Banking income of co-operative societies qualifies for deduction when interest arises from deposits made in the course of credit activity.

Interest earned by primary agricultural credit societies on deposits with sub-treasuries, district co-operative banks and other banks was treated as income attributable to their banking and credit activity, not as income from other sources. The Tribunal applied its consistent earlier view that such investment income arises in the course of carrying on the societies' business and falls within section 80P(2)(a)(i). It also noted that the exclusion in section 80P(4) did not apply to societies of this nature and distinguished Totgars on the facts. The interest income was therefore eligible for deduction, and the Revenue's challenge failed.

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Issues: Whether interest income earned by the assessee-co-operative societies on investments placed with sub-treasuries, district co-operative banks and other banks was taxable under the head "income from other sources" or was income from banking activity eligible for deduction under section 80P(2)(a)(i).

Analysis: The assessees were primary agricultural credit societies engaged in providing credit facilities to members. The interest was earned on deposits made in the course of their banking/credit activity and not on amounts held as liabilities belonging to members. The Tribunal followed the consistent view taken in earlier decisions that such investment income is attributable to the business of banking carried on by the societies and therefore falls within the ambit of section 80P(2)(a)(i). The Tribunal also noted that the exclusion in section 80P(4) does not apply to societies of this kind, and distinguished the decision in Totgars on facts.

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

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