Co-operative society interest on fixed deposits treated as business income, enabling deduction under section 80P(2)(a)(i)

Interest earned by a co-operative credit society on fixed deposits placed with nationalised banks was treated as attributable to its business activity, rather than income from other sources, where the deposits formed part of the society's operational and reserve-fund structure and were permitted under the applicable State co-operative regime. The Tribunal relied on earlier Pune Bench decisions distinguishing such business-linked deposits from surplus funds invested for reasons unrelated to credit activity, and also noted consistent acceptance of the claim in later assessment years. The interest therefore qualified as business income eligible for deduction under section 80P(2)(a)(i), and the addition under section 56 was not sustained.

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Issues: Whether interest earned on fixed deposits kept with nationalized banks by a co-operative credit society is assessable as business income eligible for deduction under section 80P(2)(a)(i), or as income from other sources under section 56.

Analysis: The interest arose from deposits made by the society in nationalized banks in the context of its co-operative business and the applicable Maharashtra Co-operative Societies regime. The Tribunal followed earlier Pune Bench decisions distinguishing surplus funds invested for reasons unrelated to the society's credit activity from funds parked as part of the society's operational and reserve-fund structure. It was noted that the society had been permitted under the State circular and that in the assessee's own later years the Revenue had accepted the claim. On that footing, the interest was treated as attributable to the business activity of the society and not as mere income from other sources.

Conclusion: The interest income qualified as business income and the assessee was entitled to deduction under section 80P(2)(a)(i); the addition under section 56 was not sustained.

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