TMI Blog2021 (12) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... gains attributable to non-members arising as a result of advancement of loans was held to be not an allowable deduction under Section 80P(2)(a)(i) of the Act. In view of the above, we do not find any merits in the argument advanced by the learned counsel for the assessee. How to determine the income which is not eligible for deduction under section 80P(2)(a)(i) - The income on the deposits from the bank has been treated as income from other sources but the gross income cannot be excluded from the deduction available to the assessee under the provisions of section 80P(2)(a)(i) - It is the net interest income on the deposits from the bank which needs to be excluded from the amount of deduction claimed under section 80P(2)(a)(i) of the Act and the same should be brought to tax under the head income from other sources as per the provisions of section 56 - To determine, the net income on the deposits from the bank, amount of expenses incurred in generating such interest income should be allowed as deduction from the gross income of interest in pursuance to the provisions of section 57(iii) . In case of co-operative credit society, income to which benefit of section 80P(2)(a)(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of ₹ 12,61,040/- should also be allowed. 4. The facts in brief are that the assessee in the present case is a co-operative society and engaged in the activity of providing credit facilities to the members. In the year under consideration the assessee apart from interest income earned from credit facilities provided to its member, has also earned interest of ₹ 12,61,040/- from the deposit made with bank other than cooperative bank. The surplus fund was deposited with the banks in order to generate the interest income as well as to maintain the liquidity for the repayment of the deposits accepted from the members. As per the AO, the impugned amount of interest was not arising to the assessee from the activities of financing to the members. Thus, the AO held that the interest income of ₹ 12,61,040/- earned on the deposits with bank other than cooperative bank is not eligible for deduction under section 80P(2)(a)(i) of the Act as the same is taxable as income from other source under section 56 of the Act. 5. Aggrieved assessee preferred an appeal to the learned CIT (A) who confirmed the order of the AO. 6. Being aggrieved by the order of the learned C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Mavilayi Service Co-operative Bank Ltd. v. CIT by the Hon'ble Supreme Court of India wherein, the primary agricultural credit societies were held to be entitled to the benefit of the deduction contained in Section 80P(2)(a)(i) of the Act, notwithstanding the fact that the society may also be giving loans to its members which are not related to agriculture. However, if it is found that there are instances of loans being given to the non-members, profits attributable to such loans obviously were not liable to be deducted. The essence of this decision is that absolute denial of deduction under Section 80P(2)(a)(i) of the Act to the assessee's (cooperative societies) engaged in the providing credit facilities to the non-members along with its members is not warranted under the Act and only that part of profit and gains that is attributable and/or pertains to the non-members shall not be allowed as deduction under Section 80P(2)(a)(i) of the Act. The pertinent observation of the Hon'ble Court is reproduced as under: Clearly, therefore, once section 80P(4) is out of harm's way, all the assessees in the present case are entitled to the benefit of the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and exclusively for the purpose of earning such income. There is no concept of proportionate expenses envisaged under the provisions of section 57 of the Act as discussed above. The provisions require to deduct only those expenses which have been incurred wholly and exclusively for the purpose of earning such income. Thus in such facts and circumstances we are of the view the expenses which have been incurred directly by the assessee in the earning of such income should only be eligible for deduction under section 57 of the Act. To put it differently, the expenses such as electricity, rental, audits, printing and stationery which cannot be said to have been incurred wholly and exclusively for the purpose of earning the interest income. Thus, we are not in agreement with the contention of the learned AR for the assessee. Thus we direct the AO to work out the interest income on the deposits from the bank after deducting the corresponding expenses incurred by the assessee in generating the interest income. To our understanding such expenses have to be brought on record by the assessee based on cogent materials. Furthermore, if the assessee has made deposits in the banks out of the mon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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