Section 80P deduction on bank interest denied beyond limited relief for a co-operative credit society.

Interest earned by a co-operative credit society on surplus funds placed in bank deposits was not fully deductible under section 80P. The Tribunal held that the society was not a co-operative bank, so the ruling in Nawanshahar Central Cooperative Bank Ltd. and the CBDT circular relied on by the assessee did not apply. It accepted the Commissioner (Appeals)'s restricted relief, which allowed deduction only to the extent linked to the reserve amount required under the State Societies Act and permitted related expenditure against interest treated as income from other sources. No further deduction was available on the disputed bank interest, and the partial allowance was upheld.

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Issues: Whether interest earned by a co-operative society engaged in providing credit facilities to its members from deposits made with banks was eligible for deduction under section 80P, and whether the allowance restricted by the Commissioner (Appeals) called for interference.

Analysis: The assessee was a co-operative society, not a co-operative bank, and had earned interest on surplus funds kept in bank deposits. The Commissioner (Appeals) granted limited relief by allowing deduction only on interest earned from the reserve amount required to be maintained under the State Societies Act and by allowing expenditure relatable to interest income that was treated as income from other sources. The Tribunal held that the decision in Nawanshahar Central Cooperative Bank Ltd. did not assist the assessee because that case concerned a banking entity with a banking licence, whereas the present assessee was only a credit co-operative society. The CBDT circular relied upon was also held inapplicable for the same reason. The Tribunal found no infirmity in the appellate order granting only partial relief.

Conclusion: The assessee was not entitled to further deduction under section 80P on the disputed bank interest beyond the relief already granted, and the restricted allowance made by the Commissioner (Appeals) was upheld.

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