Business-linked interest from co-operative bank deposits qualifies for deduction under section 80P(2)(a)(i) for a credit society.

Interest earned by a credit co-operative society on deposits placed with co-operative banks, when made in the course of business operations and under the governing regulatory framework, was treated as attributable to the society's business and deductible under section 80P(2)(a)(i). The analysis distinguished interest on surplus funds not required for business purposes, which was not the factual position here. Once the main deduction claim was accepted, the alternate claim under section 80P(2)(d) became academic. The Revenue's challenge on treatment of the interest as income from other sources therefore failed.

---

---

Issues: Whether a credit co-operative society was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 on interest earned from deposits made with co-operative banks, and whether such interest could be taxed as income from other sources.

Analysis: The interest income arose from deposits made by the assessee society in co-operative banks in the course of its business operations and pursuant to the regulatory framework governing its activities. The ruling distinguished cases where interest was earned on surplus funds not required for business purposes, and applied the principle that where deposits are integrally connected with the carrying on of the society's business, the resulting income is attributable to that business. The decision also treated the assessee's alternate claim under section 80P(2)(d) as academic once the main claim under section 80P(2)(a)(i) was accepted.

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

---