Cooperative bank deduction under section 80P(2)(a)(i) sustained for income from approved securities despite later investment of proceeds.

Income derived by a cooperative bank from sale of approved securities and allied banking activities qualified for deduction under section 80P(2)(a)(i) because it formed part of the bank's banking business. The Court further held that the deduction could not be denied merely because the sale proceeds were later placed in investments not approved under the Gujarat Cooperative Societies Act, as the relevant enquiry was the character of the income from the sale itself, not the later use of the proceeds. On that basis, the assessee remained entitled to the deduction and the Revenue's challenge failed.

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Issues: Whether the assessee was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 in respect of income arising from sale of approved securities and allied banking activities, and whether such deduction could be denied on the ground that subsequent placement of sale proceeds was in investments not approved under section 71 of the Gujarat Cooperative Societies Act.

Analysis: The issue was treated as already settled by the earlier decision relied upon in the judgment. Income derived from sale of approved securities and other investments made in the course of carrying on banking business was held to fall within the scope of section 80P(2)(a)(i). The Court distinguished that position from the later deployment of sale proceeds, observing that the relevant question was the treatment of income arising from the sale of approved securities, not the tax effect of any subsequent investment made with those proceeds. On that basis, the objection founded on alleged non-approved investments under the Gujarat Cooperative Societies Act did not defeat the deduction claimed.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i), and the Revenue's challenge failed.

Ratio Decidendi: Income derived from sale of approved securities by a cooperative bank, where such securities form part of its banking business, qualifies for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, and the deduction cannot be denied merely because the sale proceeds were later placed in investments not approved under the State cooperative law.

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