Deductibility of interest on compulsory co-operative bank share capital treated as business outgo, not profit appropriation.

Interest paid by a co-operative bank on compulsory share capital subscribed by members for availing banking facilities was treated as a deductible business outgo. Because the capital was repayable on cessation of membership, the payment was characterised as a charge on business receipts rather than a distribution or appropriation of profit. On identical facts, the view of the first appellate authority and the co-ordinate bench line of authority was applied, and the Revenue's disallowance was not sustained.

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Issues: Whether interest paid on share capital by a co-operative bank is allowable as a deduction and not an appropriation of profit.

Analysis: The share capital of a co-operative society was treated as distinct from the share capital of a company because members are required to subscribe to it for availing banking facilities and the capital is repayable when membership ceases. On that footing, the payment of interest on such share capital was regarded as a charge on the business receipts and not a distribution of profits. The view taken by the first appellate authority, supported by the co-ordinate bench decision in the assessee's own line of authority, was held applicable on identical facts.

Conclusion: The interest on share capital was held to be allowable as deduction and not assessable as appropriation of profit, in favour of the assessee.

Final Conclusion: The Revenue's challenge failed and the disallowance made by the Assessing Officer was not sustained.

Ratio Decidendi: In the case of a co-operative society carrying on banking business, interest paid on compulsory share capital subscribed by members and repayable on cessation of membership is a deductible business outgo and not an appropriation of profit.

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