2017 (8) TMI 1690 - AT - Income Tax

Deduction u/s.80P - interest income received by the appellant from Fixed Deposit of nationalized banks under the head income from other sources u/s.56 - HELD THAT - As stated the assessee deposited the amount in nationalized bank not in Co-operative bank. So far interest income is not eligible for deduction u/s.80P of the I.T. Act. Therefore, we are not inclined to given any relief to the assessee with regard to Ground No.1. Assessee incurred some expenses on the deposit for making FD and also incurred expenses with regard to interest etc . - As relying on case of Totgars Co-operative Sale Society Ltd. 2015 (4) TMI 829 - KARNATAKA HIGH COURT the appellant is entitle for deduction of proportionate expenditure or actual expenditure which the appellant may have incurred in mobilizing the funds placed in deposit with the bank and the same needs to be calculated by the Assessing Authority. We remit this matter back to the file of the Assessing Officer who will examine the case of the assessee that how much expenditure he has incurred in mobilizing the funds and thereafter, Assessing Officer will pass an appropriate order. Appeal filed by the assessee is partly allowed.

Summary

Issues:
1. Taxability of interest income from fixed deposits of nationalized banks under section 56 of the Income Tax Act, 1961.
2. Allowance of proportionate or actual expenditure incurred for earning interest income.

Issue 1: Taxability of Interest Income:
The appellant appealed against the order of the Commissioner of Income Tax (Appeals) regarding the taxability of interest income from fixed deposits of nationalized banks under section 56 of the Income Tax Act, 1961. The appellant argued that the interest income should be eligible for deduction under section 80P of the Act. However, it was found that the interest income of Rs.19,54,732/- was not eligible for deduction under section 80P. The appellant's contention for allowing proportionate expenses was not accepted, leading to an addition of Rs.19,54,732/- to the total income.

Issue 2: Allowance of Expenditure:
The appellant further contended that expenses incurred for earning the interest income should be allowed as a deduction under section 57 of the Act. Citing a judgment from the Karnataka High Court, the appellant argued that only the net interest income, after deducting administrative and proportionate expenses, should be taxed under section 56. Following the Karnataka High Court judgment, the Tribunal allowed the appellant to claim proportionate or actual expenditure incurred in mobilizing the funds placed in the fixed deposits. The matter was remitted back to the Assessing Officer to calculate the allowable expenditure and pass an appropriate order.

In conclusion, the appeal filed by the appellant was partly allowed, with the Tribunal directing the Assessing Officer to determine the proportionate or actual expenditure incurred for earning the interest income, in accordance with the provisions of the Income Tax Act.