TMI Blog2021 (12) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Totagars Co-operative Sale Society Ltd. [ 2015 (4) TMI 829 - KARNATAKA HIGH COURT] The assessee has not raised the plea before the Income Tax Authorities that it has to be given deduction u/s 57 of the I.T.Act, in respect of expenditure for earning the interest income. However, inspite of such plea not being raised before the lower authorities, we are of the view that since the Act prescribes for taxing only the net income (i.e. total income minus the expenses incurred for earning such 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 Totagars Sale Co-operative Society[supra]. Claim of deduction u/s 80P(2)(c) - W e noticed that the assessee is having income from distribution of food grains and kerosene under PDS scheme. The net profit arrived from PDS scheme is ₹ 1,08,554, which does not qualify for deduction u/s 80P(2)(a)(i) of the Act. However, the said income is allowable for deduction u/s 80P(2)(c) of the Act (u/s 80P(2)(c) the amount of deduction is restricted to ₹ 50,000). In the instant case, the A.O. had granted deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting that the interest income on fixed deposits, when considered under the head other sources, the interest paid was also required to be set off against the income, on the facts and circumstances of the case. 8. The CIT was not justified in holding that the claim of deduction under section 80P(2)(c) of the Act, was not in order and was to be disallowed, which is contrary to fact, on the facts and circumstances of the case. 9. The appellant craves leave to add, alter, amend, substitute, change and delete any of the grounds of appeal. 10. For these grounds that may be urged at the time of hearing of appeal, the appellant prays that appeal may be allowed for the advancement of substantial cause of justice and equity. 3. The brief facts of the case are as follows: The assessee is a co-operative society registered under the Karnataka Co-operative Societies Act, 1959. It is engaged in providing credit facilities to its members and accepting deposits from its members. For the assessment year 2015- 2016, return of income was filed on 09.03.2016 declaring `NIL income after claiming deduction u/s 80P(2) of the Act amounting to ₹ 15,17,065. The assessment was sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a)(i) of the IT Act, 1961. 6. Therefore, the assessment order passed by the ITO, W- 1(3), Mysuru for AY 2015-16 u/s 143(3) of the IT Act, 1961 on 18.12.2017 is held to be erroneous and prejudicial to the interest of revenue and the AO is directed to revise the assessment order accordingly after affording the assessee reasonable opportunity of being heard. 4. Aggrieved, the assessee has filed this appeal before the Tribunal. The learned AR submitted that the interest income received from co-operative Banks is entitled to deduction u/s 80P(2)(a)(i) of the Act. The learned AR further submitted that assuming interest income is to be assessed as income from other sources, the expenditure incurred for earning such income ought to be allowed as a deduction u/s 57 of the I.T.Act. In this context, the learned AR relied on the judgment of the Hon ble jurisdictional High Court in the case of Totagars Co-operative Sale Society Ltd. v. ITO reported in (2015) 58 Taxmann.com 35 (Kar.) (judgment dated 25.03.2015). As regards the claim of deduction u/s 80P(2)(c) of the Act, the learned AR submitted that the A.O. has verified the income offered to tax and also made disallowance u/s 80P(2)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id initially claim deduction under Section 80P(2). Upon the pronouncement of the order by the Apex Court, in these appeals referred to supra, the income earned on the interest is declared as other income falling under Section 56 of the Income Tax Act. Then the next immediate question that follows is as to whether the entire fund i.e., in deposit with the Bank is taxable or the proportionate expenditure incurred by the appellant requires deduction. It is logical that when the Revenue is permitted to assess and recover taxes from assessee under Section 56 by treating the income earned by interest as income from other sources , the appellant shall be entitled for proportionate expenditure cost incurred in mobilizing the deposit placed in the Bank/s. What can be taxed is only the net income which the appellant earns after deducting cost and expenditure incurred and administrative expenses incurred by the assessee. 13. Accordingly, we answer the question of law and hold that the Tribunal was not right in coming to the conclusion that the interest earned by the appellant is an income from other sources without allowing deduction in respect of the proportionate costs, administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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