Section 80P relief applies to gratuity payments and interest on surplus banking funds used in operations.

Gratuity paid before filing the return was treated as deductible for computing income eligible for relief under section 80P, because the relevant amount formed part of the co-operative society's gross total income and the disallowance did not reduce the relief base. Interest earned by a co-operative bank on deployment of surplus non-SLR funds was also held attributable to banking business and therefore deductible under section 80P(2)(a)(i), with no material distinction drawn between SLR and non-SLR funds for this purpose. The commentary states that both issues were resolved in favour of the assessee.

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Issues: (i) Whether provision for gratuity paid before filing of the return was allowable for deduction in computing income eligible for relief under section 80P; (ii) Whether interest earned on non-SLR funds was deductible under section 80P(2)(a)(i) as income attributable to the business of banking.

Issue (i): Whether provision for gratuity paid before filing of the return was allowable for deduction in computing income eligible for relief under section 80P.

Analysis: The payment of gratuity was made before the return was filed under section 139(1), and the assessee was entitled to deduction under section 80P. Since the relevant income formed part of the gross total income of the co-operative society, the deduction was to be computed from that gross total income and the disallowance did not alter the amount eligible for relief.

Conclusion: The disallowance of the gratuity-related amount was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether interest earned on non-SLR funds was deductible under section 80P(2)(a)(i) as income attributable to the business of banking.

Analysis: The interest arose from deployment of surplus idle funds of the co-operative bank in the course of banking operations. Such funds remained part of the circulating capital and the income derived from their deployment was attributable to the banking business. The distinction between SLR and non-SLR funds was held to make no material difference for the purpose of deduction under section 80P(2)(a)(i).

Conclusion: The interest on non-SLR funds qualified for deduction under section 80P(2)(a)(i) and the revenue's challenge failed.

Final Conclusion: The assessee succeeded on both issues, while the revenue's objection to deduction on non-SLR interest was rejected, resulting in disposal of the cross appeals in favour of the assessee overall.

Ratio Decidendi: Interest earned by a co-operative bank from surplus funds deployed in banking operations remains attributable to the business of banking and qualifies for deduction under section 80P(2)(a)(i), and amounts forming part of gross total income are eligible for relief under section 80P.

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