TaxTMI 
TaxTMI 
2011 (4) TMI 1422
X X X X Extracts X X X X
X X X X Extracts X X X X
....36(1)(viii) in respect of the following incomes: a. Income received from cooperatives on long- term funds on investments taxed as business ₹ 57,89,500/ income. b. Interest from banks ₹ 10,84,46,871/- c. Interest on advances/deposits on loans to employees. ₹ 9,95,152/- 2. The objective of the corporation is to provide long term loans/advances to cooperatives engaged in agriculture and allied activities and State Governments. There is no other activity carried on by the assessee. The income referred above are in the course of carrying on such business of providing long term finance and, therefore, are eligible for benefit u/s 36(1)(viii) of the Income-tax Act, 1961 and should be allowed. 3. The ld. CIT(A) has erred i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e uphold the order of the CIT(A) in holding that the assessee is not entitled to get deduction u/ 36(1)(viii) on the items involved in this ground of appeal. We, therefore, uphold the order of the CIT(A) on this issued. 9. However, in the course of hearing of this appeal, the learned counsel for the assessee pointed out that even if disallowance under sec. 36(1)(viii) is called for in respect of interest income, dividend, interest on advances or deposits, miscellaneous receipts and service charges of SDF loans, only the net profit is to be considered for the purpose of disallowance u/s 36(1)(viii) of the Act. This alternative contention was also raised by the assessee before the Tribunal in earlier years i.e., assessment years 1999-200 an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its from such activity should have been excluded i.e., expenditure should also be appropriated and only net amount should be reduced. I have considered appellant's argument carefully. It is undisputed fact that composite accounts are being maintained by the appellant. Further, it is also clear that only income arising out of these activities should be reduced and mere gross receipts should not be excluded from profits for purpose of computing deduction u/s 36(1)(viii). However, the appellant has failed to substantiate the nexus of any particular expense incurred for earning the above incomes. Regarding the interest incomes, the appellant has itself admitted that they were the surplus funds available which were parked during the interregn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts on record, AO is directed to reduce following expenses from respective item of receipt for purpose of exclusion from profits in computation of deduction u/s 36(1)(viii) when clearly borrowing was not for making short term deposits:- (i) In respect of interest from bank deposits:- It will not be proper to allocate pro-rata interest or other costs. However, as an analogy to section 80HHC, it is now accepted principle that 10% of receipt of this nature are expenses attributable to earning of such income. Therefore, 10% of receipt be allowed as expenditure and only 90% of receipt be excluded from profits for purpose of deduction u/s 36(1)(viii). (ii) In respect of dividend income:- The income is result of passive investments and doe....