Co-operative society interest on surplus fixed deposits qualifies for deduction where funds are linked to member lending business.

Interest earned by a co-operative society on fixed deposits made from surplus funds temporarily not required for lending to members was held deductible under section 80P(2)(a)(i). The society's principal object was to provide credit facilities, and the interest had a proximate connection with that business. The expression "attributable to" was treated as wider than "derived from", so income from temporary deployment of surplus funds fell within the deduction. The case was distinguished from situations where the invested amount represents a liability payable to members, and the Revenue's challenge failed.

---

---

Issues: Whether interest earned by a co-operative society on fixed deposits made out of surplus funds, which were intended for lending to its members, qualified for deduction under section 80P(2)(a)(i).

Analysis: The society's principal object was to provide credit facilities to members. The interest arose from temporary deployment of surplus funds that were not immediately required for lending. The expression "attributable to" in section 80P(2)(a)(i) has a wider import than "derived from", and therefore income having a proximate connection with the business of providing credit facilities can qualify for deduction. The interest was not from a separate business activity and the situation was distinguishable from cases where the amount invested represented a liability payable to members.

Conclusion: The interest income on the fixed deposits was deductible under section 80P(2)(a)(i), and the Revenue's challenge failed.

---