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Issues: Whether interest earned by a co-operative society from bank deposits of surplus funds, where the society's principal object is to provide credit facilities to its members, is deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961.
Analysis: The relevant test was whether the interest income was attributable to the business of providing credit facilities to members. The society's funds represented amounts received from members and were not immediately required for lending. Instead of remaining idle, the surplus was parked in banks and earned interest. The Tribunal relied on the wider expression "attributable to" in section 80P, which is broader than "derived from", and applied the jurisdictional High Court's view that such interest on surplus funds, when the society is engaged in the business of providing credit facilities to its members, is connected with the business activity and not a separate source of income. The exclusion in section 80P(4) was not found applicable on the facts as accepted by the appellate authority.
Conclusion: The interest income was deductible under section 80P(2)(a)(i), and the assessee remained entitled to the benefit of deduction.
Ratio Decidendi: Interest earned by a co-operative society on temporary bank deposits of surplus funds, when those funds are part of the society's business of providing credit facilities to its members, is income attributable to that business and qualifies for deduction under section 80P(2)(a)(i).
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