Interest on treasury deposits was held deductible under section 80P where a credit society was not a co-operative bank.

Interest earned by a primary agricultural credit society on treasury deposits was treated as income attributable to its banking-related activity and therefore deductible under section 80P(2)(a)(i). The Tribunal held that section 80P(4) did not bar the claim because the society was not a co-operative bank exclusively carrying on banking business and did not hold an RBI banking licence. It distinguished Totgars as fact-specific, noting that the deposits there represented surplus sale proceeds shown as a liability, unlike the society's own funds here. The assessee was therefore entitled to deduction on the interest income.

---

---

Issues: Whether interest earned on treasury deposits by a primary agricultural credit society was assessable as business income so as to qualify for deduction under section 80P, or as income from other sources and hence outside the deduction.

Analysis: The assessee was a co-operative society providing credit facilities to its members and did not hold a banking licence from the Reserve Bank of India. The exclusion in section 80P(4) applies to co-operative banks carrying on banking business exclusively, and does not deny the benefit to a primary agricultural credit society engaged in lending to members. The interest income on sub-treasury deposits was held to arise from the course of the society's banking-related activity. The Supreme Court ruling in Totgars was treated as fact-specific and distinguishable, since that case involved surplus retained sale proceeds shown as a liability, whereas the present deposit was not a liability and was made as part of the society's own funds. The Tribunal also followed the view that interest on such deposits is attributable to banking activity and eligible for deduction under section 80P(2)(a)(i).

Conclusion: The interest on treasury deposits was held to be eligible for deduction under section 80P, and the assessee succeeded.

Ratio Decidendi: Where a co-operative society is not a co-operative bank exclusively carrying on banking business and the interest on treasury deposits forms part of its banking-related activity, section 80P(4) does not bar deduction and such interest is deductible under section 80P(2)(a)(i).

---