Section 80P deduction upheld for interest on sub-treasury deposits earned by a primary agricultural credit society.

A primary agricultural credit society was treated as eligible for deduction on interest earned from sub-treasury deposits because it was engaged in providing credit facilities to members and was not a co-operative bank carrying on banking business. Section 80P(4) was held inapplicable since the society did not hold an RBI banking licence and its activities did not fall within the banking exclusion. The reliance on Totgars was distinguished on facts, and the interest was regarded as attributable to the society's credit activity. Deduction under section 80P(2) was therefore available on the interest income.

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Issues: Whether interest received on deposits made with sub-treasury by a primary agricultural credit society was eligible for deduction under section 80P of the Income-tax Act, 1961.

Analysis: The assessee was found to be a primary agricultural credit society carrying on the business of providing credit facilities to its members and not a co-operative bank exclusively engaged in banking business. The exclusion in section 80P(4) of the Income-tax Act, 1961 was held inapplicable on the facts, as the assessee did not possess a banking licence from the Reserve Bank of India and was not carrying on banking business in the sense contemplated by that provision. The interest on sub-treasury deposits was treated as attributable to the banking activity of the assessee, and the authorities' reliance on the Totgars decision was held distinguishable on facts.

Conclusion: The assessee was held entitled to deduction under section 80P(2) of the Income-tax Act, 1961 in respect of interest received on deposits with sub-treasury.

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