Business-linked interest income qualifies for co-operative deduction when surplus funds are temporarily parked in banks.

Interest earned by a credit co-operative society on temporary bank deposits of surplus business funds retained the character of profits attributable to the business of providing credit facilities, because section 80P(2)(a)(i) uses the wider expression "attributable to" rather than "derived from". The income did not lose its business character merely because the surplus was parked in banks instead of remaining idle, so the interest qualified for deduction under section 80P(2)(a)(i).

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Issues: Whether a credit co-operative society was entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 on interest earned from deposits made out of surplus funds in banks.

Analysis: The society was engaged in providing credit facilities to its members and had earned interest on surplus funds parked in banks. The deciding factor was whether such interest retained the character of profits attributable to the business of providing credit facilities. Relying on the judicial view that the expression used in section 80P is "attributable to" and not "derived from", the income was treated as having its source in the society's business activity. The character of the income was held not to change merely because the surplus was temporarily deposited in banks instead of being kept idle.

Conclusion: The society was entitled to deduction under section 80P(2)(a)(i) on the interest income.

Final Conclusion: The addition of interest income was deleted and the appeal succeeded on the core tax issue.

Ratio Decidendi: Interest earned by a credit co-operative society on deployment of surplus business funds retains the character of profits attributable to its business of providing credit facilities and qualifies for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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