Cooperative society interest income from temporary investments qualifies as business income and remains deductible under section 80P(2)(a)(i).

Interest earned by a cooperative society from temporary investments of its own funds with sub-treasuries and banks, when made in the course of banking or credit-facility activities, is attributable to that business and qualifies for deduction under section 80P(2)(a)(i). The Tribunal distinguished Totgars Cooperative Sale Society Ltd. on the basis that the deposits represented the societies' own surplus funds, not amounts payable to members, and followed the consistent view that such income forms part of the society's business income. Section 80P(4) did not bar relief because the assessees were not cooperative banks carrying on banking business exclusively under a banking licence. The Revenue's challenge therefore failed.

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Issues: Whether interest income earned by the assessee-cooperative societies on investments made with sub-treasuries and banks was 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 funds deployed in the course of the assessees' banking or credit facilities activity. The earlier decisions relied upon by the Tribunal had distinguished the Supreme Court ruling in Totgars Cooperative Sale Society Ltd. on the ground that, in the present class of cases, the deposits represented the societies' own surplus funds and not amounts payable to members. The Tribunal followed the consistent view that such investments form part of the banking activity of a cooperative society or primary agricultural credit society and that section 80P(4) does not deny the benefit to such societies where they are not cooperative banks carrying on banking business exclusively with a banking licence.

Conclusion: The interest income was held to be business income attributable to the assessees' activity, and deduction under section 80P(2)(a)(i) was held allowable.

Final Conclusion: The Revenue's challenge failed, and the assessees retained the deduction on interest earned from investments with sub-treasuries and banks.

Ratio Decidendi: Interest earned by a cooperative society from temporary investment of its own funds, made in the course of its banking or credit-facility business, is attributable to that business and qualifies for deduction under section 80P(2)(a)(i), unless the society is hit by the exclusion applicable to cooperative banks under section 80P(4).

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