Deduction on interest from nationalised bank deposits depends on whether the funds used were the assessee's own funds.

Interest from fixed deposits in nationalised banks may qualify for deduction under section 80P(2)(d) where the deposits are made out of the assessee's own funds, in line with jurisdictional precedent. The earlier technical objection based on the route of challenge under section 154 was not treated as decisive of substantive entitlement. Because the factual question of source of funds required verification, the matter was remanded to the Assessing Officer for examination on merits, with direction to allow the deduction if the deposits were found to have been made from the assessee's own funds.

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Issues: Whether the assessee was entitled to deduction under section 80P(2)(d) of the Income-tax Act, 1961 on interest earned from deposits made in nationalised banks out of its own funds, and whether the matter required verification by the Assessing Officer.

Analysis: The issue was treated as covered by jurisdictional precedent holding that where fixed deposits in nationalised banks are made out of the assessee's own funds, the resulting interest may qualify for deduction under section 80P. The earlier rejection on a technical ground relating to the route of challenge under section 154 was not accepted as determinative of the substantive entitlement. Since the factual question whether the deposits were made from the assessee's own funds required verification, the matter was restored to the Assessing Officer for examination on merits.

Conclusion: The assessee's claim for deduction under section 80P(2)(d) was not finally allowed on the existing record, but the issue was remanded for factual verification with a direction to grant the deduction if the interest was found to have arisen from deposits of the assessee's own funds in nationalised banks.

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