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of <h1>Appeals allowed in tax case, deductions denied under Income-tax Act, remanded for further assessment.</h1> <h3>Sangam Coop. Credit Society Ltd. Versus The Assessing Officer, National e-assessment Centre, Delhi/The ITO, Ward 1 And TPS, Bagalkot.</h3> Sangam Coop. Credit Society Ltd. Versus The Assessing Officer, National e-assessment Centre, Delhi/The ITO, Ward 1 And TPS, Bagalkot. - TMI Issues Involved:1. Whether the interest earned from investments in co-operative banks should be treated as income from 'Other Sources' and thus not eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.2. Whether the gross interest instead of net interest should be taxed under section 56 of the Act, ignoring the proportionate interest expenses debited to the P&L account under section 57.Judgment Summary:Issue 1: Treatment of Interest IncomeThe primary issue in these appeals was the treatment of interest income earned from investments in co-operative banks. The revenue authorities treated this interest as income from 'Other Sources' and denied the deduction under section 80P(2)(d) of the Income-tax Act, 1961. The assessee, a co-operative society engaged in providing credit facilities to its members, argued that the interest earned on such deposits should be considered as operational income and thus eligible for deduction under section 80P(2)(a)(i). The Tribunal, however, upheld the revenue authorities' stance, citing the Supreme Court's decision in Totagars' Co-operative Sale Society Ltd., which clarified that interest earned from surplus funds is taxable under the head 'Income from Other Sources' and not eligible for deduction under section 80P(2)(a)(i). The Tribunal also referred to various case laws, including the Karnataka High Court's decision in PCIT v. Totagars Co-operative Sale Society, which supported the view that interest income from co-operative banks does not qualify for deduction under section 80P(2)(d).Issue 2: Taxation of Gross vs. Net InterestThe alternate ground raised by the assessee was that if the deduction under sections 80P(2)(a)(i) and 80P(2)(d) is not granted, the proportionate expenditure for earning interest income under section 57 should be allowed. The Tribunal agreed with this contention, emphasizing that only net income should be taxed, not the gross income. The Tribunal directed the Assessing Officer (AO) to examine whether the assessee incurred any expenditure for earning the interest income and to allow the same as a deduction under section 57. Additionally, if the assessee suffered a loss from its business activities, the AO was instructed to allow the set-off of such loss as per the law.Conclusion:The appeals were partly allowed for statistical purposes. The Tribunal upheld the denial of deduction under sections 80P(2)(a)(i) and 80P(2)(d) but directed the AO to consider the net interest income for taxation and to allow any eligible expenditure under section 57. The case was restored to the AO for further examination and appropriate action based on the Tribunal's directions.
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