2011 (4) TMI 1422

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....cer in denying the claim of deduction u/s 36(1)(viii) in respect of the following incomes: a. Income received from cooperatives on long- term funds on investments taxed as business Rs. 57,89,500/ income. b. Interest from banks Rs. 10,84,46,871/- c. Interest on advances/deposits on loans to employees. Rs. 9,95,152/- 2. The objective of the corporation is to provide long term loans/advances to cooperatives engaged in agriculture and allied activities and State Governments. There is no other activity carried on by the assessee. The income referred above are in the course of carrying on such business of providing long term finance and, therefore, are eligible for benefit u/s 36(1)(viii) of the Income-tax Act, 1961 and....

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....facts in the assessment years 1999-2000 and 2004-05 as decided by the Tribunal, we uphold the order of the CIT(A) in holding that the assessee is not entitled to get deduction u/ 36(1)(viii) on the items involved in this ground of appeal. We, therefore, uphold the order of the CIT(A) on this issued. 9. However, in the course of hearing of this appeal, the learned counsel for the assessee pointed out that even if disallowance under sec. 36(1)(viii) is called for in respect of interest income, dividend, interest on advances or deposits, miscellaneous receipts and service charges of SDF loans, only the net profit is to be considered for the purpose of disallowance u/s 36(1)(viii) of the Act. This alternative contention was also raised....

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....s excluded gross receipts from short term deposits from profit and gains of business whereas profits from such activity should have been excluded i.e., expenditure should also be appropriated and only net amount should be reduced. I have considered appellant's argument carefully. It is undisputed fact that composite accounts are being maintained by the appellant. Further, it is also clear that only income arising out of these activities should be reduced and mere gross receipts should not be excluded from profits for purpose of computing deduction u/s 36(1)(viii). However, the appellant has failed to substantiate the nexus of any particular expense incurred for earning the above incomes. Regarding the interest incomes, the appellan....

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....een the income earned and the expenditure incurred by the assessee. In the above background, of the facts on record, AO is directed to reduce following expenses from respective item of receipt for purpose of exclusion from profits in computation of deduction u/s 36(1)(viii) when clearly borrowing was not for making short term deposits:- (i) In respect of interest from bank deposits:- It will not be proper to allocate pro-rata interest or other costs. However, as an analogy to section 80HHC, it is now accepted principle that 10% of receipt of this nature are expenses attributable to earning of such income. Therefore, 10% of receipt be allowed as expenditure and only 90% of receipt be excluded from profits for purpose of ded....