Deduction on interest income from co-operative bank investments depends on factual verification of the recipient institution and investment character.

Interest and dividend income earned by a primary agricultural credit co-operative society from investments with co-operative banks and scheduled banks may qualify for deduction under Section 80P(2)(d), but entitlement depends on verification of the recipient institution and the character of the investments. The exclusion in Section 80P(4) is directed at co-operative banks with the requisite banking licence and does not automatically bar the claim on the available record. Deduction under Section 80P(2)(a)(i) was not available on the facts. The matter was therefore remitted to the Assessing Officer for factual verification of each investment and the nature of the recipient bank.

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Issues: Whether interest and dividend income earned by a primary agricultural credit co-operative society from investments with co-operative banks and scheduled banks is eligible for deduction under Section 80P(2)(d) of the Income-tax Act, 1961, and whether the claim can be rejected by treating the assessee as hit by Section 80P(4) or denied deduction under Section 80P(2)(a)(i).

Analysis: The Tribunal noted that the assessee is a co-operative society engaged in providing credit facilities to its members and that the controversy centered on deduction of interest and dividend income arising from investments. It distinguished the authorities relied on by the Revenue on the facts, observing that the exclusion in Section 80P(4) is directed at co-operative banks having the requisite banking licence, and that the nature of the recipient institution and the source of the income require factual verification. The Tribunal further held that interest income from investments kept with a co-operative bank may fall for deduction under Section 80P(2)(d), while the claim under Section 80P(2)(a)(i) was not available on the facts. Since the record did not conclusively establish the character of each investment and the exact nature of the recipient bank, the matter required verification by the Assessing Officer.

Conclusion: The deduction claim under Section 80P(2)(d) was not finally rejected on merits and the issue was remitted to the Assessing Officer for verification, while deduction under Section 80P(2)(a)(i) was held to be unavailable.

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