Business-linked fixed deposit interest of a co-operative credit society qualifies for deduction under section 80P(2)(a).

Interest earned by a co-operative credit society on fixed deposits placed with nationalised banks was treated as arising from funds deployed in the course of its business, not as income from other sources. The analysis turned on the distinction between idle surplus funds and money parked due to statutory or business requirements, including reserve fund obligations under the Maharashtra Co-operative Societies Act, 1960. On those facts, the interest qualified for deduction under section 80P(2)(a) of the Income-tax Act, 1961.

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Issues: Whether interest earned by a co-operative credit society on fixed deposits placed with nationalized banks was eligible for deduction under section 80P(2)(a) of the Income-tax Act, 1961, or was assessable as income from other sources.

Analysis: The assessee was a co-operative credit society engaged in accepting deposits from members and granting loans to them. The funds invested in fixed deposits were not idle surplus funds but were linked to the society's business funds and reserve fund requirements under the Maharashtra Co-operative Societies Act, 1960. The interest question was considered in the light of the distinction drawn in precedent between surplus funds not immediately required for business and funds parked pursuant to statutory or business exigencies. On the facts found, the interest arose from investments made in the course of carrying on the society's business and was not treated as income from other sources.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a) on the interest earned from fixed deposits with nationalized banks.

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