Co-operative society interest income from surplus bank deposits qualifies for deduction where it remains connected to member credit business.

Interest earned by a co-operative credit society on savings bank accounts and fixed deposits with a nationalised bank was treated as eligible for deduction under section 80P(2)(a)(i). The Tribunal applied the broader expression "attributable to" rather than "derived from" and held that interest from temporary deployment of surplus operational funds remained connected with the business of providing credit facilities to members. It also noted that the society's objects were confined to member credit activity and its bye-laws permitted investment of surplus funds. Co-ordinate bench and jurisdictionally persuasive precedents distinguishing unrelated funds or distinct businesses were followed, and the deduction was allowed.

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Issues: Whether interest earned by a co-operative credit society from savings bank accounts and fixed deposits with a nationalised bank is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The assessee was a credit society whose objects were confined to providing credit facilities to members, and its bye-laws permitted investment of surplus funds under the Gujarat Co-operative Societies Act, 1962. The disputed interest arose from deployment of surplus operational funds in bank deposits. The governing principle applied was that the expression "attributable to" in section 80P(2)(a)(i) is of wider import than "derived from", and interest earned on temporary deployment of surplus funds of a credit society is connected with the business of providing credit facilities to members. The Tribunal followed co-ordinate bench and jurisdictionally persuasive precedents distinguishing cases where interest arose from liability funds or other distinct business activities.

Conclusion: The interest income from bank deposits was held eligible for deduction under section 80P(2)(a)(i), and the assessee succeeded on the issue.

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