Interest from a co-operative credit society's own surplus funds remains business income and qualifies for deduction under section 80P(2)(a)(i).

Interest earned by a primary agricultural credit society from investing its own surplus funds with sub-treasuries and banks is attributable to its banking or credit activity and is deductible under section 80P(2)(a)(i). The Tribunal distinguished Totgars because that case concerned retention of sale proceeds belonging to members, not the society's own business funds. It also noted that section 80P(4) does not deny the deduction to a primary agricultural credit society that is not carrying on banking as a co-operative bank. The interest was therefore not assessable as income from other sources, and the Revenue's challenge failed.

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Issues: Whether interest income earned by a co-operative society 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, or as income from other sources.

Analysis: The assessee was a primary agricultural credit society engaged in providing credit facilities to its members. The Tribunal followed earlier co-ordinate Bench and High Court decisions holding that, where a co-operative society carries on banking or credit activities and parks its own surplus funds in sub-treasuries or banks in the course of such business, the resulting interest is attributable to the banking business. The distinction drawn in Totgars was held inapplicable on facts, since that case involved retention of sale proceeds belonging to members and not the society's own business funds. The Tribunal also noted that section 80P(4) does not deny the benefit to a primary agricultural credit society not carrying on banking as a co-operative bank.

Conclusion: The interest income was held eligible for deduction under section 80P(2)(a)(i), and the Revenue's challenge failed.

Ratio Decidendi: Interest earned by a co-operative credit society from investment of its own funds made in the course of its banking or credit activity is attributable to that business and is deductible under section 80P(2)(a)(i), not taxable as income from other sources.

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