Statutory reserve fund interest treated as business income, allowing cooperative society deduction under section 80P(2)(a)(i).

Interest earned on fixed deposits made from a cooperative society's statutory reserve fund was treated as business income because the fund was created and invested under the West Bengal Cooperative Societies Act, 2006 in connection with the society's business operations. As the deposits were made in compliance with the statutory reserve-fund scheme, the income was not viewed as an independent source of income. The interest was therefore held eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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Issues: Whether interest earned on fixed deposits made out of the reserve fund of a cooperative society, created and invested in accordance with the West Bengal Cooperative Societies Act, 2006, forms part of business income eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The society was statutorily required to transfer a portion of its net profit to a reserve fund under sections 80, 81 and 82 of the West Bengal Cooperative Societies Act, 2006. The reserve fund was to be invested in specified banks or securities, and the fixed deposits were made in compliance with that statutory scheme for carrying on the cooperative business. The interest income arose from such reserve fund investments and was treated as part of the business activity of the assessee, not as an independent source of income.

Conclusion: The interest income on the fixed deposits was held to be part of the assessee's business income and was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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