Business income from delayed loan instalment remittances qualified for co-operative deduction as part of the society's lending activity.

Interest received by a credit co-operative society from employer-companies for delayed remittance of salary-linked loan instalments was treated as arising from the society's lending business and the statutory recovery mechanism under section 49(3) of the Maharashtra Co-operative Societies Act, 1960. Because the society's core activity was providing credit facilities to members and the interest flowed directly from default in remitting deducted instalments, the receipt was regarded as part of business income connected with the eligible activity. The amount was therefore eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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Issues: Whether interest received from employer-companies for delayed remittance of salary-linked loan instalments recoverable from members of a credit co-operative society constituted income eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The society's core activity was to provide credit facilities to its members, who were employees of the group companies. The loan instalments were recoverable through salary deductions by the employers under the statutory mechanism under section 49(3) of the Maharashtra Co-operative Societies Act, 1960. The default by the employers in remitting the deducted amounts led to liability to pay the outstanding instalments along with interest. That interest was not viewed as an isolated receipt, but as arising directly from the society's lending activity and the statutory recovery process integral to its business.

Conclusion: The interest was held to be received in the course of the society's business activity and was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, in favour of the assessee.

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