Section 80P deduction applies to eligible co-operative society income; fixed-deposit interest from a nationalised bank is taxed as other sources.

Deduction under section 80P(2)(a)(i) is not denied merely because a co-operative society has nominal or associate members, where the governing state law permits such membership; the same applies to a housing co-operative society advancing loans to members. Interest on deposits kept with an apex bank under statutory compulsion and on bank balances maintained as part of banking operations is attributable to the society's business and may qualify under section 80P(2)(a)(i). Interest from deposits with a co-operative bank qualifies under section 80P(2)(d). Fixed-deposit interest from a nationalised bank is assessable as income from other sources, with corresponding deductions under section 57.

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Issues: (i) Whether the presence of nominal or associate members, or the fact that the assessee is a housing co-operative society advancing loans to members, disentitles deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961. (ii) Whether interest income from deposits and bank accounts with co-operative banks, an apex bank, and a nationalised bank qualifies for deduction under sections 80P(2)(a)(i) and 80P(2)(d) of the Income-tax Act, 1961, and whether interest from fixed deposits with a nationalised bank is assessable with corresponding deduction under section 57 of the Income-tax Act, 1961.

Issue (i): Whether the presence of nominal or associate members, or the fact that the assessee is a housing co-operative society advancing loans to members, disentitles deduction under section 80P(2)(a)(i) of the Income-tax Act, 1961.

Analysis: The governing principle applied was that eligibility under section 80P depends on the statutory character of the society and the nature of the relevant state co-operative law. Where the state law permits nominal or associate membership, the mere existence of such members does not by itself deny the benefit of deduction. The same principle was held applicable even where the society is a housing co-operative society, because the provision does not create a separate exclusion for such societies. The reasoning also distinguished cases where nominal membership was impermissible under the governing statute.

Conclusion: Deduction under section 80P(2)(a)(i) cannot be denied merely because the assessee has nominal or associate members or is a housing co-operative society advancing loans to its members; the issue is decided in favour of the assessee.

Issue (ii): Whether interest income from deposits and bank accounts with co-operative banks, an apex bank, and a nationalised bank qualifies for deduction under sections 80P(2)(a)(i) and 80P(2)(d) of the Income-tax Act, 1961, and whether interest from fixed deposits with a nationalised bank is assessable with corresponding deduction under section 57 of the Income-tax Act, 1961.

Analysis: Interest on deposits kept with an apex bank pursuant to statutory compulsion was treated as attributable to the business of the assessee and therefore covered by section 80P(2)(a)(i). Interest on savings bank balances maintained as a necessary incident of banking operations was treated on the same footing. Interest earned from deposits with a co-operative bank was treated as eligible under section 80P(2)(d) because the recipient institution was a co-operative society. By contrast, interest from fixed deposits with a nationalised bank was treated as income from other sources, with consequential entitlement to deductions for cost of funds and proportionate administrative expenditure under section 57.

Conclusion: The assessee is entitled to deduction on the qualifying interest income under sections 80P(2)(a)(i) and 80P(2)(d), while the fixed-deposit interest from the nationalised bank is to be assessed under the head income from other sources with deduction under section 57; the issue is decided in favour of the assessee.

Final Conclusion: The disallowance of deduction under section 80P was not sustained, and the assessment was modified to allow the eligible reliefs with a limited direction on the treatment of fixed-deposit interest from the nationalised bank.

Ratio Decidendi: A co-operative society is not denied deduction under section 80P merely because nominal or associate membership is permitted by the governing state law, and interest income must be classified according to its source, with statutory or co-operative-bank-related receipts potentially qualifying under section 80P and fixed-deposit interest from a nationalised bank falling under income from other sources with section 57 deductions.

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