Interest on cooperative banking deposits qualifies as business income and supports deduction for primary agricultural credit societies.

Interest earned by co-operative societies on deposits with sub-treasuries and banks was treated as business income when the investments were made out of the societies' own funds in the course of banking activity and credit facilities to members. Following coordinate Bench and High Court authority, the Tribunal distinguished Totgars because that case concerned retained sale proceeds belonging to members, not funds deployed as part of banking operations. As the assessees were primary agricultural credit societies and not co-operative banks hit by section 80P(4), the interest qualified for deduction under section 80P(2)(a)(i) and was not assessable as income from other sources.

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Issues: Whether interest income earned by the assessee-cooperative societies on investments made with sub-treasuries and banks is assessable as business income so as to qualify for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The interest arose from deposits made in the course of the assessees' banking activity and provision of credit facilities to members. The Tribunal followed earlier coordinate Bench decisions and the jurisdictional and other High Court decisions holding that such investments are part of banking activity when made out of the society's own funds. The decision in Totgars was distinguished as it dealt with retained sale proceeds belonging to members and not with own funds invested as part of banking operations. The Tribunal also noted that the assessees were primary agricultural credit societies and not cooperative banks hit by section 80P(4).

Conclusion: The interest income was held to be eligible for deduction under section 80P(2)(a)(i), and not taxable as income from other sources.

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