Net income rule for co-operative society deductions: attributable expenditure must be apportioned before section 80P relief is allowed.

A co-operative society claiming deduction on interest and dividend income under section 80P(2)(d) must compute the benefit on net income, not gross receipts, where no separate accounts are maintained for exempt and taxable activities. The text states that common expenditure attributable to the exempt stream must first be identified and apportioned before deduction is allowed. On the facts discussed, a 50 per cent allocation of expenditure to the exempt activity was treated as a reasonable estimate, and the exemption could not be sustained on the full receipts without netting off such . The principle applied is that deduction under Chapter VI-A follows proper computation of income actually attributable to the exempt source.

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Issues: (i) Whether deduction under section 80P(2)(d) of the Income-tax Act, 1961, was admissible on the gross interest and dividend receipts or only on the net receipts after apportionment of expenditure; (ii) Whether the exemption of Rs. 2,49,948 was rightly granted on the basis of 50 per cent. allocation of expenditure to the exempt activity.

Issue (i): Whether deduction under section 80P(2)(d) of the Income-tax Act, 1961, was admissible on the gross interest and dividend receipts or only on the net receipts after apportionment of expenditure.

Analysis: Deduction under Chapter VI-A is computed only after arriving at the gross total income. Where a co-operative society maintains a composite account and no separate books are kept for exempt and taxable activities, the expenditure attributable to the exempt activity must be identified and deducted in arriving at the income eligible for deduction. The exemption for income by way of interest or dividends from investments with another co-operative society is confined to the income as properly computed, and not to gross receipts divorced from the cost of earning them.

Conclusion: Deduction under section 80P(2)(d) was not admissible on the gross receipts; it was allowable only on the net income computed after attributable expenditure.

Issue (ii): Whether the exemption of Rs. 2,49,948 was rightly granted on the basis of 50 per cent. allocation of expenditure to the exempt activity.

Analysis: The assessee had not maintained separate accounts for the taxable and exempt streams of income. In such circumstances, a reasonable apportionment of common expenditure was necessary to ascertain the true profits attributable to the exempt activity. The allocation of 50 per cent. of the receipts as deductible expenditure was upheld as a justified estimate on the facts.

Conclusion: The exemption of Rs. 2,49,948 was not sustainable to the extent it treated the entire amount as deductible without proper netting of expenditure.

Final Conclusion: The entitlement to deduction under section 80P(2)(d) had to be worked out on the basis of income actually attributable to the exempt activity after considering the expenditure incurred in earning it, and the Revenue's stand was accepted.

Ratio Decidendi: Where a co-operative society earns both taxable and exempt income from a composite business and maintains no separate accounts, the expenditure relatable to the exempt stream must be apportioned before allowing deduction under section 80P.

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