Section 80P deduction for interest on surplus bank deposits upheld for credit co-operative society.

Interest earned by a credit co-operative society on bank deposits of surplus funds was treated as attributable to its business of providing credit facilities to members, so the deduction under section 80P(2)(a)(i) was available. The reasoning distinguished authorities dealing with section 80P(2)(d) and other factual settings, since they did not govern a claim under section 80P(2)(a)(i). Section 80P(4) was held inapplicable on the stated facts because the assessee was not treated as a co-operative bank. The denial of deduction by the lower authorities was therefore unsustainable.

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Issues: Whether a credit co-operative society is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961 on interest earned from bank deposits of surplus funds, and whether such interest can be denied the deduction by treating it as income from other sources or by invoking section 80P(4).

Analysis: The assessee was a co-operative society engaged in providing credit facilities to its members and had earned interest on deposits made with banks from surplus funds not immediately required for lending. The statutory scheme of section 80P(2)(a)(i) permits deduction of income attributable to the business of providing credit facilities to members. The reasoning accepted that the interest income arose out of the assessee's business activity and was attributable to that business. The decision also distinguished the authorities relied upon by the revenue, noting that the cited judgments concerning section 80P(2)(d) or different factual settings did not govern the present claim under section 80P(2)(a)(i). Section 80P(4) was found inapplicable on the facts as the assessee was not treated as a co-operative bank.

Conclusion: The assessee is entitled to deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961, and the denial of the deduction by the lower authorities was not sustainable.

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