Co-operative society interest on trade dues was held outside section 80P exemption because it was not banking-type credit.

Interest received by a co-operative society from members on outstanding balances arising from supply of goods was held not to qualify for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961. The provision applies to societies carrying on banking business or providing credit facilities to members, and the credit contemplated must be connected with banking activity. Interest arising merely from credit extended in the course of sale of goods was treated as incidental to the supply business, not as provision of banking-type credit facilities. The answer was therefore against the assessee and in favour of the Revenue.

---

---

Issues: Whether interest received by a co-operative society from members on outstanding balances arising from supply of goods qualified for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The exemption under section 80P(2)(a)(i) applies to co-operative societies carrying on the business of banking or providing credit facilities to members. The relevant expression has to be construed in the context of banking activity, and credit facilities contemplated by the provision are those connected with the business of banking. Interest arising from credit allowed in the course of sale of goods is only incidental to the supply business and does not amount to providing credit facilities in the nature of banking.

Conclusion: The interest on outstanding balances from supply of goods did not qualify for exemption under section 80P(2)(a)(i), and the answer was against the assessee and in favour of the Revenue.

---