Interest on sub-treasury deposits treated as business income, with section 80P deduction allowed for a credit society.

Interest earned by a primary agricultural credit society on sub-treasury deposits was treated as business income because the deposits arose from funds deployed in the course of its credit activity, not from unrelated surplus funds. The Tribunal applied earlier co-ordinate Bench and High Court authorities distinguishing cases where interest stemmed from retained liabilities or idle funds. It further held that section 80P(4) did not deny deduction to such a society, so the interest remained eligible for deduction under section 80P(2) and was not assessable as income from other sources.

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Issues: Whether interest earned on deposits made with sub-treasury is to be assessed as business income or income from other sources, and whether such interest qualifies for deduction under section 80P(2) of the Income-tax Act, 1961.

Analysis: The assessee was a primary agricultural credit society providing credit facilities to members and did not possess a banking licence from the Reserve Bank of India. The interest on sub-treasury deposits arose from funds deployed in the course of its credit activity, and the Tribunal treated the issue as covered by earlier co-ordinate Bench and High Court decisions distinguishing cases where interest arose from retained liabilities or unrelated surplus funds. The Tribunal held that section 80P(4) did not deny the deduction to such a society and that the interest retained its character as business income.

Conclusion: The interest earned on sub-treasury deposits was held eligible for deduction under section 80P(2) of the Income-tax Act, 1961, and was not assessable as income from other sources.

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