Interest on surplus business funds of a co-operative credit society remains attributable to credit activity and qualifies for deduction.

Interest earned by a co-operative credit society on deposits made from business-generated surplus funds was treated as income attributable to its business of providing credit facilities. The Tribunal applied the statutory phrase "attributable to" in section 80P(2)(a) and followed later authority recognising that such receipts retain their business nexus when the funds arise from the society's credit operations and are placed in permitted banks. On that basis, the interest income remained eligible for deduction under section 80P(2)(a), in favour of the assessee.

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Issues: Whether interest earned by a co-operative credit society on deposits / investments made out of its business funds was eligible for deduction under section 80P(2)(a) of the Income-tax Act, 1961.

Analysis: The assessee was a co-operative credit society engaged in accepting deposits and advancing loans to members. The Tribunal examined the nature of the interest income and the statutory phrase "attributable to" used in section 80P(2)(a). It relied on later judicial authority holding that where surplus funds arising from the society's credit business are deposited in permitted banks, the interest earned does not lose its character as income attributable to the principal business activity. The Tribunal treated the interest as connected with the assessee's business of providing credit facilities and preferred the line of authority that distinguishes such receipts from income derived from merely keeping members' monies outside the business stream.

Conclusion: The interest income was held eligible for deduction under section 80P(2)(a), in favour of the assessee.

Ratio Decidendi: For a co-operative credit society, interest earned on deposits made out of business-generated surplus funds can be treated as income attributable to the business of providing credit facilities and remains eligible for deduction under section 80P(2)(a) where the statutory nexus with the business activity is preserved.

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