TMI Blog2021 (10) TMI 566X X X X Extracts X X X X X X X X Extracts X X X X ..... , the same is entitled to deduction u/s 80P(2)(d) of the I.T.Act. With these observations, we direct the A.O. to examine the claim of deduction u/s 80P(2)(d) of the I.T.Act, afresh. Deduction u/s 57 in respect of expenditure for earning the interest income - Inspite of such plea not being raised before the lower authorities, since the fundamental principle under Income-tax Act being that only net income has to be taxed and not the gross income, this plea of the assessee has to be necessarily entertained, especially in the light of the judgment of the Hon ble jurisdictional High Court in the case of Totgars Sales Co-operative Society Limited [ 2015 (4) TMI 829 - KARNATAKA HIGH COURT ]. Accordingly, the issue of deduction u/s 57 of the I.T.Act is restored to the files of the A.O. The A.O. is directed to examine whether assessee has incurred any expenditure for earning interest income, which is assessed under the head `income from other sources . If so, the same shall be allowed as deduction u/s 57 of the I.T.Act. The assessee is directed to co-operate with the department and furnish the necessary evidence for expeditious disposal of the matter. Appeal filed by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant for allowance of deduction u/s. 80P of the Act with reference to the extent of income derived from advances given to members apart from nominal members, which was exempt under the principles of mutuality as held by the Hon'ble Bombay High Court in the case of M/s. QUEPEM URBAN COOPERATIVE CREDIT SOCIETY LTD in ITA No. 22 to 24 of 2015 dated 17/04/2015 under the facts and in the circumstances of the appellant's case. 6. The learned CIT[A] ought not to have upheld the assessment of income earned by the appellant from investments made in South Canara District Co-op. Bank to the extent of ₹ 34,72,751/ - under the head Other Sources as against the claim of the appellant that the said interest income formed part of the income from business of providing credit facilities to the members and thus, was entitled to deduction u/s. 80P [2][a][i] of the Act following the judgement of the Hon'ble Karnataka High Court in the case of TUMKUR MERCHANTS SOUHARDA CREDIT CO-OPERATIVE LTD reported in [2015] 230 Taxman 309 [Kar] under the facts and in the circumstances of the appellant's case. 7. The learned CIT[A] ought to have appreciated that the appellant ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n u/s 80P(2)(d) of the I.T.Act since interest / dividend income was earned out of investments with co-operative banks. For denying the claim of deduction u/s 80P(2)(d) of the I.T.Act, the Assessing Officer relied on the judgment of the Hon ble Karnataka High Court in the case of Totagars Co-operative Sales Society reported in 395 ITR 611 (Kar.). 4. Aggrieved by the disallowance of deduction u/s 80P of the I.T.Act, the assessee preferred an appeal to the first appellate authority. The CIT(A) confirmed the view taken by the Assessing Officer. The CIT(A) held that the assessee was having more than 15% members as associate / nominal members, which violates the provisions of Karnataka Co-operative Societies Act, 1959. The CIT(A) further held that since the assessee was having majority of dealing with non-members, the judgment of the Hon ble Apex Court in the case of The Citizen Co-operative Society Ltd. v. ACIT (supra), is clearly applicable. The CIT(A) concluded by stating that as per the judgment of the Hon ble Apex Court in the case of The Citizen Co-operative Society Ltd. v. ACIT (supra), once the principle of mutuality is violated, deduction u/s 80P(2)(d) of the I.T.Act is also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P(2)(d) of the I.T.Act, the CIT(A) has not adjudicated the same for the reason that the assessee has violated the principle of mutuality. If the assessee receives / earns interest / dividend income out of investments with co-operative society, the same is entitled to deduction u/s 80P(2)(d) of the I.T.Act. With these observations, we direct the A.O. to examine the claim of deduction u/s 80P(2)(d) of the I.T.Act, afresh. 7.3 Insofar as ground No.8 is concerned, I find an identical issue was considered by the Hon ble jurisdictional High Court in the case of Totgars Co-operative Sales Society Ltd. v. ITO reported in [2015] 58 Taxmann.com 35 (Karnataka) (judgment dated 25.03.2015). The relevant findings of the Hon ble High Court, read as follows:- 11. Having heard the learned counsel for the parties and perusing the records and in the light of the finding recorded by the Hon ble Supreme Court that the interest income earned by the appellant falls within the category of other income what falls for consideration is to answer the question as to whether the Tribunal was right in law in holding that the income by way of interest was chargeable to tax under Section 56 of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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