Interest from co-operative bank deposits may qualify for deduction under section 80P, including as investment or business income.

Interest earned by a co-operative society from deposits or investments with a co-operative bank qualifies for deduction under section 80P(2)(d) because a co-operative bank remains a co-operative society for that purpose, and the restriction in section 80P(4) does not limit that clause. The commentary also notes that, if the interest is treated as business income, deduction may alternatively be available under section 80P(2)(a)(i) where the income is attributable to the business of providing credit facilities.

---

---

Issues: Whether interest earned by a co-operative society from deposits/investments with a co-operative bank is eligible for deduction under section 80P(2)(d) of the Income-tax Act, 1961, and whether such income, if treated as business income, is deductible under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The applicable framework is section 80P of the Income-tax Act, 1961, particularly the distinction between income derived from investments with another co-operative society under section 80P(2)(d) and income attributable to the business of providing credit facilities under section 80P(2)(a)(i). The exclusion in section 80P(4) applies only to that sub-section and does not curtail the scope of section 80P(2)(d). A co-operative bank recognised under section 56 of the Banking Regulation Act, 1949 and section 2(b1) of the Karnataka State Co-operative Societies Act, 1959 remains a co-operative society for the purpose of section 80P(2)(d). Accordingly, interest derived from investments made with such a co-operative bank qualifies for deduction under section 80P(2)(d). In the alternative, if the interest forms part of business operations, deduction is available under section 80P(2)(a)(i).

Conclusion: The assessee is entitled to deduction on the interest income received from the co-operative bank either under section 80P(2)(a)(i) as business income or under section 80P(2)(d) as investment income.

Ratio Decidendi: Interest derived by a co-operative society from investments with a co-operative bank qualifies for deduction under section 80P(2)(d), because the co-operative bank continues to be a co-operative society for that purpose and the restriction in section 80P(4) does not control section 80P(2)(d).

---