15th Feb 2010

The Supreme Court earlier this month called upon the Karnataka high court to reconsider question relating to income tax on credit societies in the case of Totgars' Cooperative Sale Society Ltd v Income Tax Officer. The cooperative credit society in this instance had surplus funds which they invested in short-term deposits with banks and in government securities and these societies provided credit facilities to its members and also marketed agricultural produce of its members. The question which arose was whether such interest income would qualify for deduction as business income under Section 80P(2)(a)(i) of the Income Tax Act. According to the high court such interest would fall under the head 'income from other sources' and therefore the assessee was not entitled to the benefit of deduction. Since this question was not discussed at all, the Supreme Court asked the Karnataka High Court to interpret Sections 56 and 57 of the Act and pass a fresh judgment.