Banking income from non-SLR deposits qualifies for Section 80P deduction when surplus funds are deployed in ordinary banking operations.

Interest earned by a co-operative bank on deployment of surplus or idle funds in non-SLR deposits is treated as income attributable to the business of banking when the deposits remain integrally connected with banking operations. The distinction between SLR and non-SLR deposits is not decisive where the funds are placed as part of ordinary banking activity and retain the character of circulating capital. Accordingly, such interest qualifies for deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961.

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Issues: Whether interest earned by a co-operative bank on deposits of non-SLR funds constitutes income attributable to the business of banking and is deductible under Section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The interest in question was treated as arising from the bank's deployment of surplus and idle funds in the ordinary course of banking. The reasoning applied the settled principle that a bank's money remains circulating capital when placed in short-term or otherwise readily realizable deposits, and the character of the income does not cease to be business income merely because the funds are non-SLR funds. The distinction between SLR and non-SLR deposits was held not to be decisive where the deposits are integrally connected with banking operations and the income is attributable to the banking business.

Conclusion: The interest earned on deposits of non-SLR funds qualifies for deduction under Section 80P(2)(a)(i) of the Income-tax Act, 1961, and the issue is decided in favour of the assessee.

Ratio Decidendi: Interest earned by a co-operative bank on deployment of surplus or idle funds, including non-SLR deposits, is income attributable to the business of banking and is deductible under Section 80P(2)(a)(i) of the Income-tax Act, 1961.

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