Section 57

Section 57 — the law in short

What the courts have decided on section 57, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Totgars Co-operative Sale Society Ltd v ITO Supreme CourtHelps department
  My society invested surplus funds in short-term bank deposits. Is that interest covered by 80P?
  No. Interest on surplus funds not required for immediate business use is not attributable to providing credit to members or to marketing their produce. It is income from other sources under s.56 and outside s.80P(2)(a)(i).
• Madhav Prasad Jatia v CIT Supreme CourtHelps department
  I borrowed on overdraft to honour a personal donation rather than sell my shares. Can I deduct the interest as it protected my income-earning assets?
  No. The Supreme Court held that interest on money borrowed to meet a personal obligation is not deductible, either as interest on capital borrowed for the purpose of business or as business expenditure. The borrowing here was completely unrelated to the purpose of the business and was actually used for making charity. The argument that the overdraft was drawn on to avoid selling shares did not make the borrowing a business borrowing. The Court also refused a deduction for interest credited on the unpaid part of the donation, since no trust in favour of the college had come into existence. The appeals were dismissed with costs.
• Sanjay Aggarwal v National Faceless Assessment Centre High CourtHelps taxpayerValidity unconfirmed
  You asked for a personal hearing and the faceless unit ignored it. Does 'may' mean they can?
  No. Section 144B(7) uses 'may', but that usage cannot absolve the Revenue of the obligation to consider a request for a personal hearing. The assessment order was set aside.
• ITO v Sahakara Nagar Credit Co-operative Society ITATCuts both waysValidity unconfirmed
  My society has nominal and associate members. Does that alone destroy the 80P deduction?
  No. Where the State Co-operative Societies Act permits those classes of membership, their presence is not by itself a ground to disallow s.80P. The outcome was mixed, though: rental, commission and miscellaneous receipts were held ineligible.
• Venus Parkland Co-Op Housing Service Society Ltd v ITO ITATHelps taxpayerValidity unconfirmed
  The Assessing Officer has taxed our society's bank FD interest as income from other sources and refused to allow the maintenance expenditure against it. Is there an answer?
  On these facts, yes - but read what the Tribunal actually did before relying on it. The Ahmedabad Bench held that a co-operative housing service society's fixed deposit interest was directly linked to the activity of maintaining the society, so the receipts had to be set against the maintenance expenditure they funded rather than taxed gross. The addition of Rs 24,31,919 on the fixed deposit interest was deleted, and the rent and other small receipts were treated the same way, leaving the net surplus of Rs 4,64,486 that the society had itself shown. The Tribunal then directed the Assessing Officer to allow the deduction of Rs 50,000 claimed under section 80P(2)(c)(ii). The reasoning ran through the principle of mutuality as stated by the Supreme Court in Venkatesh Premises Co-operative Society, and it did not deal with the Secunderabad Club decision on which the Commissioner (Appeals) had relied.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.