Co-operative society interest on surplus funds qualifies for section 80P deduction when deposited with a co-operative bank.

Interest earned by a primary agricultural co-operative credit society on deposits made from its own surplus funds with a co-operative bank was treated as income attributable to its business activities and therefore eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. The ITAT distinguished cases involving different factual settings, including deposits of members' funds, and followed prior Tribunal and High Court authority supporting deduction for such interest income. The disallowance was set aside, and the deduction was allowed in favour of the assessee.

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Issues: Whether interest income earned by a primary agricultural co-operative credit society from deposits kept with a co-operative bank was eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The assessee was a primary agricultural co-operative credit society engaged in providing credit facilities to its members. The disputed amount represented interest earned from deposits with Sangli District Central Co-operative Bank. The Tribunal followed the view that interest derived from deployment of the society's own surplus funds retained the character of income attributable to the society's business activities, and distinguished cases where interest arose from amounts belonging to members or from different factual settings. It also relied on prior Tribunal decisions and the Andhra Pradesh and Telangana High Court decision holding that such interest income is eligible for deduction under section 80P.

Conclusion: The interest income of Rs. 4,36,926/- was held eligible for deduction under section 80P(2)(a)(i), and the disallowance was set aside in favour of the assessee.

Ratio Decidendi: Interest earned by a co-operative society on deposits made out of its own surplus funds with a co-operative bank is income attributable to its business activities and qualifies for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

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