Deduction under section 80P(2)(a)(i) denied for interest on reserve-fund investments of a co-operative bank

Interest earned by a co-operative bank on investments made out of reserve funds was held not to qualify for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. The Gujarat High Court treated the issue as covered by its earlier decision on the same legal question and applied that settled position to the assessee's claim. The assessee was therefore denied the deduction on such interest income, and the appeals failed. The Court also granted a certificate under section 261 for an appeal to the Supreme Court.

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Issues: Whether interest income earned by a co-operative bank on investments made out of reserve funds was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The controversy was treated as covered by the earlier decision of the same Court in a connected matter involving the same legal question. The Court accepted the settled position that interest earned on investments of reserve funds did not fall within the ambit of the deduction claimed under section 80P(2)(a)(i).

Conclusion: The question was answered in the negative and against the assessee. The assessee was held not entitled to deduction in respect of the interest income on its reserve funds.

Final Conclusion: The appeals failed and stood dismissed, while the Court also granted a certificate under section 261 of the Income-tax Act, 1961, for appeal to the Supreme Court.

Ratio Decidendi: Interest earned by a co-operative bank on investments made out of reserve funds is not deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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