Attributable to banking business: interest on liquid-asset securities and branch-opening subsidies were treated as deductible receipts.

The Madras HC commentary explains that, for section 80P(2)(a)(i) of the Income-tax Act, interest on securities kept as statutorily required liquid assets by a co-operative bank is treated as income attributable to banking business because the securities are maintained under the Banking Regulation Act and RBI directions, not as mere investments. It also states that government subsidies granted to open branches and lend at concessional rates have a sufficient nexus with banking operations and are likewise deductible. The stated ratio is that "attributable to" is broader than "derived from" and covers receipts with a real connection to the banking business.

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Issues: (i) Whether interest income from securities maintained as liquid assets by a co-operative bank is deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961. (ii) Whether subsidies received from the Government for opening branches and lending at concessional rates are deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Issue (i): Whether interest income from securities maintained as liquid assets by a co-operative bank is deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The relevant statutory scheme allows deduction of profits and gains attributable to the business of banking. Securities held as liquid assets were maintained pursuant to the Banking Regulation Act, 1949 and the directions of the Reserve Bank of India. Such securities were therefore integral to the banking activity and not mere investments. Even on a wider construction, the expression "attributable to" is broader than "derived from" and covers receipts sufficiently connected with the banking business.

Conclusion: The interest income from securities falls within section 80P(2)(a)(i) and is deductible in favour of the assessee.

Issue (ii): Whether subsidies received from the Government for opening branches and lending at concessional rates are deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The subsidies were granted to support the banking operations of the assessee, namely opening branches and advancing loans to weaker sections at lower rates. Receipts of that nature were treated as part of the business income of the banking activity and, in any event, as amounts attributable to that business. The nexus with the banking business was sufficient to bring the receipts within the deduction provision.

Conclusion: The subsidy receipts are deductible under section 80P(2)(a)(i) in favour of the assessee.

Final Conclusion: Both questions were answered in the assessee's favour, and the claimed deduction was upheld for the relevant assessment years.

Ratio Decidendi: For section 80P(2)(a)(i), the expression "attributable to" has a wider scope than "derived from" and covers income having a real and sufficient nexus with the banking business, including interest on securities maintained as statutorily required liquid assets and subsidies received to facilitate banking operations.

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