income after set off of cost of funds/interest expenditure in earning the interest income for the purpose of taxability u/s. 56 of the Act as per law. This issue is allowed for statistical purposes.
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