Interest on permitted surplus deposits qualifies for deduction under section 80P(2)(d) when regulatory conditions are met.

Interest earned on surplus deposits kept with scheduled banks and the Treasury was treated as eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961. The Tribunal applied the jurisdictional High Court principle that such interest does not lose its eligible character when the deposits are made in a manner permitted by the regulatory framework governing the assessee's activities. On that basis, the interest income was held deductible in favour of the assessee.

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Issues: Whether interest earned on deposits kept with scheduled banks and Treasury is deductible under section 80P(2)(d) of the Income-tax Act, 1961.

Analysis: The interest income from deposits was held to be covered by the jurisdictional High Court decision relied on by the Tribunal. The governing principle applied was that interest earned on deposits of surplus funds, when placed in the manner permitted by the regulatory framework governing the assessee's activities, does not lose its character as income eligible for deduction under section 80P(2)(d).

Conclusion: The issue was decided in favour of the assessee, and the interest received from scheduled banks and Treasury was held eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961.

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