Business income on statutory bank deposits supports deduction under section 80P(2)(a)(i) for cooperative credit societies.

Interest earned on mandatory bank deposits by a cooperative credit society was held to be incidental to and part of its banking business because such deposits are statutorily required, funded from its lending operations and serve regulatory and liquidity functions; applying coordinate-bench precedent, the interest income is attributable to the society's business of providing credit to members and therefore constitutes business income. The outcome is that the interest amount qualifies for deduction under the statutory deduction provision for cooperative societies and the revenue's appeal was dismissed.

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Issues: Whether interest income earned on deposits with banks by a cooperative credit society, arising from mandatory/statutory investments, qualifies as business income and is eligible for deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The assessee is a cooperative society registered under Section 62 of the Multi-State Co-operative Societies Act, 2002 engaged in providing credit facilities exclusively to its members. The society is statutorily required to invest certain amounts in specified modes, including deposits with banks; such investments are made out of funds generated by its banking activities and serve regulatory and liquidity functions integral to its business. Coordinate-bench precedents of the ITAT Mumbai in the assessee's own case and in similar matters have held that interest on fixed deposits placed with scheduled/nationalised banks is incidental to and part of the society's banking business, and therefore constitutes business income. Applying these principles to the facts, the interest amount of Rs. 5,27,25,755/- arises in the course of the assessee's regular business and is attributable to the business of providing credit facilities to members.

Conclusion: The interest income of Rs. 5,27,25,755/- qualifies as business income and the assessee is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961; the revenue's appeal is dismissed.

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