TaxTMI Login
Just a moment...
Press 'Enter' to add multiple search terms. Rules for Better Search
Use comma for multiple locations.
---------------- For section wise search only -----------------
Accuracy Level ~ 90%
of 
Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
No Folders have been created
Are you sure you want to delete "My most important" ?
NOTE:
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
of Press 'Enter' after typing page number.
of Press 'Enter' after typing page number.
All Case Laws
Join Channel
Note
Bookmark
Share
Don't have an account? Register Here
of Press 'Enter' after typing page number.
Issues: (i) Whether interest earned by a co-operative society on deposits made pursuant to statutory requirements under the Karnataka State Co-operative Societies Act, 1959 is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961; (ii) whether, if any part of such deposits exceeds the statutory requirement and the corresponding interest is assessed under the head "Income from Other Sources", the related expenditure is allowable on a proportionate basis.
Issue (i): Whether interest earned by a co-operative society on deposits made pursuant to statutory requirements under the Karnataka State Co-operative Societies Act, 1959 is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
Analysis: The deposits were treated as not voluntary but as mandated by the statutory scheme governing co-operative societies. The relevant provisions required a reserve fund to be created and invested in specified institutions, which restricted free deployment or withdrawal of those funds for ordinary business purposes. On that footing, the interest arose from funds kept in compliance with a legal obligation and not from surplus funds parked for earning independent investment return. Such interest was therefore regarded as arising in the course of the assessee's business activity and not as passive income outside the business stream.
Conclusion: The interest on statutory deposits is eligible for deduction under section 80P(2)(a)(i), subject to verification that the deposits were made in compliance with the statutory requirement and to the extent of the amount so required.
Issue (ii): Whether, if any part of such deposits exceeds the statutory requirement and the corresponding interest is assessed under the head "Income from Other Sources", the related expenditure is allowable on a proportionate basis.
Analysis: The alternative plea proceeded on the basis that only the portion of deposits beyond the mandated statutory limit, if any, could be treated differently for tax purposes. If such interest is brought to tax as income from other sources, tax is chargeable only on net income, and the expenditure directly attributable to earning that income must be given effect to while computing the taxable amount.
Conclusion: Proportionate deduction of the corresponding cost, if any, is to be allowed while assessing any such interest as income from other sources.
Final Conclusion: The matter was sent back for verification of the statutory-compulsion component of the deposits and for fresh tax computation on that basis, with relief to follow accordingly.
Ratio Decidendi: Interest derived from deposits maintained under a statutory obligation by a co-operative society is business income for purposes of deduction under section 80P(2)(a)(i), and any excess amount, if separately taxable, must be assessed on a net-income basis after allowing related expenditure.
TaxTMI 
