Cooperative credit society interest on temporary bank deposits of operational funds qualifies for deduction under section 80P(2)(a)(i).

Interest earned by a cooperative credit society on short-term bank deposits of operational funds used to maintain liquidity for its lending and deposit-taking business qualifies for deduction under section 80P(2)(a)(i). The deposits were treated as temporary parking of business funds, not investment of surplus funds. The ruling in Totgars Cooperative Sales Society Ltd. was distinguished because it concerned interest on surplus funds from a different factual setting, so the exclusion for surplus-fund interest did not apply.

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Issues: Whether interest earned by a cooperative credit society on short-term bank deposits of its operational funds is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The society was found to be engaged in providing credit facilities to its members and to be maintaining liquid funds to meet repayment obligations arising from its deposit-taking business. The deposits were treated as temporary parking of business funds and not as investment of surplus funds. The ruling in Totgars Cooperative Sales Society Ltd. was distinguished on the ground that the Supreme Court there dealt with surplus funds arising from a different activity and not with operational funds required for the society's business exigencies.

Conclusion: The interest income from such short-term deposits qualified for deduction under section 80P(2)(a)(i) and was not liable to be denied on the footing adopted by the lower authorities.

Ratio Decidendi: Where a cooperative credit society parks its operational funds in short-term deposits to maintain liquidity for its business requirements, the resulting interest is eligible for deduction under section 80P(2)(a)(i); the exclusion based on surplus-fund interest does not apply.

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