Mudur Vyavasaya Seva Sahakari Sangha Ltd Vs ITO (ITAT Bangalore)
In the case of Mudur Vyavasaya Seva Sahakari Sangha Ltd Vs ITO (ITAT Bangalore), the issue revolves around the tax treatment of interest income received from cooperative banks and scheduled banks. The assessee contends that the entire interest income should not be taxed as income from other sources under section 56 of the Income Tax Act, 1961. Instead, they argue that the cost of funds used to generate this income should be allowable as an expense under section 57(iii).
The primary contention of the assessee is based on judicial precedents, particularly citing the case of Totgars’ Cooperative Sales Society Ltd. vs ITO Sirsi (2015) 58 taxmann.com 35 (Karnataka). In this case, the Karnataka High Court ruled that expenses incurred in earning interest income should be allowed as deductions, specifically mentioning the cost of funds.
Similarly, the assessee refers to a decision by a Co-ordinate Bench of the Tribunal in the case of The West Coast Paper Mill Employees Souhardha Credit Coop. Ltd., which upheld the allowance of cost of funds against interest income from cooperative banks.
The crux of the argument is that the net income should be considered for taxation after deducting the expenses incurred in earning it, including the cost of funds. By allowing such deductions, the taxable income would more accurately reflect the economic profit earned by the assessee.
