CIT v. South Eastern Railway Employees Co-op. Credit Society Ltd.

INCOME TAX ACT, 1961

--Deduction under section 80P--Employees credit society Interest earned from investments--Not attributable to assessee's business --Interest earned from investments not being attributable to the business of providing credit facilities to the members of an Employees Credit Society, was not eligible for deduction under section 80P(2)(a)(i).--Assessee, an employees co-operative, credit society, was in receipt of income arising out of credit facilities granted to its members and also income arising out of investments in bank and financial institution. AO treated the income arising out of investments as not deductible under section 80P(2) on the ground that the same was not attributable to assessee's business. According to assessee, it was under the impression that income arising out of investments was also attributable to the business of providing credit facilities to its members and on that basis it did not separately provide for the expenditure incurred for the purpose of earning from investments which were obviously made from out of the funds deposited by the members resultantly expenditure was artifically enhanced and income arising out of business of providing credit facilities to its members got reduced and at the same time deduction under section 80P also got reduced. Held: Interest income earned by the assessee from the investment was not attributable to the business of providing credit facilities to its members and therefore, not eligible for deduction. However, interest paid to the members for the purpose of earning interest from investment was to be deducted from the expenses of eligible business and consequent increased amount of profits of eligible business would be available to the assessee under section 80P. Matter was, therefore, remanded back to AO.