Interest from cooperative society investments held attributable to banking business, qualifying for deduction under section 80P(2)(a)(i).

Interest earned by a cooperative society on investments with co-operative banks, other banks and sub-treasuries was treated as attributable to its banking activity, because the funds were placed as part of the society's business of providing credit facilities to members. Following co-ordinate bench and High Court rulings, the Tribunal held that interest arising from the society's own funds used in the course of banking operations is business income eligible for deduction under section 80P(2)(a)(i), rather than income from other sources. It also noted that section 80P(4) does not withdraw the benefit from a primary agricultural credit society that is not a cooperative bank carrying on banking business with a banking licence.

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Issues: Whether interest income earned by a cooperative society on investments made with District Co-operative Banks, other banks and sub-treasuries was assessable as business income and eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, or was taxable as income from other sources.

Analysis: The interest arose from funds placed in banks and sub-treasuries in the course of the assessee's banking activity of providing credit facilities to its members. The Tribunal followed earlier co-ordinate bench decisions and the jurisdictional and other High Court rulings distinguishing surplus member funds and held that where the investments are made out of the society's own funds as part of its banking operations, the resulting interest is attributable to the business of banking. The Tribunal also noted that section 80P(4) does not deny the benefit to a primary agricultural credit society that is not a cooperative bank carrying on banking business with a banking licence.

Conclusion: The interest income was held to be eligible for deduction under section 80P(2)(a)(i) and not taxable as income from other sources.

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