Section 80P deduction for interest from co-operative banks allowed under the inter co-operative society investment principle.

Interest earned by a co-operative society from deposits with co-operative banks was not deductible as business income under section 80P(2)(a) because it was not attributable to the society's activities. It was, however, deductible under section 80P(2)(d), since the recipient remained a co-operative society and the exclusion in section 80P(4) applies to co-operative banks, not to the assessee. The interest derived from investments with another co-operative society was therefore held to qualify for deduction, and the disallowance was not sustainable.

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Issues: Whether the assessee co-operative society was entitled to deduction under section 80P in respect of interest income earned from deposits with co-operative banks.

Analysis: The assessee, being a co-operative society and not a co-operative bank, had earned interest on surplus funds placed with co-operative banks. The claim under section 80P(2)(a) failed because the interest was not business income attributable to the society's activities. However, the interest received from co-operative banks was treated as income qualifying for deduction under section 80P(2)(d), since the recipient remained a co-operative society and the statutory exclusion under section 80P(4) applied to co-operative banks, not to the assessee. The decision was supported by the binding principle that interest derived by a co-operative society from investments with another co-operative society is deductible.

Conclusion: The assessee was entitled to deduction under section 80P(2)(d) on the interest income earned from co-operative banks, and the disallowance was not sustainable.

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