Interest from sub-treasury deposits forms business income and qualifies for deduction under section 80P(2)(a)(i).

Interest earned by a primary agricultural credit society on deposits placed with sub-treasuries was treated as attributable to its banking or credit facilities activity, not as income from other sources. The Tribunal noted that the society was engaged in providing credit facilities to its members, though it did not hold an RBI banking licence, and applied earlier rulings that investments made in the course of such business form part of the society's business income. On that basis, the interest income qualified for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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Issues: Whether interest income earned on investments made with sub-treasuries by a primary agricultural credit society engaged in providing credit facilities to its members is assessable as business income and eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The Tribunal noted that the assessee was carrying on the business of banking or providing credit facilities to its members and had no banking licence from the Reserve Bank of India. Relying on earlier decisions holding that such investments made in the course of banking or credit activity form part of the business of the society, the Tribunal distinguished cases where interest arose from surplus amounts retained on behalf of members and invested as liabilities. It held that the interest earned from deposits with sub-treasuries was attributable to the assessee's banking activity and was not to be treated as income from other sources.

Conclusion: The assessee was entitled to deduction under section 80P(2)(a)(i) in respect of interest income received on investments made with sub-treasuries.

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