Co-operative society bank interest on surplus funds was held attributable to credit business and eligible for deduction.

Interest earned by a co-operative society from surplus bank deposits was treated as attributable to the business of providing credit facilities to its members, because the funds were temporarily parked when not immediately required for lending and were not amounts due to members or shown as liabilities. On those facts, the income was held eligible for deduction under section 80P(2)(a)(i), and the disallowance of bank interest was reversed.

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Issues: Whether interest earned by a co-operative society from bank deposits out of surplus funds was deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961 for assessment years 2009-10 and 2010-11.

Analysis: The assessee was found to be engaged in providing credit facilities to its members. The bank interest arose from amounts not due to members, not shown as liabilities, and temporarily parked in banks when not immediately required for lending. On these facts, the interest was treated as attributable to the business of providing credit facilities and not as income falling to be denied deduction by applying the ratio of the cited Supreme Court decision on different facts.

Conclusion: The deduction under section 80P(2)(a)(i) was allowable to the assessee and the disallowance of bank interest was reversed.

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