In Brief
The National Cooperative Development Corporation sought tax deductions under Section 36(1)(viii) of the Income-tax Act for three categories of income: dividend from preference shares, interest on short-term deposits, and service charges for administering government-funded loans. The Supreme Court upheld the disallowance of all three. It held that Section 36(1)(viii) permits deduction only for profits directly derived from providing long-term finance. The word "derived" requires a first-degree nexus with long-term lending, not merely attributable income. Dividends come from shareholding, not lending; interest on deposits is from temporary investments, not core lending; and service charges are administrative fees, not profits from deploying own capital. The Court rejected the notion that an integrated business can expand deduction scope beyond statutory limits.
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