Co-operative society interest income from deposits qualifies for deduction, with disallowance under the wrong provision rejected.

Interest income earned by a co-operative society from deposits with a co-operative bank was treated as eligible for deduction because income derived from investments with other co-operative societies falls within the scope of section 80P(2)(d). The Karnataka High Court ruling in Totagars Co-operative Sale Society was applied to support that such interest cannot be denied merely by reference to section 80P(2)(a)(i). On that basis, interest on surplus funds placed with the co-operative bank was held deductible, and the disallowance was found unsustainable.

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Issues: Whether interest income earned by a co-operative society from deposits with a co-operative bank qualifies for deduction under section 80P(2)(d) of the Income-tax Act, 1961, and whether the disallowance of deduction under section 80P(2)(a)(i) was sustainable.

Analysis: The interest income was earned from a co-operative bank. Section 80P(2)(d) grants exemption in respect of income derived by a co-operative society from its investments with other co-operative societies. The decision of the Karnataka High Court in Totagars Co-operative Sale Society was applied to hold that interest income on such investments falls under section 80P(2)(d) and is not to be denied merely by reference to section 80P(2)(a)(i). On that basis, the interest income earned on deposits made out of surplus funds with a co-operative bank was treated as eligible for deduction.

Conclusion: The disallowance was not sustainable, and the assessee was held entitled to deduction under section 80P(2)(d).

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