Credit facilities under section 80P apply only to banking-type activity, not mere sale of goods on credit.

Interest earned on outstanding balances from supply of goods was held not to fall within the exemption under section 80P(2)(a)(i) because "providing credit facilities" was construed in the context of banking activity and not as a separate business of selling goods on credit. The Court treated sale on credit as only a method of conducting the sale transaction, not as carrying on credit-facility business. Interest from bank deposits was also examined against this banking-linked interpretation, and the analysis was supported by the definition of banking in section 5(b) of the Banking Regulation Act, 1949.

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

Analysis: The provision granting deduction applies to a co-operative society engaged in carrying on the business of banking or in providing credit facilities to its members. The scope of the expression "providing credit facilities" was held to take colour from the adjoining phrase "business of banking" and, therefore, to refer to credit facilities forming part of a banking activity or akin to it. Sale of goods on credit was treated as merely a mode of carrying on the business of sale, not as the business of providing credit facilities. The assessee was not carrying on banking business, and the interest arising from supply transactions could not be brought within the exemption. The interpretation adopted by the Court was also supported by the definition of banking in section 5(b) of the Banking Regulation Act, 1949.

Conclusion: The interest on outstanding balances from supplies of goods did not qualify for exemption under section 80P(2)(a)(i) of the Income-tax Act, 1961, and the question was answered against the assessee and in favour of the Revenue.

Ratio Decidendi: For section 80P(2)(a)(i), the expression "providing credit facilities" refers to a banking-type credit activity and does not include mere sale of goods on credit.

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