Co-operative society interest income qualifies for deduction, but only if deposits are with another co-operative society and not a licensed bank.

Interest earned by a co-operative society from deposits or investments with another co-operative society is eligible for deduction under section 80P(2)(d), and the Tribunal held that the Totgars ruling was confined to its facts and did not control this issue. However, the benefit does not extend to deposits placed with entities that are in substance licensed banking companies under the Banking Regulation Act, 1949, in which case the income may instead fall under other sources, subject to any relief available in law. The matter was remitted for verification of the recipient institutions' nature and status, so the deduction was allowed only in principle.

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Issues: Whether interest income earned by a co-operative society from deposits placed with co-operative banks or other co-operative societies is eligible for deduction under section 80P(2)(d), and whether the denial of deduction under section 80P(2)(a)(i) was justified.

Analysis: The interest income in question arose from deposits made out of surplus funds and was not a liability payable to members. The distinction drawn in Totgars Co-operative Sale Society Ltd. concerning interest on retained sale proceeds was held to be confined to its facts and not controlling for section 80P(2)(d). The Tribunal followed the view that interest derived by a co-operative society from investments with other co-operative societies is deductible, and considered that a co-operative bank may fall within the expression 'co-operative society' for the purpose of section 80P(2)(d) unless it is a banking company conducting banking business with the requisite licence under the Banking Regulation Act, 1949. Where the recipient entity answers the description of a licensed banking company, the income would fall under other sources, with possible relief under section 57 as available in law.

Conclusion: Deduction under section 80P(2)(d) was held to be available in principle, but the matter was remitted to the Assessing Officer for verification of the nature and status of the recipient institutions. The assessee succeeded only partly.

Ratio Decidendi: Interest earned by a co-operative society on investments with another co-operative society is eligible for deduction under section 80P(2)(d), but the benefit does not extend to income from deposits with entities that are in substance licensed banking companies under the Banking Regulation Act, 1949.

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