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Interest from Surplus Funds is Taxable, Not Deductible for Cooperative Credit Societies, Rules Court. The HC allowed the department's appeal under Section 206-A of the Income Tax Act, overturning the Tribunal's order. It ruled that interest earned from ...
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Interest from Surplus Funds is Taxable, Not Deductible for Cooperative Credit Societies, Rules Court.
The HC allowed the department's appeal under Section 206-A of the Income Tax Act, overturning the Tribunal's order. It ruled that interest earned from surplus funds deposited in post offices and banks is taxable under Section 56 and not eligible for deduction under Section 80P(2)(d), as it does not constitute income derived from business activities of a cooperative credit society. The decision aligns with precedent set by the Division Bench and the Apex Court, emphasizing that such interest income is not exempt, thereby ruling against the assessee.
Issues: Appeal under Section 206-A of the Income Tax Department against Tribunal's order.
Analysis: The High Court heard arguments from both parties regarding the appeal filed by the department under Section 206-A of the Income Tax Department against the Tribunal's order dated 14.01.2016. The questions of law raised in the appeal revolved around the eligibility of interest earned from surplus funds deposited with post offices and banks for deduction under Section 80P(2)(d) of the Income Tax Act, 1961 as income derived from business and profession. The court referred to a previous decision of a Division Bench in a similar case and a judgment of the Hon'ble Apex Court in Totgar's Cooperative Sale Society Ltd. v. Income Tax Officer, emphasizing that interest earned from such deposits would be chargeable to tax under Section 56 of the Act as the primary object of a cooperative credit society is not investment in securities.
The court ruled in favor of the department, allowing the appeal and deciding the substantial questions of law in favor of the department and against the assessee. The judgment highlighted that interest earned from investments made in post offices and banks is not exempt under Section 80P(2)(d) of the Income Tax Act, 1961, as it does not align with the primary objectives of a cooperative credit society.
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