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Issues: Whether interest earned on investments made by a co-operative society from reserve funds maintained under statutory compulsion is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
Analysis: The interest income arose from investments made with co-operative banks and other banks. The governing question was whether such investments were made as a statutory requirement under the Karnataka Co-operative Societies Act, 1959 and the relevant Rules. Where investments are made under such compulsion and are necessary for carrying on the society's business, the resulting income is treated as business income and can fall within section 80P(2)(a)(i). The matter also had to be examined on facts to verify whether the investments were in truth made under the statutory mandate.
Conclusion: The issue was restored to the Assessing Officer for verification of the statutory nature of the investments, and if the compulsion is established, deduction under section 80P(2)(a)(i) is to be allowed.
Final Conclusion: The assessee obtained a remand on the deduction claim, with the appeal treated as allowed for statistical purposes.
Ratio Decidendi: Interest derived from investments made by a co-operative society under statutory compulsion for carrying on its business is business income eligible for deduction under section 80P(2)(a)(i), subject to factual verification of the compulsory nature of the investment.
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