Deduction for co-operative bank interest on loans to nominal members is available as part of banking business.

Interest income earned by a co-operative bank from loans advanced to nominal members is treated as income from ordinary banking activity and remains eligible for deduction under section 80P(2)(a)(i). The provision is read disjunctively, so the deduction is not confined to income from credit facilities extended only to members in the narrow sense suggested by the revenue. Because nominal members are included within the definition of member under the Punjab Co-operative Societies Act, 1961, lending to them forms part of the society's banking business and the resulting interest falls within the statutory deduction.

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Issues: Whether interest income earned by a co-operative bank from loans advanced to nominal members is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: Section 80P(2)(a)(i) grants deduction to a co-operative society engaged in carrying on the business of banking or in providing credit facilities to its members. The provision is disjunctive, and the benefit is not confined to income derived only from credit facilities extended to members in the narrow sense urged by the revenue. Income arising from ordinary banking activity is attributable to the banking business and remains within the exemption even if the borrower is a nominal member. The definition of member under the Punjab Co-operative Societies Act, 1961 includes nominal members, and the interest earned on such lending is part of the banking activity of the society.

Conclusion: The interest income from loans advanced to nominal members is deductible under section 80P(2)(a)(i) and the revenue's challenge fails.

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