In Shree Modhpatni Co-op Credit Society Ltd. v. DCIT, the ITAT, Ahmedabad held that only net interest income earned by the assessee from FDRs with nationalized banks should be excluded from the claim of deduction since such income are not deductible under the provisions of 80P(2) of the Income Tax Act.
Assessee, a Credit C-operative Society earned interest income from fixed deposits with nationalized and private banks and claimed deduction of such income under section 80P(2) of the Income Tax Act.
The Assessing Officer was of the view that such income does not qualify for grant of deduction under section 80P(2) and accordingly, disallowed the same. Assesse failed to secure relief from the first appellate authority and therefore, preferred a second appeal before the Appellate Tribunal.
The bench noticed the decision of the Gujarat High Court in the case of State Bank of India Vs. CIT, wherein it was held that interest earned from investments made in any bank, not being a co-operative society, is not deductible under section 80P(2)(d) of the Income Tax Act.
Assessee, though admitting the fact that there case is squarely covered by the above decision, contended that only net interest income earned by the assessee from FDRs. with nationalized banks should be excluded fromthe claim of deduction.
Accepting the above contention, the bench said, “We find force in this contentions of the ld. counsel for the assessee, because, only net amount is always taxable for the purpose of income tax. If assessee has incurred any expenditure, which is attributable to the earning of interest income, then, the AO shall examine that aspect and exclude the interest expenditure if any incurred by the assessee for earning this interest from bank. In other words, the only net interest income is to be excluded from the claim of deduction under section 80P(2) of the Income Tax Act.”
Read the full text of the Order below.
