Bank interest on surplus co-operative funds is not deductible under section 80P for credit business or co-operative bank deposits.
Interest earned by a co-operative society on surplus or idle funds deposited with scheduled or nationalised banks is not attributable to the business of providing credit facilities to members, so deduction under section 80P(2)(a)(i) is unavailable. Interest earned from deposits with a co-operative bank also does not qualify under section 80P(2)(d), because that clause applies to income from investments in another co-operative society and a co-operative bank is excluded for section 80P purposes by section 80P(4). The disallowance of deduction on such bank interest was therefore sustained.
Issues: (i) whether interest income earned from deposits placed with scheduled or nationalised banks was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961; (ii) whether interest income earned from deposits placed with a co-operative bank was eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.
Issue (i): whether interest income earned from deposits placed with scheduled or nationalised banks was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.
Analysis: Interest earned on surplus or idle funds placed with a bank is not income arising from the business of providing credit facilities to members. The character of such interest does not become operational income merely because the deposits are made with a bank, and the deduction under section 80P(2)(a)(i) is confined to income attributable to the eligible cooperative activity.
Conclusion: The deduction under section 80P(2)(a)(i) was not allowable on the bank interest.
Issue (ii): whether interest income earned from deposits placed with a co-operative bank was eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.
Analysis: Section 80P(2)(d) applies to interest or dividend derived from investments in another co-operative society. A co-operative bank, being governed by the Banking Regulation Act, 1949 and excluded by section 80P(4), is not treated as an eligible recipient for this purpose. Interest from such deposits retains the same character as income from surplus funds and does not qualify for the deduction.
Conclusion: The deduction under section 80P(2)(d) was not allowable on interest earned from the co-operative bank.
Final Conclusion: The assessee's claim for deduction on interest income from deposits with scheduled, nationalised and co-operative banks failed, and the disallowance was sustained.
Ratio Decidendi: Interest earned by a co-operative society on idle or surplus funds deposited with banks is not income attributable to its credit facility business and, for section 80P purposes, interest from a co-operative bank does not qualify under clause (d) because a co-operative bank is excluded by section 80P(4).
TaxTMI 
AI Drafter ✕
TaxTMI 
